Volume 20, Issue 2 (6-2025)
J. Mon. Ec. 2025, 20(2): 233-249 |
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Rasekhi S. The Political Macroeconomics of Trade Protection: A Study for Selected Developing Countries. J. Mon. Ec. 2025; 20 (2) :233-249
URL: http://jme.mbri.ac.ir/article-1-714-en.html
URL: http://jme.mbri.ac.ir/article-1-714-en.html
University of Mazandaran
Abstract: (230 Views)
Despite the well-documented benefits of free trade, there has been a notable resurgence of protectionist policies, particularly in developing countries with low per capita incomes. Understanding how these protective measures are formed offers critical insights into the underlying motivations behind trade restrictions. The primary aim of this study is to test the hypothesis that components of the political economy—particularly macroeconomic indicators—play a significant role in shaping and driving trade protection policies. To evaluate this hypothesis, the study employs panel data from 18 lower-middle-income developing countries over the period 2002 to 2022. A system of simultaneous equations, estimated via Two-Stage Least Squares (2SLS), is used to identify the key determinants of trade protection. The empirical findings highlight inflation as a principal driver of protectionism in low-income contexts, largely triggered by currency depreciation and monetary expansion. In contrast, higher economic growth, greater import penetration, and improved government effectiveness are associated with lower levels of trade protection and increased support for liberalization.
Interestingly, income inequality does not appear to exert a statistically significant influence on protectionist outcomes, suggesting the limited role of consumer advocacy and institutional representation in many developing countries. Overall, the results affirm that trade protection is not an exogenous policy instrument. Rather, it emerges as an endogenous response to the complex interaction of macroeconomic dynamics (including growth, inflation, and unemployment), structural features of the economy, and institutional shortcomings—particularly in the realms of governance and financial development.
Interestingly, income inequality does not appear to exert a statistically significant influence on protectionist outcomes, suggesting the limited role of consumer advocacy and institutional representation in many developing countries. Overall, the results affirm that trade protection is not an exogenous policy instrument. Rather, it emerges as an endogenous response to the complex interaction of macroeconomic dynamics (including growth, inflation, and unemployment), structural features of the economy, and institutional shortcomings—particularly in the realms of governance and financial development.
Keywords: Trade Protection, Political Macroeconomics, Monetary Variables, Low-income Countries, System of Simultaneous Equations
Type of Study: Original Research - Empirical |
Subject:
Economics
Received: 18 Jul 2025 | Accepted: 15 Sep 2025 | Published: 5 Oct 2025
Received: 18 Jul 2025 | Accepted: 15 Sep 2025 | Published: 5 Oct 2025
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