SWP567. The Political Economy of Protection in Italy. Some Empirical Evidence. Enzo Grilli Mauro La Noce. WORLD BANK STAFF WORKING PAPERS Number 567

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized The Political Economy of Protection in Italy Some Empirical Evidence Enzo Grilli Mauro La Noce WORLD BANK STAFF WORKING PAPERS Number 567 SWP567 HG W57 W67 no. 567

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3 A Set of Related WORLD BANK STAFF WORKING PAPERS Public Subsidies to Industry The Case of Sweden and Its Shipbuilding Industry Number 566 The Political Economy of Protection in Italy Some Empirical Evidence Number 567 Bureaucracies and the Political Economy of Protection Reflections of a Continental European Number 568 Economics and the Politics of Protection Some Case Studies of Industries Number 569 Public Assistance to Industries and Trade Policy in France Number 570 The Structure of International Competitiveness in the Federal Republic of Germany An Appraisal Number 571

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5 WORLD BANK STAFF WORKING PAPERS Number 567 The Political Economy of Protection in Italy Some Empirical Evidence Enzo Grilli Mauro La Noce The World Bank Washington, D.C., U.S.A.

6 Copyright 1983 The International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, N.W. Washington, D.C , U.S.A. First printing July 1983 All rights reserved Manufactured in the United States of America This is a working document published informally by the World Bank. To present the results of research with the least possible delay, the typescript has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. The publication is supplied at a token charge to defray part of the cost of manufacture and distribution. The views and interpretations in this document are those of the author(s) and should not be attributed to the World Bank, to its affiliated organizations, or to any individual acting on their behalf. Any maps used have been prepared solely for the convenience of the readers; the denominations used and the boundaries shown do not imply, on the part of the World Bank and its affiliates, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries. The full range of World Bank publications is described in the Catalog of World Bank Publications; the continuing research program of the Bank is outlined in World Bank Research Program: Abstracts of Current Studies. Both booklets are updated annually; the most recent edition of each is available without charge from the Publications Distribution Unit of the Bank in Washington or from the European Office of the Bank, 66, avenue d'iena, Paris, France. Enzo Grilli, now secretary of planning with the Italian Ministry of Planning, was with the Economic Analysis and Projections Department of the World Bank when the report was written. Mauro La Noce is an economist with the Research Department of the General Confederation of Italian Industry in Rome and a consultant to the Bank. Library of Congress Cataloging in Publication Data Grilli, Enzo R. The political economy of protection in Italy. (World Bank staff working papers ; no. 567) Bibliography: p.* 1. Tariff-Italy. 2. Italy--Commercial policy. 3. Free trade and protection--protection. I. La Noce, Mauro, II. Title. III. Series. HF2126.G '3' ISBN

7 ABSTRACT This report is part of an inquiry undertaken by the World Bank in conjunction with scholars from 12 industrial countries into the penetration of the markets of industrial countries by exports of manufactures from developing countries. The project sought to establish the shares of industrial country markets held by the developing countries, changes in such shares in the 1970s, and why they vary among industry groups and countries. The aim is to assist developing and industrial countries to improve their policies through a better understanding of trade patterns and protectionist pressures. To date, the work on decision-making with respect to commercial policy has produced three principal models: the adding machine, the interest group and the national policy. The explanatory power of these models at the country level depends critically on the prevailing political and institutional realities. For example, the members of the European Community (EC) have given considerable authority to EC's administrators to determine tariff policy. At the same time, the member countries can use a substantial number of non-tariff measures to protect domestic interests. Thus, in analyzing protection policy in EC member countries, it is the sum of EC tariff and national non-tariff measures that must be considered. Moreover, the ensuing explanation of trade policy cuts across all three models rather than fitting any one. This paper looks at the political economy of protection in Italy using a model that specifies the demand side of the market, despite the limitations of that approach. It addresses protection as

8 embodied in the EC's rate of tariff protection and Italy's rate of domestic subsidy assistance. The rate of tariff protection was explained by import penetration variables that reflected the EC countries' exposure to import competition from non-ec countries, while the rate of subsidy assistance used variables that reflected more direct determinants of domestic demand. The empirical findings from the crosssection analysis of 35 industrial subsectors conformed quite well to the assumptions. Effective tariff rates have protected Italian exports in the EC markets and only to a lesser extent have guarded against the penetration of non-ec exports of final goods into the domestic market. The allocation of subsidies has been strongly affected by the labor intensity of the production processes and by the size of the value-added share of the output. The overall structure of protection has also been directed to ensure relatively low prices for industrial inputs purchased from non-ec countries. It seems that industries in the poorer regions of southern Italy were protected by both tariffs and subsidies, although this issue warrants further investigation. The analysis also verified the substitution relationship between tariff protection at the EC level and subsidy assistance at the national level. Finally, the economic agents have reacted more strongly to the effective than to the nominal rates of tariff protection. A topic needing further investigation is the supply side of protection. Moreover, it would be useful to have a dynamic examination of protection across industries rather than the static analysis conducted here.

9 ACKNOWLEDGEMENTS The authors wish to thank Helen Hughes of the World Bank and Jean Waelbroeck of the Free University of Bruxelles for their comments on the various drafts of this paper, as well as the Italian Statistical Office (ISTAT) for making available the 1975 input-output matrix and related data. They also acknowledge with gratitude?the help received in the preliminary stages of the research from many of their former colleagues in the General Confederation of Italian Industries.

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11 TABLE OF CONTENTS Page I THE POLITICAL ECONOMY OF PROTECTION: ADAPTING THE STANDARD MODELS TO THE ITALIAN CASE.... I Limitations of the Standard Models... Adopting the Standard Models for the Italian Case...4 II THE STRUCTURE OF PROTECTION FOR THE MAJOR INDUSTRIAL SECTORS IN ITALY... 9 III THE DETERMINANTS OF THE INTER-INDUSTRY STRUCTURE OF PROTECTION IN ITALY IV CONCLUSIONS REFERENCES... 31

12 LIST OF TABLES Page 1 Nominal Tariffs and Product Coverage of Quantitative Restrictions in Italy, Nominal Rate of Tariff Protection (NT), Effective Rate of Tariff Protection (ERTP) and Effective Rate of Subsidy Assistance (SUB) in Italy, Cumulative Effect on Sector ERTP of a Uniform One Percentage Point Change in the Nominal Tariff Determinants of the Effective Rate of Assistance in Italy Determinants of the Effective Rate of Tariff Protetion (ERTP) and of the Effective Rate of Subsidization (SUB) in Italy A Recursive Specification of the Effective Rate of Assistance Model for Italy... 27

13 - 1 - Chapter I THE POLITICAL ECONOMY OF PROTECTION: ADAPTING THE STANDARD MODELS TO THE ITALIAN CASE Limitations of the Standard Models Only recently has the political economy of protection, probably as old as protection itself, become the subject of systematic analysis. Preoccupied with the task of showing the "welfare inferiority" of import restrictions, neoclassical and modern trade economists have long failed to address the economic and political reality of protection from the standpoint of the process of choice. This process varies among countries, depending on the political framework in which it develops, the institutional framework of trade, and basic economic characteristics. Although traditionally attention has been paid to the rationales for import protection (or, in a neoclassical sense, for the "demand" for protection), typically the level of analysis has been quite abstract. It has been assumed that government objectives (e.g., industrialization) reflect underlying community preferences; proposed policies (e.g., protection of an "infant" sector) have been analyzed in terms of their welfare rationality and/or national development effectiveness. Especially in certain developing countries, other "non-economic" objectives of government have been taken at face value and criticized or defended in political terms, a discussion in which trade economists very often have not participated. The obvious illustration is the issue of "dependency," which has generated substantial literature. With the development of the theory of public choice, economic analysis has begun to focus on the political processes that lead to decisions

14 - 2 - on commercial policies. 1/ In recent years, several models have been developed and tested to explain, first, the inter-industry structure of import restrictions, especially tariffs, and, subsequently, that of other forms of government assistance to domestic producers. 2/ These models have several shortcomings. Some assume implicitly or explicitly that the choice of policy is something that takes place in liberaldemocratic political systems. Yet it is quite conceivable that when choice takes place in an authoritarian system, some of the determinants of import protection will be different from those in a democracy. Thus it must be questioned to which countries explanatory hypotheses such as those of the "adding machine model," which postulates that governments "supply" protection to maximize their chances of re-election, are applicable. import Strictly speaking, they would seem to be most applicable to industrial democracies, and in particular to those in which elected representatives and voters have a direct relationship, rather than to developing economies in which different political systems and consensus-generating mechanisms are at work. 1/ See, for example, W. A. Brock and S. P. Magee, "The Economics of Special Interest Politics: The Case of the Tariff," American Economic Review 68(2)(May 1978):246-55; Anne 0. Krueger, "The Political Economy of the Rent-Seeking Society," American Economic Review 64 (June 1974): ; J. J. Pincus, "Pressure Groups and the Patterns of Tariffs," Journal of Political Economy 83(2)(August 1975):757-78; R. E. Caves, "Economic Models of Political Choice: Canada's Tariff Structure," Canadian Journal of Economics 19(2)(May 1976): ; R. E. Baldwin, "The Political Economy of Postwar U.S. Trade Policy," The Bulletin (1976-4), New York University Graduate School of Business Administration; K. Anderson, "The Political Market for Government Assistance to Australian Manufacturing Industries," a paper presented at the Conference of Economists, Macquarie University, Sydney, Australia, August 1978; and W. A. Brock and S. P. Magee, "An Economic Theory of Politics: The Case of the Tariff," mimeo, / A most useful comparative analysis of these models can be found in Caves, ibid., which also provides excellent bibliographical references.

15 With respect to the "interest group model," it presumes, on the demand side, a functioning productive sector articulated into well-defined categories of agents capable and free to exert influence on decision-makers with respect to the protection of a sector. Interest groups,will organize for action as long as the benefits they seek from protection exceed (at the margin) the costs incurred in obtaining it. While this analytical framework does not necessarily require a political democracy, it does presuppose private enterprise or, at least, a mixed economic system, within which interest groups can form, function openly and try to influence government decision-makers. The model, therefore, is again more applicable to industrial democracies and their processes for choosing policies, and to a select group of developing countries, than to the universe of countries with their widely differing selection mechanisms. Of the various models, the "national policy" one is probably the more broadly applicable. It seeks to identify and take into account national preferences with regard to industrial structure in order to explain the interindustry make-up of import protection and government assistance in a country at a given time. A priori reasoning strongly suggests that the determinants of the structure of import protection in a given country actually cut across single model lines. On the supply side, consider, for example, the use of import protection and/or direct government assistance to maximize employment in a given industry or sector. This approach is consistent with both the reelection objective of elected representatives which is at the core of the "adding machine" model, and the "national policy" goal of industrialization in a system where decisions are made not by elected representatives but by

16 - 4 - appointed planners. On the demand side, it can be reasonably hypothesized that the geographic concentration of an industry is positively related to the rate of protection (or assistance) it receives within the context of an "interest group" model. This is so because geographic concentration should improve an industry's capacity to organize and lobby successfully for protection. The notion of an inverse relationship between geographic concentration and protection (or assistance) is, on the other hand, more tenable within the framework of the "adding machine" model, according to which geographically dispersed seekers of protection may be able to influence a larger number of elected representatives. In these as well as in other cases, the empirical test results provide the "answers." However, even where the common practice is to test hybrid variants of individual models, it is still essential that both the broad conformity of the explanatory model to the underlying political reality, and the institutional framework within which the process of choice takes place, be carefully addressed. Further, the applicability of these models to different countries needs to be carefully scrutinized. The choice of the left-hand side variable of these models -- either the inter-industry structure of tariff and non-tariff protection or the inter-industry structure of trade protection plus other government assistance -- becomes critical, depending on the specific institutional framework for trade. Adapting the Standard Models for the Italian Case In the case of Italy -- and of the other members of the EC -- a critical factor is that national authorities have given up a good deal of autonomy over trade policies. Tariffs, and more recently import quotas, are

17 now centrally managed by the EC, which sets a common structure for tariff protection. That structure could hardly be taken as reflecting fully the domestic determinants of any single country. As it is the result of intracountry bargaining, the structure of tariff protection can only be expected to reflect the minimum common denominator of interests among the seekers of protection. They, in turn, can be either national governments who want to protect "national policy" interests, or firms lobbying as interest groups at the national or Community level. In this institutional context, the assumption of a direct relationship between the re-election objectives of elected representatives and tariff protection to industry breaks down. Even the concept of "national policy" objectives needs to be modified, if it is to fit an institutional framework in which the search for and achievement of consensus is transnational. Presumably, it might be easier for the Community to achieve consensus on commercial policy in reaction to a certain situation (a sectoral crisis, for example) as opposed to the pursuit of longer term structural changes or developmental objectives (regional or industry-oriented). On the other hand, since the member countries of the EC still have a large degree of autonomy over non-tariff measures, it is likely that they will resort to these instruments to protect domestic interests either at variance with perceived "Community" interests or too "specific" to become "Community" interests. Because the quantitative analysis of non-tariff protection is so difficult, this aspect of protection cannot usually be fully incorporated in the models. However, it is possible to take into account direct and indirect government assistance to industry, which is also more freely granted at the national level, even if the data limitations create serious difficulties.

18 - 6 - Direct and indirect subsidies to industry can be thought of as substitutes for the tariff protection set at the Community level. The greater the autonomy that national authorities have in deciding which sectors to protect, the more closely the determinants of the intersectoral structure of assistance will conform to the models that explain tariff protection in countries whose national authorities have a freer choice between tariff protection and subsidies. Then, for countries like Italy that belong to an economic union, it is the "sum" of the tariff protection granted at the Community level and of government assistance granted at the national level across industrial sectors that becomes the more relevant structure to explain. Finally, the standard models of the determinants of protection have often lacked a clear theoretical specification. The "adding machine" model is in essence a supply side model, while the "interest group" model is basically a demand side model: the former focuses primarily on the determinants of the supply of protection, while the latter focuses on the determinants of demand. Yet often the two sides of the market are not clearly differentiated. The empirical literature on the subject is clear evidence of this confusion: sometimes the same variables are used to represent both sides of the market for protection, such that their impact is decided ex post, according to the signs of the estimated coefficients. It is quite appealing to start, as the most recent literature suggests, 1/ from the theoretical premise that there is a political market for protection, in which the suppliers and demanders of protection behave in terms 1/ See K. Anderson and R. E. Baldwin, "The Political Market for Protection in Industrial Countries: Some Empirical Evidence," World Bank Staff Working Paper No. 492, Washington, D.C., October 1981.

19 of (net) benefit maximization (re-election benefits for the suppliers and economic benefits for the demanders). The market model implies that there is an "equilibrium" structure of protection to be explained and that demand and supply factors can be more clearly differentiated and accounted for. However, at the empirical stage, identification has been a problem. This problem is common with models that assume a market mechanism in which both the quantity offered and the quantity demanded depend on the market price. The only solution is to specify a model that incorporates both sides of the market. In this analysis of the political market for protection in Italy, rather than specifying and estimating a complete model, the approach was to adopt a specification that emphasizes the demand side of the market and to test it empirically, with clear recognition of its limitations. Protection was addressed in its two basic dimensions: the rate of tariff protection afforded at the EC level, and the rate of subsidy assistance afforded at the national level. The rate of tariff protection was explained by import penetration variables that reflect the degree of the EC countries' exposure to import competition from non-ec sources and therefore, by proxy, the factors that are likely to trigger a common demand for protection. On the other hand, the rate of subsidy assistance (the more endogenous component of industrial protection) was explained by variables that reflect domestic demand determinants more directly. Even this model relies on the signs of the estimated coefficients of the variables used to explain the rate of subsidy assistance to the domestic industry to interpret the overall function as a demand one. However, the implicit assumption that a supply of assistance automatically responds to changes in demand did not seem a priori to be out of line in the Italian

20 -8- context. Given the lack of transparency of the commercial policy decisionmaking process, the absence of an organized consumer movement that protects consumers from the "hidden" costs of industrial assistance, and the everpresent, officially sanctioned free trade posture of the economic and political establishment, 1/ the political costs of disguised protectionist measures seem to be very limited. 1/ See E. R. Grilli, "Italian Commercial Policies in the 1970s," World Bank Staff Working Paper No. 428, Washington, D.C., October 1980.

21 - 9 - Chapter II THE STRUCTURE OF PROTECTION FOR THE MAJOR INDUSTRIAL SECTORS IN ITALY To quantify the structure of industrial protection in Italy, it was first necessary to estimate the nominal and effective rates of tariff protection, as well as the rates of subsidy assistance granted to the industrial sectors included in the sample. The effective tariff rate was estimated using the sector breakdown and technical coefficients provided in the 1975 input-output matrix of the Italian economy. The effective rates of subsidy assistance to the same sectors were also estimated, using data on the direct and indirect subsidies (including export subsidies) granted by the government that were contained in the inter-industry table. The effective rates of tariff protection (ERTP) and of subsidy assistance (SUB) were estimated for 35 of the 58 industrial subsectors included in the 1975 table. Among those excluded from the sample were energy and food products. 1/ The effective rates of tariff protection (ERTP) were computed using the standard techniques developed in this field. ERTP formula was used, after modifying it to The simplest version of the allow for a differentiation between exportables and non-traded input. As to the former, it was assumed that the sectoral output competes abroad at the international "free-trade" prices, since only the internal market is being protected. Italy's membership 1/ In addition, in calculating the effective rates of protection for the 35 sectors considered here, the nominal tariffs on imports of petroleum products and gas were put at zero because the Italian tariff legislation provides domestic industrial users with a great many exemptions. More precise treatment was impossible because of the complexity of the legislation.

22 in the EC means, however, not only that tariff protection is no longer being determined at the national level, but also that tariffs are being levied only on imports originating in non-ec countries and, similarly, that exports to EC countries are duty-free. The "internal" market was therefore defined to include the entire Community, so that the concept of exportables became applicable to goods sold to non-ec countries and that of importables to goods bought from outside the EC. Non-traded goods were treated according to the Balassa method 1/ by assuming that the tariffs on output equalled zero. It followed that by decomposing a non-traded input into its value-added, non-traded input and traded input components, only the protection afforded the latter would affect the price of the non-tradable. In other words, only the coefficient of the tradable inputs into non-tradables needed to be corrected according to their relative tariffs. Although this correction should have been iterated through a multi-stage procedure, it was possible to get a good approximation by considering only the first two stages of the computation. Thus the formula used to calculate the effective rate of tariff protection (ERTP) was: 1/ See B. Balassa, The Structure of Protection in Developing Countries, Baltimore: Johns Hopkins University Press, 1971.

23 ERTP -1 j l-e j NC _ amj E v a E Z,a,a, E mn n; (1) 1 + t + El m M 1+t - n n nj n n nn n'j -imn 1 + t j m m where: aij = input-output coefficient; 1/ ENC = share of production exported to non-ec countries; j tj = nominal tariff on the jth product; m = v = traded inputs; value-added coefficient; and n, n' = non-traded inputs. Of the non-tariff protective devices used by Italy, of which the most important have been quantitative restrictions and subsidies, only the latter were considered directly. Because of the lack of suitable price data, the "tariff-equivalent" implicit in the quantitative restrictions in force in 1975 outside the agricultural sector could not be calculated. However, to gain at least a qualitative appreciation of the importance of the quantitative restrictions in the 35 industrial sectors considered here, a computation of the percentage shares of the items included in each sector covered by a quantitative restriction was made. 2/ 1/ The aii coefficients were computed from the 84 sectors of the 1975 Italian inter-sectoral table, which is available only at producers' prices. The inter-industry flows therefore include taxes but exclude subsidies. The implicit assumption made in using this formula was that the tax structure did not affect the "free trade" coefficients (ail) l+t 2/ More specifically, this procedure was applied to the more than 7,000 products included in the Italian version of the NIMEXE classification.

24 The results are shown in Table 1, which also contains the nominal tariff rates. A clear shortcoming of these coverage indicators is that they do not take into account the importance and effectiveness of the restrictions. On the whole, however, outside the textile, clothing and motor vehicle industries, the quantitative import restrictions do not seem to have been particularly important in Italy in the mid-1970s. Government subsidies to all the 35 industrial sectors included in the sample were taken into account, instead, and their effective importance estimated. The data on the subsidies, derived from the 1975 inter-industry table, included public contributions to production as well as to exports. The formula used to quantify the effective rate of subsidy assistance (SUB) to industry was analogous to the previous one: S. SUBj NC 3 ~~~~~~~~~~~~~~~~ j E E NC a - v anv a -,a amnanj 1 + t j m l + t n n n n n n j m n l + t where: = the ratio of subsidies to production; ENC = share of production exported to non-ec countries; i ti = nominal tariff on the jth product; m = v = traded inputs; value-added coefficient; and n, n' = non-traded inputs.

25 Table 1: NOMINAL TARIFFS AND PRODUCT COVERACE OF QUANTITATIVE RESTRICTIONS IN ITALY, 1975 Product Within Sector Nominal Nominal coverage of Number of coefficients of tariffs tariffs quantitative products correlation between Sectors (simple average) (weighted average) /a restrictions in each sector nominal tariffs and Import values (S) Ferrous metals (extraction and preliminary processing) Non-ferrous metals (extraction and preliminary processing) Non-metalliferous minerals (extraction and preliminary processing) Cement and related products Clay products and ceramics Class and glassware Primary chemicals (excluding fibers) Secondary chemicals Pharmaceutical products Manmade fibers Metal products (excluding machinery and transport equipment) Agricultural machinery Machine tools Office machinery (including data processing and instrument engineering) Electric machinery Electrical and telecommunication machinery Motor vehicles (including parts and accessories) Cycles and motorcycles (including parts and accessories) Railway equipment Shipbuilding Aerospace equipment Spinning and weaving of textile fibers (including upholstery and carpets) Knitting goods Clothing Tanning and dressing of leather Leather products Footwear Timber and wooden products (excluding furniture) Wooden furniture Pulp and paper Paper and board products Printing and publishing Rubber products Plastic products Miscellaneous manufactures /a Import values used as weights.

26 Before analyzing in some detail the sectoral structure of the ERTP, it is worth commenting briefly on the t'ariff-averaging method used here to aggregate the nominal tariffs of the more than 7,000 items (corresponding to the Italian version of the NIMEXE classification) of relevance to the 35 industrial sectors considered here. Because import data were available at the same level of detail as that of the nominal tariffs, it was possible to choose between two methods of averaging: simple or weighted, in which the weights would be the relative imports. 1/ Either of these averaging methods, however, would still have introduced some bias in the aggregation. 2/ Simple averaging is preferable where the correlation between the height of nominal tariffs and the value of the imports is negative. To weigh the nominal rates by import shares would, in this case, seriously bias the estimates. On the other hand, if economic operators react to the effective and not to the nominal rates of tariff protection, the sign of the correlation between the height of nominal tariffs and import values should not be systematically negative. The data allowed for some interesting statistical checks. In most of the 35 industrial sectors included in the sample, no systematic inverse correlation was found between the nominal tariffs and import values (Table 1). There was some evidence, even if not decisive, of a negative correlation in metals and minerals, railway, shipbuilding and aerospace, and paper and 1/ The "optimal" averaging procedure would have involved weighting the mean of the tariffs by domestic consumption. It could not be used because consumption data were not available at the same level of disaggregation as those for the tariffs. 2/ See G. Basevi, "Aggregation Problems in the Measurement of Effective Protection," in M. G. Grubel and H. G. Johnson, eds., Effective Tariff Protection, Geneva: Graduate Institute of International Studies, 1971.

27 printing. This lack of a significant inverse correlation in most sectors led to a preference for weighted as opposed to simple averages in the tariff aggregation. The weights were the import shares from all sources, including those from EC countries to which no tariffs were applicable. The estimates of the average nominal tariff rates, effective tariff rates and effective rates of subsidy assistance are summarized in Table 2. In addition to textiles and clothing, the sectors that appear to have been protected the most were those that produced primary and secondary chemicals, plastics and pulp paper. The effective rates of subsidy assistance were highest in the shipbuilding and manmade fibers sectors, both of which are largely controlled by state-owned enterprises. On the other hand, as shown in Table 1, non-tariff protection measures appeared to have been most numerous in textiles and clothing, reflecting the effects of the Multi-Fibre Arrangement and in the motor vehicle sector. Imports of ferrous metals, manmade fibers and machine tools were also subject to a fairly high number of quantitative restrictions in the mid-1970s. Nominal and effective rates of protection were found to be fairly strongly correlated (with a rank correlation coefficient of 0.853). In 23 of the 35 industrial sectors considered here, the effective rates of tariff protection turned out to have been higher than the corresponding nominal rates, thus revealing that the tariffs had the typical "escalation" effect: final goods were more protected than intermediate products (Table 2). This difference is most evident in building materials, chemicals, textiles and clothing, and in some other final products such as furniture, paper and board products and plastic manufactures. In only two cases -- shipbuilding and leather tanning and dressing -- was there significant "negative protection." Shipbuilding, as previously

28 Table 2: NOMINAI. RATE OF TARIFF PROTECTION (NT),/a EFFECTIVE RATE OF TARIFF PROTECTION (ERTP) AND EFFECTIVE RATE OF SUBSIDY ASSISTANCE (SUB) IN ITALY, 1975 (percent) Sectors NT ERTP SUB Ferrous metals (extraction and preliminary processing) Non-ferrous metals (extraction and preliminary processing) Non-metalliferous minerals (extraction and preliminary processing) Cement and related products Clay products and ceramics Glass and glassware Primary chiemicals (excluding fibers) Secondary chemicals Pharmaceutical products Manmade fibers Metal products (excluding machinery and transport equipment) Agricultural machinery Machine tools Office machinery (including data processing and instrument engineering) Electric machinery Electrical and telecommunication machinery Motor vehicles (including parts and accessories) Cycles and motorcycles (including parts and accessories) Railway equipment Shipbuilding Aerospace equipment Spinning and weaving of textile fibers (including upholstery and carpet) Knitttng goods Clothing Tanning and dressing of leather Leather products Footwear Timber and wooden products (excluding furniture) Wooden furniture Pulp and paper Paper and board products Printing and publishing Rubber products Plastic products Miiscellaneous mantifactures /a Nominal tariff weighted by import values.

29 observed, has been subsidized strongly in Italy, while the output of the leather tanning and dressing sector represents an intermediate input into the leather products and footwear sectors, which exhibited a relatively high degree of effective tariff protection. A negative, if weak, protection effect was evident in the case of manmade fibers, a sector that is dominated by state-owned or state-controlled enterprises and for which the effective rates of subsidy assistance have been very high. In the machine tool sector, the effective rates of protection appear to have been significantly lower than the nominal rates. In general, then, for all the sectors that produced capital goods, the effective rates of protection were either lower or only marginally higher than the nominal rates, an outcome that is not unusual. A similar pattern of results was obtained in earlier calculations of the effective rates of protection for the investment goods industries of Great Britain and the Federal Republic of Germany. 1/ The interpretation of these last results is not straightforward, however. A partial explanation is the relatively low degree of price competitiveness in these sectors. Further, if it can be assumed that there is a relatively high degree of non-homogeneity of products and of vertical integration of production processes in these sectors, it follows that entrepreneurs might have relatively little concern for the tariff structure. In the case of non-homogeneous products, non-price factors could per se protect domestic production from similar, but qualitatively different, foreign 1/ See W. M. Corden and G. Fels, eds., Public Assistance to Industry: Protection and Subsidies in Great Britain and Germany, London: MacMillan, In the case of Great Britain, this phenomenon has been particularly evident when the ERTP formula has been modified to take exportables into account, according to the method adopted here.

30 goods. In addition, the likely existence of "'breaking-up costs' resulting from separating vertically related processes" should reduce, to some extent, the production costs in an integrated industry relative to the cost of processing imported inputs. 1/ The analysis of the sensitivity of the ERTP to changes in the nominal tariffs revealed another pattern specific to the capital good sectors. The variations of the effective rate of protection in each sector were calculated by assuming a change of 1 percentage point in the nominal tariff of each of the 35 sectors (Table 3). The results showed that the capital goods sectors would have suffered a loss in effective protection when there was a uniform increase in the nominal tariffs: the increases in the costs of the inputs would have more than compensated for the higher protection given to the output. The sensitivity analysis also indicated that a uniform reduction in the tariff structure would have had a relatively minor effect on the mechanical and engineering industry, but would have reduced more strongly the effective protection provided to the other sectors (namely, chemicals and plastics, building materials and the sectors that supply intermediate inputs to the leather, footwear, clothing and printing industries). The opposite result would have held in the case of a uniform increase in the tariff structure. 1/ See W. M. Corden, The Theory of Protection, Oxford: Oxford University Press, 1971.

31 Table 3: CUMULATIVE EFFECT ON SECTOR ERTP OF A UNIFORM ONE PERCENTAGE POINT CHANGE IN THE NOMINAL TARIFF /a Sectors % change in sector ERTP Ferrous metals (extraction and preliminary processing Non-ferrous metals (extraction and preliminary processing) Non-metalliferous minerals (extraction and preliminary processing) Cement and related products Clay products and ceramics Glass and glassware Primary chemicals (excluding fibers) Secondary chemicals Pharmaceutical products Manmade fibers Metal products (excluding machinery and transport equipment) Agricultural machinery Machine tools Office machinery (including data processing and instrument engineering) Electric machinery Electrical and telecommunication machinery Motor vehicles (including parts and accessories) Cycles and motorcycles (including parts and accessories) Railway equipment Shipbuilding Aerospace equipment Spinning and weaving of textile fibers (including upholstery and carpet) Knitting goods Clothing Tanning and dressing of leather Leather products Footwear Timber and wooden products (excluding furniture) Wooden furniture Pulp and paper Paper and board products Printing and publishing Rubber products Plastic products Miscellaneous manufactures /a Nominal tariff weighted by import values.

32 Chapter III THE DETERMINANTS OF THE INTER-INDUSTRY STRUCTURE OF PROTECTION IN ITALY The overall rate of protection afforded Italian industry can be thought of as the sum of three components: the effective rate of tariff protection (ERTP), the "rate" of non-tariff protection (RNTP) and the effective rate of subsidy assistance (SUB). Since only ERTP and SUB could be quantified, the left-hand side variable of the model used only a proxy for the inter-industry structure of effective assistance. On the whole, however, the evidence suggested that the distortions that would result from the lack of RNTP information should not be too great, particularly since the cross-section analysis on the determinant of the inter-industry rates of effective assistance was performed for 1975, at the very beginning of "neoprotectionism.." 1/ Of the two basic components of industrial protection, ERTP can be considered as relatively "exogenous." As tariff rates are set at the EC level, the inter-industry structure of tariff protection is in essence given. Italy can resort only to substitute measures, such as non-tariff protection and direct or indirect government assistance to industry. SUB then became the "autonomous" component of the total. This key characteristic of protection in a country like Italy, which belongs to an economic union, has to be taken into account in specifying the determinants of the overall structure of effective assistance to industry. These can be thought of as belonging to two different sets: the first related to the EC market (the "enlarged" sales 1/ See Grilli, op. cit.

33 outlet for Italian industrial products), the second having to do more with the structural traits of the domestic industry. The effective rate of tariff protection can be assumed to be responsive to both sets of factors only to the extent that there exists a similarity of interest among EC members as to the sectors that need tariff protection, or, more specifically, to the extent that the industrial structures of the various member countries share common characteristics. The community of interests is likely to be stronger wherever imports from non-ec countries "encroach" upon domestic industrial production. From the single country standpoint, the variables that were hypothesized as proxies for this aspect of the demand for protection were the share of domestic production exported to other EC countries (EXEECSH) and the penetration of domestic markets by non-ec exporters (defined as the share of non-ec country exports in domestic consumption). The import penetration variable was in turn split into two components to reflect the degree of processing of imports: intermediate inputs (IMNEECISH) and final goods (IMNEECFSH). The escalation characteristic of the tariff structure suggested that IMNEECISH should be negatively related to the ERTP, while IMNEECFSH should be positively related to it. EXEECSH, which reflects the importance of EC markets for Italian producers and, hence, their incentive to ask for tariff protection at the EC level, should also be positively related to the ERTP. The effective rate of subsidy assistance was assumed to depend on the labor intensity of production, proxied by labor's share of the value added (LSH) and on the value-added share of output (VASH); these variables represent the willingness of workers and entrepreneurs, respectively, to

34 contribute to the lobbying efforts of their industry. 1/ Because of the weight of the trade unions in Italy, normally there should be a strong degree of political and social support for workers' demand for assistance, and even more so in those sectors where the importance of labor is greater. LSH was, therefore, hypothesized to be positively related to the level of protection received by a sector. It was further assumed that the lower the share of value added in production, the higher would be the gains that entrepreneurs would receive from a lobbying effort that resulted in government assistance. As such, VASH was expected to be negatively related to the left-hand side variable of the model. It was hypothesized that the effective rate of subsidy assistance to industry in Italy depended on some additional factors. Because of the dualistic nature of the Italian economy -- with a relatively less developed industrial structure in the southern areas -- the regional location of industrial activity was thought to have some influence on the level of protection through subsidy assistance. The variable used as a proxy for the regional distribution of industrial activity was the share of workers employed in the poorer southern regions in each industrial sector (POORREGSH). This variable should account for the additional strength in the demand for protection deriving from the physical location of production in the economically weaker regions. The results of the cross-section analysis using this model are shown in Table 4. The empirical findings seem to conform quite well to the assumptions. All the variables included in the "demand" equation showed 1/ See Anderson and Baldwin, op. cit.

35 Table 4: DETERMINANTS OF THE EFFECTIVE RATE OF ASSISTANCE IN ITALY Dependent variables\ \ ExplanatoryTetsaiic variables \ ~~~~~Constant IMNEECFSH IMNEECISH EXEECSH ISH VASH POORREGSH R SEE F Tetsaitc ERTP + SUB /a /a /a (.58) (1.10) (-3.09) (1.68) (4.20) (2.50) ERTP + SUB /a /a /a (.94) (-3.08) (1.63) (4.09) (-2.72) ERTP + SUB /a.297 /a.396 /a /a.206 /a (2.08) (1.19) (-3.75) (2.27) (4.47) (-2.47) (2.32) ERTP + SUB /a.290 /a.384 /a /a.206 /a (2.35) (-3.72) (2.20) (4.33) (-2.70) (2.31) /a Significant at the 5Z level. Note: The t values are in parentheses.

36 the expected sign at acceptable levels of statistical significance, except for IMNEECFSH. The results suggest that, overall, the structure of protection has been more directed to ensuring low prices for industrial inputs from non-ec countries than to protecting the domestic market from the competition of final goods originating in the same countries. The demand side interpretation of this equation also seems to have been confirmed by the good performance of the variables representing the labor intensity and value-added share of the turnover (LSH and VASH). Finally, the structure of protection in Italy seems to have favored production by the southern industries, as shown by the significance of the regional concentration variable (POORREGSH). To test whether the attribution of the two sets of determinants to the two main protective devices considered here -- tariffs and government subsidies -- -was correct, the same model was re-estimated with ERTP and SUB as the separate left-hand side variables. The results (Table 5) seem to confirm the a priori hypothesis. More specifically, the two variables that mostly reflect the sectoral structure of the domestic industry (LSH and VASH) do not seem to have played any significant role In the explanation of the effective rates of tariff protection granted at the EC level. However, they have a high explanatory power in the equation concerning the effective rates of subsidy assistance granted at the national level. Conversely, the trade and penetration variables (IMNEECISH and EXEECSH) that are most significant in explaining the effective rates of tariff protection do not seem to have played the same role in explaining the effective rates of subsidy assistance. Instead, the relative weight of the locational variable was more dubious: POORREGSH consistently showed the expected positive sign, but was never significant in explaining either ERTP or SUB; Its contribution to the

37 Table 5: DETERMINANTS OF THE EFFECTIVE RATE OF TARIFF PROTECTION (ERTP) AND OF THE EFFECTIVE RATE OF SUBSIDIZATION (SUB) IN ITALY \ ~~Explanatory \ variables Test statistics Dependent\ variables \ ~~~~~Constant IMNEECFSH IMNEECISH EXEECSH LSH VASH POORREGSH R2 SEE F ERTP.257 /a /a.303 /b (2.27) (.95) (-2.33) (1.93) (-.26) (-.73) (1.38) ERTP.206 /a /a.300 /b (2.43) (1.14) (-2.43) (1.99) (1.48) ERTP.200 /a /a (2.41) (1.14) (-2.11) (1.68) SUB /a /a (-1.03) (.11) (-1.50) (-.08) (7.59) (-2.55) (1.05) SUB /a /a (-1.44) (7.74) (-2.60) (.76) SUB /a.413 /a /a (-2.78) (7.79) (-2.70) /a Significant at the 5% level. /b Significant at the 10 level. Note: The t values are in parentheses.

38 explanation of the structure of assistance to Italian industry was statistically significant only at the aggregate level. To test the validity of the assumption that the subsidy component of the overall rate of assistance to industry in Italy was relatively endogenous, a final check was performed by testing a recursive formulation of the model in which ERTP was introduced directly as an explanatory variable of SUB. This was equivalent to subsuming under ERTP the effect of the import penetration and "enlarged" market variables (IMNEECFSH, IMNEECISH and EXEECSH). The results of this test appear in Table 6. The effective rate of tariff protection is shown to have influenced significantly, and in the expected direction, the effective rates of subsidy assistance to industry: the higher the ERTP, the lower the SUB. Moreover, the sign and the values of the coefficients of both the LSH and VASH variables were invariant to the new specification. While the POORREGSH variable continued to exhibit the right sign, the level of statistical significance was weak. Finally, when the nominal rate of tariff protection (NT) was used instead of the effective rates (ERTP) as a right-hand side variable, the regression lost some explanatory power. These results seem to lend some empirical support to the hypothesis that economic agents react more to the effective than to the nominal rates of tariff protection.

39 Table 6: A RECURSIVE SPECIFICATION OF THE EFFECTIVE RATE OF ASSISTANCE MODEL FOR ITALY Dependent variables Explanatory variables Test statistics -2 Constant NT ERTP LSH VASH POORREGSH R SEE F SUB /a /b.408 /a /a (-2.09) (-1.97) (8.03) (-3.08) SUB /b /b.415 /a /a (-1.91) (-1.74) (8.07) (-3.02) SUB /a.408 /a /a (-.87) (-2.03) (8.01) (-2.99) (.92) SUB /a /a (-1.07) (-1.64) (7.98) (-2.91) (.56) /a Significant at the 5% level. 7T Significant at the 10% level. Note: The t values are in parentheses.

40 Chapter IV CONCLUSIONS The results of this analysis support the notion that, in Italy, the dichotomous nature of the assistance variable, defined as the sum of ERTP and SUB, is of critical importance. Civen the rate of tariff protection (which is fixed at the EC level), the demand for subsidy assistance at the national level assumes rather clearcut autonomous contours. Two different sets of determinants could be assigned to the two components of overall assistance to industry. Specifically, it was found that the effective tariff rates have protected Italian exports in the EC markets and guarded to a lesser extent against the penetration of non-ec exports of final goods into the domestic markets. It was also found that the subsidy assistance to industry granted at the national level has been significantly influenced by the labor intensity of the production processes, as well as by the size of the value-added share of output. Both variables reflect endogenous impulses toward industrial protection. The output of industries located in the underdeveloped regions of the south was found to have been protected by both tariffs and subsidies. The lack of significance of the regional variable (POORREGSH) in explaining the effective rate of subsidy assistance in the recursive version of the model may well be attributable more to its statistical inadequacy than to the protection tariffs afforded the industrial sectors that were relatively more concentrated in the southern regions. Without excluding, on the basis of the evidence, the existence of a bias in the EC tariff structure toward the protection of industrial output located in the weak regions of the Community, it still seems that the

41 importance of domestic subsidy assistance to the southern industry of Italy needs further investigation. Also verified empirically was the substitution relationship between the tariff protection determined at the EC level and the subsidy assistance determined at the national level: this relationship was implicit in the definition of the overall assistance variable as the algebraic sum of ERTP and SUB. National authorities can take substitute measures to protect their industries, and indeed have done so. What gets done in Brussels can get undone in Rome. The results confirmed that this substitution has taken place in Italy. 1/ The characterization of the estimated model as a demand model implies that Italy automatically adjusts its supply of assistance to changes in demand. While this assumption may not be untenable on a priori grounds, given the institutional features of this market up to the mid-197cs, it is not clearly tenable ad infinitum. Even if there were no serious concern over the specification biases exhibited by a demand equation estimated on such a basis, the supply side of the market for protection requires more specific attention. The rationale of public intervention in "granting" assistance to industry needs to be made explicit. As a final point, the lack of complete data series on subsidies to industry made it impossible to analyze changes in the inter-industry structure of assistance in Italy over time. While the results of the static analysis presented here are encouraging and interesting, a dynamic analysis of industrial protection could provide additional insights. It is important to 1/ This phenomenon was also noticed in West Germany. See H. P. Clismann and F. 0. Weiss, "Evidence on the Political Economy of Protection in Germany," World Bank Staff Working Paper No. 427, Washington, D.C., October 198C.

42 - 3C - understand, inter alia, what factors trigger, over time, the demand for assistance and determine its changes, how important the existing stock of assistance is in determining its modifications, the nature and relative importance of the instruments used to achieve various objectives, and, finally, the importance of the different forms of frictions that influence the adiustment of supply to changes in protectionist pressures.

43 REFERENCES Anderson, K. "The Political Market for Government Assistance to Australian Manufacturing Industries." A paper presented to the VII Conference of Economists, Macquarie University, Sydney, Australia, August (A revised version appears in Economic Record 56(153)(June 1980): ) Anderson, K. and R. E. Baldwin. "The Political Market for Protection in Industrial Countries: Empirical Evidence." World Bank Staff Working Paper No Washington, D.C., October Balassa, B. The Structure of Protection in Developing Countries. Baltimore: Johns Hopkins University Press, Baldwin, R. E. "The Political Economy of Postwar US Trade Policy." The Bulletin (New York University Graduate School of Business Administration), , Basevi, C. "Aggregation Problems in the Measurement of Effective Protection." In Effective Tariff Protection. Edited by H. G. Grubel and H. G. Johnson. Geneva: Graduate Institute of International Studies, Brock, W. A. and S. P. Magee. "The Economics of Special Interest Politics: The Case of the Tariff." American Economic Review Papers and Proceedings 68(2)(May 1978): " An Economic Theory of Politics: The Case of the Tariff." Mimeo

44 Caves, R. E. "Economic Models of Political Choice: Canada's Tariff Structure." Canadian Journal of Economics 9(2)(May 1976): Corden, W. M. The Theory of Protection. Oxford: Clarendon Press, Corden, W. M. and G. Fels, eds. Public Assistance to Industry: Protection and Subsidies in Britain and Germany. London: Westview Press, Glismann, H. H. and F. D. Weiss. "Evidence on the Political Economy of Protection in Germany." World Bank Staff Working Paper No Washington, D.C., October Grilli, E. R. "Italian Commercial Policies in the s." World Bank Staff Working Paper No Washington, D.C., October Krueger, A. O. "The Political Economy of the Rent-Seeking Society." American Economic Review 64(June 1974): Pincus, J. J. "Pressure Groups and the Patterns of Tariffs." Journal of Political Economy 83(2)(August 1975):

45 World Bank Publications of Related Interest Adjustment Policies and Britain's Pattern of Special- Capital-importing Ol Problems in Developed ization in Manufactured Exporters: A4justment Countries Goods with Developing Issues and Policy Choices Martin Wolf Countries and Trade Alan 11. Gelb World Bank Staff Working Paper No. Protection A background study for World 349. August pages (includ- Vincent Cable and Development Report Uses a Ing references). Ivonia Rebelo simple two-sector model involving ing references). Rebelo traded and nontraded goods as a Stock lo. WP $ World Bank Staff Working Paper conceptual framework to compare the No October pages evolution of critical macro and sec- (including 3 appendixes). toral variables for a number of oil Adjustment to External Stock Nog WP50425 $3.00 economies after 1974 and discusses Shocks in Developing S. * government responses to the oil Economies crisis and the effects of these Bela Balassa responses of the nonoil economies. A background study for World World Bank Staff Working Paper No. Development Report Analyzes 475. August pages (including adjustments to external shocks, In 9 tables). the form of changes In the terms of Stock N1o. WP $3.00. trade and the slowdown in foreign export demand, in twenty-eight developing economies, classified according to the character of extemal shocks, the level of industrial development, and the policies applied. World Bank Staff Working Paper IYo July pages (including appendix). Stock No. WP $3.00.

46 NEW The Export Experience of Developing Countries Oxford University Press pages (including index). The Developing Countries Barend A. de Vries LC ISBN , and International Shipping The English-language edition is $22.50 (410.50) hardcover. (A specially Hlarald Hansen out of print. priced edition will be available in India Considers whether developing coun- French: Resultats obtenus en mati6e from Oxford University Press branches.) tries can benefit from investments in d'exportation par les pays en voie de international shipping and discusses developpement. Dunod Editeur, 24-26, Industrial Country Policy the circumstances under which such boulevard de l'lm6pital, Paris, and Adjustment to Imports investment might be favorable. France from Developing Countries World Bank Staff Working Paper No. LC , 10 francs. J. M. Finger 502. November iii pages (including 12 annexes,.38 tables, Spanish: La experiencia de los pafses A background study for World en desarrollo en materia de exporta- Development Report Reviews bibliography). ciones. Editorial Tecnos, and interprets recent analyses of the Stock No. WP $5c pesetas. policies established by industrial countries in response to increasing imports from developing countries. Effects of Non-Tariff Bar- Export Promotion Policies World Bank Staff Working Paper No. riers to Trade on Prices, Barend A. de Vries 470. July ii + 20 pages (includ- Employment, and Imports: World Bank Staff Working Paper No. ing references). Textile and Clothing S313. January v + 75 pages. Stock No. WP $3.00. Industry Stock No. WP $3.00. Carl Hamilton Italian Commercial Policies World Bank Staff Working Paper No. NEW in the 1970s 429. October ii + 61 pages Enzo R. Grilli (including appendlx, bibliography). On Exports and World Bank Staff Working Paper No. Stock No. WP $3.00. Economic Growth Gershon Feder 428. October pages. Stock No. WP $3.00. An analytical framework is developed Energy, International Trade, to analyze the sources of growth durand Economic Growth ing the period for a group of On the Political Economy of Alan S. Manne and semi-industrialized developing coun- Protection in Germany Sehun Kim tries. Discusses the relationship H. H. Glismann and A background study for World between economic export growth performance and concludes and that F D. Weiss Development Report growth can be generated not only by World Bank Staff Working Paper No. Constructs a small-scale international increases in the aggregate levels of 427. October pages (includtrade model that focuses on issues labor and capital but also by the ing bibliography). related to energy and economic reallocation of existing resources growth in order to determine the from the less-efficient nonexport sec- Stock No. WP $3.00. extent to which increasing energy tor to the higher-productivity export prices impose constraints on sector. economic growth. Output and Employment WoldBan Pape No. World Bank Staff Working Paper No. Changes In a "Trade Sensi- Word4 Agstaff81 an Worin paper (no.uin 508. February pages (includ- tive" Sector: Adjustment In 474 August pages (including ing appendix, references). the U.S. Footwear Industry Stock No. WP $3.00. Stock No. WP $3.00. John H. Mutti and Malcolm D. Bale European Community NEW World Bank Staff Working Paper No. Purotetion agaiunstyindia'sexports 430. October pages Protection against India's Exports (including footnotes, references). Manufactured Imports Martin Wolf Stock No. WP $3.00. from Developing Countries: Despite improved performance, the A Case Study in the Politi- growth of India's exports continues to cal Economy of Protection lag behind need, potential, and the E. Verreydt and achievements of several of its com- J. Waelbroeck petitors. This study examines India's overall export performance in the World Bank Staff Working Paper No. 1960s and 1970s, with emphasis on 432. October pages. the central role of incentives. The Stock No. WP $3.00. major problems and policies are discussed, as well as current strategic options.

47 NEW Prospects for Partnership: The Structure of Protection Industrialization and Trade In Developing Countries Patterns of Barriers to Policies in the 1970s Bela Balassa and others Trade in Sweden: A Study in Helen Hughes, editor The Johns Hopkins Uniuersity Press, the Theory of Protection The Johns Hopkins University Press, 1971, 394 pages (including 5 appen- Lars Lundberg pages. dixes, index). This report is part of an inquiry being LC ISBN , LC ISBN , undertaken by the World Bank in con- $20.00 ( 12.00) hardcover. $25.00 (15.00) hardcover junction with scholars from twelve industrial countries into the penetra- ISBN , $6.95 (f 4.25) Spanish: La estructura de la protecci6n tion of the markets of industrial paperback. en paises en desarrollo. CEMLA, Deparcountries by exports of manufactures Spanisht Las perspectivas detcomercio Mento de Publicaciones, Durango 54, from developing countries. Spns:Lsprpcia e oeco Mexico 7, D.F., Mexico intemacional: industrializaci6n y World Bank Staff Working Paper No. politicas comerciales en la d&cada de 494. October pages (including los 70. Editorial Tecnos, The Tokyo Round: Results 3 appendixes). ISBN , 575 pesetas. and Implications for Stock No. WP $3.00. Developing Countries Ria Kemper The Political Economy of NEW World Bank Staff Working Paper No. Protection in Belgium On Protectionism In 372. February iii + 35 pages P K. M. Tharakan the Netherlands (including annex). World Bank Staff Working Paper K.A. Koekkoek. J. Kol, and Stock No. WP $3.00. No October pages L.B.M. Mennes (including statistical appendix, This report is part of an inquiry being Trade Adjustment Policies references). undertaken by the World Bank in con- and Income Distribution In Stock No. WP $3.00. junction with scholars from twelve Three Archetype Developing industrial countries into the penetra- Economies tion of the markets of Industrial Jaime de Melo and NEW countries by exports of manufactures from developing countries. SherMman Robinson The Political Market for World Bank Staff Working Paper No. World Bank Staff Working Paper No. Protection in Industrial 493. October ii + 68 pages 442. December pages Countries: Empirical (including 3 annexes, references). (including appendixes, references). Evidence Stock No. WP $3.00. Stock No. WP $3.00. Kym Anderson and Robert E. Baldwin NEW Trade among Developing This report is part of an inquiry being Countries: Theory, undertaken by the World Bank In conjunction with scholars from twelve Shadow Prices for Trade Policy Issues, and industrial countries into the penetra- Strategy and Investment Principal Trends tion of the markets of industrial Planning in Egypt Oli Havrylyshyn and countries by exports of manufactures John Page, Jr. Martin Wolf from developing countries. g ' World Bank Staff Working Paper No. This papdr presenats ccounting prices Development Report Presents 492. October pages (including for commodities and factors of pro- the results of empirical work on trade references). duction in Egypt that are appropriate among developing countries. Based Stock No. WP $3.00. for the period thirty-three developing countries World Bank Staff Working Paper No. that account for about 60 percent of 521. October pages. developing countries' exports to ISBN $5.00. one another. World Bank Staff Working Paper No August iv + 12 pages Structural Change in Trade In Manufactured Goods Stock No. WP $5.00. between Industirial and Developing Countries Bela Balassa World Bank Staff Working Paper No June pages. Stock No. WP $3.00. (including 2 appendixes, references).

48 NEW Trade Policy for Developing '-e'ms" Countries Can Developing-Country Exports Keep Trade and Employment Donald B. Keesing Growing In the 1980s7 Policies for Industrial World Bank Staff Working Paper No. World Bank Reprint Series: Number 194. Development 353. August vii pages Reprinted from The World Economy (June Keith Marsden (Including references). 1981J: In the last decade, the developing countries have proved that they can Stock No. WP $ Stock tio. RP free of charge. compete internationally in exporting Questions on International Trade In manufactured goods, as well as pri- Trade Policy Issues for the Textiles and Clothing mary products and services. This Developing Countries in Donald B. Keesing and Martin Wolf paper examines three sets of issues: the 1980s World Bank Reprint Series: Number 202. (a) whether good export performance Isaiah Frank Reprinted from The World Economy, vol. 4 (March is attributable to special characteris- 1981): tics of the most successful countries Explores the relation between trade Stock No. RP Free of charge. or whether their success can be policy and "industrial policy" and readily replicated in other countries; calls attention to points of conflict (b) whether the penetration of the and compatability. Reviews the Trade Policy and Resource markets of industrial countries has recently completed multilateral trade Allocation In the Presence of Product reached, or will soon reach, a limit; negotiations and assesses the policy Differentiation and (c) whether trade in manufactures significance for the developing coun- Jaime de Melo and Sherman Robinson among the developing countries can tries during the 1980s. Takes a new Reprinted from The Review of Economics and expand further. Concludes with a look at industrial policy and struc- Statistics. vol. 63. no. 2 (May 1981): discussion of the contribution of tural adjustment, fair labor stan- Stock No. RP Free of charge. small enterprises to the creation of dards, trade among the developing employment and the alleviation of countries, and trade in services. poverty. World Bank Staff Working Paper No vi + 64 pages (Including annex) August pages. ISBN $5.00. Stock No. WP $3.00. Trade in Non-Factor Worker Adjustment to Services: Past Trends and Liberalized Trade: Costs Current Issues and Assistance Policies Andre Sapir and Graham Glenday, Ernst Lutz Glenn R Jenkins, and World Bank Staff Working Paper No. John C. Evans 410. August iii pages World Bank Staff Working Paper No. (including 4 annexes) October i + 86 pages Stock No. WP $5.00. (including 2 appendixes. bibliography). Trade in Services: Economic Stock No. WP $3.00. Determinants and Development-Related Issues World Trade and Output of Andre Sapir and Manufactures: Structural Ernst Lutz Trends and Developing A background study for World Development Report Finds that Countries' Exports Donald B. Keesing trade theories can help explain the World Bank Staff Working Paper No. patterns of trade in services in spite '316. January v + 69 pages of varying and often substantial degrees of protectionism. Represents (including statistical annex). the second stage of a research Stock No. WP $3.00. project on trade in services. World Bank Staff Working Paper No August pages (including appendix, references). Stock No. WP $3.00.