Boundaries of Protectionism: Ethnic Politics and Trade Liberalization

• In Event: Poster Session: Comparative Politics in Developing Countries I

Abstract

How does ethnic politics influence trade liberalization in low and middle-income countries? I argue that ethnic boundaries structure how liberalizing regimes co-opt protectionist interests. When state and import-competing elites belong to the same ethnic group, shared ethnic ties help policymakers promise favoritist benefits - uncompetitive procurement, fiscal evasion, regulatory forbearance - for liberalizing policies. Lacking the coethnic sanctioning mechanisms to credibly make favoritist promises across ethnic lines, policymakers are more likely to retain non-coethnic import-competing elites’ political and economic support by continuing protectionist policies, like tariffs.
I test this theory in Jordan. I compile an original import-competing industries (ICI) dataset that represents over 1000 Jordanian firms across thirty import-competing industries from 2000 to 2016. I leverage exogenous ministerial turnover from cabinet dismissals to demonstrate that trade ministers are consistently more likely to protect non-coethnic import-competing industrialists in Free Trade Agreements (FTAs) and Temporary Tariff cases.
To validate the mechanism of coethnic favoritist benefits for liberalizing policies, I examine the stock returns for the approximately forty firms in the ICI dataset that are traded on the Amman Stock Exchange (ASE). Consistent with the proposed theory, import-competing firms' share prices obtain a higher Abnormal Cumulative Return (ACR) following the appointment of a trade minister from the same ethnic group as a firm’s president. The share prices of ICI firms with ethnic ties to trade ministers also appear to be less affected by the announcement of trade liberalizing policies. Interviews with over fifty Jordanian industrialists, civil servants and former trade ministers offer qualitative evidence that trade ministers privilege coethnic industrialists with favoritist benefits that facilitate the removal of protectionist policies. Whether ethnic boundaries blur or sharpen state - capital lines shape how regimes sustain ruling coalitions under the strains of structural adjustment.

Author

• Steve Louis-Andre Monroe, Department of Politics, Princeton University