Baybars Karacaovali

Deposit Insurance Around the World: A Comprehensive Database

This paper updates the Demirguc-Kunt and Sobaci (2001) cross-country deposit insurance database and extends it in several important dimensions. This new data set identifies both recent adopters and the ones that were not covered earlier due to a lack of data. Moreover, for the first time, it provides historical time series for several variables and adds new ones. The data were collected by surveying deposit insurance institutions and related agencies as well as through the use of various other country sources.

Productivity Matters for Trade Policy: Theory and Evidence

There is a growing literature that investigates the effect of trade liberalization on productivity. Nearly all such studies assume that trade policy is determined independently of productivity, hence it is exogenous. The author shows that this assumption is not valid in general, both theoretically and empirically, and that researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias. On the theory side, he demonstrates that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. The link between productivity and tariffs is maintained after the author includes in his political economy model a learning-by-doing motive of protection, which also serves as the source of liberalization. On the empirical side, he examines total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998, and finds that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, he controls for the endogeneity of the two main right-hand-side variables-the inverse import penetration to import demand elasticity ratio and productivity-by using materials prices, the capital to output ratio, a measure of scale economies, and the TFP of the upstream industries as robust instruments. The author also accounts for the large trade liberalization between 1990 and 1992, and finds that the sectors with a higher productivity gain are liberalized less. Finally, he illustrates a system of equations estimation and shows that the positive impact of liberalization on productivity grows stronger when corrected for the endogeneity bias.

What Do We Know About Preferential Trade Agreements and Temporary Trade Barriers

Two of the most important trade policy developments to take place since the 1980s are the expansion of preferential trade agreements and temporary trade barriers, such as antidumping, safeguards, and countervailing duties. Despite the empirical importance of preferential trade agreements and temporary trade barriers and the common feature that each can independently have quite discriminatory elements, relatively little is known about the nature of any relationships between them. This paper surveys the literature on some of the political-economic issues that can arise at the intersection of preferential trade agreements and temporary trade barriers and uses four case studies to illustrate variation in how countries apply the World Trade Organizations global safeguards policy instrument. The four examples include recent policies applied by a variety of types of countries and under different agreements: large and small countries, high-income and emerging economies, and free trade areas and customs unions. The analysis reveals important measurement and identification challenges for research that seeks to find evidence of systematic relationships between the formation of preferential trade agreements, the political-economic implications of their implementation, and the use of subsequent temporary trade barriers.

Trade-diverting free trade agreements, external tariffs, and feasibility

There has been a proliferation of preferential trade agreements within the last two decades. This paper analyzes the effects of free trade agreements (FTAs) on external tariffs in small economies where protection decisions are made politically. It extends the Grossman and Helpman (1995) model by determining tariff rates endogenously instead of assuming they are fixed during or after the formation of FTAs. We show that when an FTA is established, the tariff rates that apply to non-members essentially decline. More importantly, we investigate the interaction between endogenous tariff determination and the feasibility of an FTA. We find that the expectation of tariff reductions under endogenous tariffs could make an otherwise feasible FTA if tariffs were fixed become infeasible. However, if domestic import-competing sectors are relatively smaller and the government places a significant weight on political contributions relative to social welfare, an FTA with endogenous tariffs may be more likely to be feasible than an FTA assumed to fix external tariffs.

Wage inequality dynamics and trade exposure in South Korea

South Korea has experienced a great U-turn in its inequality trends during the past few decades. In this paper, we explore the role of international trade in its wage inequality dynamics over the 1998–2012 period, using a unique household panel survey. Our analysis reveals that most of the overall wage inequality occurs within sectors and educational groups rather than between them. However, the share in total inequality of the “between” variation across sectors and educational groups has moderately increased over time. Furthermore, we document that almost the entire aggregate wage inequality in both manufacturing and services occurs within different trade-exposure categories rather than between them, and this pattern is persistent through time. These results suggest that international trade might not be the main driving force behind the rising wage dispersion in South Korea in the last two decades.

Trade Policy Determinants and Trade Reform in a Developing Country: The Case of Colombia

In this paper, I empirically examine trade policy determinants and trade reform in a developing country setting by using a political economy of trade policy model to guide my estimations for Colombia between 1983 and 1998. I introduce a novel approach to estimating the extra political weights placed by the government on the well-being of producers relative to average citizens. This is under the assumption that producers are organized in terms of trade policy while the public is not. I measure the impact of sectorial characteristics on tariffs indirectly through political weights as a novel alternative to nonstructurally estimating them as determinants of protection. Accordingly, I obtain more realistic estimates as compared to the earlier literature. I also show that it is important to control for the drastic unilateral trade reform shock that affects all sectors and I test the effect of preferential trade agreements (PTAs) on tariffs in the presence of such trade liberalization. I find that protection is higher in sectors that are important exports for preferential partners which may be seen as a slowing down effect of PTAs for Colombia. The estimations account for endogeneity and omitted variable bias concerns.