Trade protectionism and comparative advantage : an empirical analysis

• Main Authors: Kooi, Wei Rong, Heah, Yong Ruay, Ng, Darren Wei Hong
• Other Authors: Chen Xiaoping
• Format: Final Year Project
• Language: English
• Published: 2018
• Subjects: DRNTU::Social sciences
• Online Access: http://hdl.handle.net/10356/74072
• Institution: Nanyang Technological University

The most common form of trade protection is import tariff, which has led to many international trade disputes. There are many factors that determine the import tariff rates a country sets, of which, one of them is comparative advantage, which has not been widely studied. Despite potential disputes due to implementing tariff as a form of protectionism, it seems that some countries are still practising it based on Revealed Comparative Advantage (RCA) due to several reasons which will be discussed in this paper. Therefore, our paper aims to determine the causality of RCA on Import Tariffs, and if such practice generally occurs around the world. Using real-world trade data, an empirical analysis was done with OLS regression. Our results show a negative correlation between RCA and Import Tariffs, where Import Tariffs are weakly decreasing with RCA. This finding supports Costinot et al. (2015) research where they derived a model showing that a country's optimal trade protection of industries should be weakly decreasing with respect to comparative advantage since advantaged industries have better ability to manipulate prices.