Trade Protection and Systems of

Government: Evaluating Presidents

and the Salience of Trade Issues in
Electoral Campaigns

Flavio Pinheiro
pinheiro.f@usp.br
Department of International Relations
University of São Paulo

Ivan Fernandes
ivan.fernandes@usp.br
Department of Political Science
University of São Paulo

Gustavo Fernandes
gustavo.fernandes@fgv.br
Department of Economics
Fundação Getúlio Vargas

Prepared for delivery at the 73rd Annual Midwest Political Science Association
(MPSA) Conference, April 16-19, 2015.
 Abstract

A well-established literature informs that levels of trade protec-

tion are lower under presidential democracies. Many theories provide
support for that statement such as the liberal president approach; the
access point theory; or the presidential power hypothesis. Although
they offer distinct explanations, this literature share a common as-
sumption: the impact of presidential systems on protection are con-
sidered homogeneous at different levels of protection. We dispute
the argument and propose an alternative hypothesis: the effect of this
particular system of government is heterogeneous at different levels
of protection and this variation may be due to the salience of trade
issues in electoral campaigns. To evaluate this proposition, we esti-
mate the effect of presidential systems on tariff levels and tariff peaks
for 84 democracies between 1988 to 2008 using a quantile regression
framework.

2
Introduction

There is a consensus on the International Political Economy (IPE) literature that

the level of trade protection is lower in presidential democracies than in non-
parliamentarian ones. A great part of the literature converge on the same ex-
plicative mechanism, that is based on the idea that the size of the constituency
is related to the level of trade protection. In addition, a growing number of em-
pirical evidence corroborates those theoretical predictions (Milner and Judkins,
2004; Ehrlich, 2007, 2011; Chang et al., 2010; Pinheiro, 2013; Mitchell, Booth
and Monroe, 2014). Nevertheless, in this paper we do not challenge theses that
prevail in the literature; we simply put forth a new element to be analyzed. Our
main concern relies on the perception that there is a heterogeneous effect of presi-
dential systems on the level of trade protection that varies according with the level
of trade policy liberalism, an element that was not explored in any other piece
of the literature. We argue and present evidences that the effects of presidential
regimes on the level of protection are higher on the economies that have closed
markets, due to the salience of trade issues in electoral campaigns.
To measure the conditional effects of presidential system on the level of eco-
nomic opening we use the Regression Quantile framework that give us the flex-
ibility to test the two competing hypotheses. The first hypothesis tells us that
presidential systems has a negative mean effect on the level of trade protection.
The second, that the negative effects of presidential systems are higher on democ-
racies that have a more closed market.
A reasonable explanation, that has not been tested yet on any other research,
is that these heterogeneous effects of presidential systems are consequences of the

3
variation on the salience of trade issues – the reduction of protectionist barriers and
the improvement of the well-being of the consumers / voters – on the presidential
elections. We test these hypotheses on 84 democracies between the years of 1988
and 2008. We intend to contribute with the literature, analyzing both the demand
side of the electorate for trade liberalization policies as the supply side of this kind
of policies by the elites that competes for the popular vote.
The paper is organized as follows. In the subsequent section, we briefly sum-
marize the main theories that explain the effects of presidential systems on trade
protection levels, presenting the mechanisms and the empirical results of these
studies. We also present the hypotheses we want to test. Afterwards, we present
the method of quantile regression that is the best suitable to answer our research
question. Finally, we present the data and the preliminary results.

Theory

To explain the relation between presidential systems and the levels of trade pro-
tection, the main explicative mechanism on the literature is the size of the con-
stituency. This explanation is based on an extensive literature on the political
determinants of trade, intensively focused on the analyses of the American case,
to explain the Executive and Legislative behavior on the subject, ranging from
topics as tariffs to the signing of trade agreements. It is possible to argue that
Schattschneider was the forerunner of a number of studies that have spread one of
the most traditional thesis in the IPE field, about the relation between political rep-
resentation and trade in the USA. This thesis argues that the bigger the electoral
base of the policy maker, the higher the probability that he is a supporter of free-

4
trade. (Baldwin, 1989; Destler, 2005; Gilligan, 1997; Lohmann and O’Halloran,
1994; Rogowski, 1987; Weingast, Goldstein and Bailey, 1997). The argument
stems from the view that trade is a distributive policy or that it is linked to patron-
age policy issues. Hence, at each district there will be pressure to protection of the
products that are made there. So on, in larger districts, the diversity of interests is
greater, hindering the action of particular sectors, and, naturally, the insulating the
representative from the myriad of district parochial interests.
Those insights and findings are the basis of the liberal president thesis, where
the delegation of negotiation powers to the president would reduce the advan-
tage of protectionist policies, because the president’s electoral base is both broad
and national. (Destler, 2005; Lohmann and O’Halloran, 1994; Schattschneider,
1935).This simple fact it is enough to indicate that the chief of the Executive
Power should be more concerned with the well being of the general population
than with particularistic interests of any sector or interest group. Lohmann and
O’Halloran (1994) built on this idea of the liberal president their argument about
Divided Government and the relationship between the Executive and Legislative
powers. According to the authors, the members of the Congress and the President
share different constituencies and, therefore, they seek different trade policies ob-
jectives. Each legislator seeks to beneficiate their own district, whereas the presi-
dent seeks to address trade problems that concerns at least half of the population
(1994, 599)1 .
Nielson (2003) put more complexity to the argument when arguing about the
1 As much as those theses are widely accepted in the literature,
there are some questionings that
were raised by Hiscox (1999), Karol (2007), e Ehrlich (2009).One important problem is that those
theories are based on the American case. The three authors question the validity of the indicated
mechanism and indicate some weakness of empirical findings.

5
situations in which presidents would have greater impact on liberalizing reforms.
The main foundation of his model rests on the degree of delegation to the Ex-
ecutive. For him, at presidential democracies, the more powers delegated to the
Chief Executive, most likely, he would reject the lobby of special interests. The
evidence presented confirms the theoretical assumptions, pointing for a significant
influence of the delegation of greater powers to the Executive with the variables
related to liberalization. At the same time, there is a weakest evidence that the
district factor and the number of parties may be related to the phenomena.
Ehrlich (2007, 2011) presents a similar argument. In an attempt to assess
the relationship between domestic institutions and trade, he argues that, unlike
those who seek to explain the level of trade protection through an unique set of
institutional features, as the dichotomy between majority and proportional system,
a more widely approach, which would account for a larger number of institutional
characteristics, would have greater explanatory power. He presents the theory
of access points, the policy-makers with powers over a specific policy area that
is susceptible to the action of interest groups through lobbying activities (2007,
576). Hence, each institutional settings would generate more or less access points;
the higher the number of access points in a political system , lower the cost of
action of the lobbies , and the greater the chances of implementing protectionist
policies. In the case of presidential systems, with less access points, the theory
predicts a negative impact on the level of protection, which in fact was revealed
by empirical evidence.
Finally, Pinheiro (2013) presents another thesis for the same phenomenon:
there is a significant reduction in the level of protection in presidential democ-
racies due to a mere extrapolation of the formalization of the Stigler-Peltzman

6
model.(Stigler, 1971; Peltzman, 1976, 1989; Chang et al., 2010).The mechanism
is not based on district size or cost of the action of interest groups. As presidents
are elected by majority systems where the number of seats is just 1, an increase
of 1% in the number of votes may represent a 100% increase in the number of
seats. In another words, the elasticity of the vote is higher at presidential sys-
tems than in non-presidential systems, what admit more power to consumers and,
consequently, promotes the reduction of the level of tariff protection.
To sum up, although there are many different explanations about why the pres-
idents have a negative impact on the level of trade protection, all of them converge
to the same element: the electoral incentives. In addition, the results are, also, very
similar – so on, those different mechanisms about the same argument has empiri-
cal validity. Nevertheless, the literature in question focuses just on the supply side
of the liberalization policies, leaving aside the fact that there is also an electoral
demand dynamic of the president voters for these kind of policies. Moreover, we
show that the demand for liberalization policies are conditioned on the level of
economic opening of the country.
By this way, the marginal benefit for voters of liberal policies. In this sense, the
marginal benefit of voters for the development of liberal policies in economically
closed countries is greater than the marginal benefit of them in relatively open
countries. By this way, the voter will be more aware and sensitive of trade issues
at the most closed economies. Hence, the debate about liberalization tends to be
more prominent in closed countries than in open countries. The potential gains
the median voter receives for a trade liberalization are higher in closed countries.
This fact is related to the very multidimensionality of the electoral competition.
In discussing the relationship between income redistribution and political regimes,

7
Fernandes (2014) mobilizes the problem of multidimensionality in the democratic
electoral competition. According to the author, the introduction of a wide range
of issues at the electoral competition tends to create certain difficulties for voters
in the process of identifying what is the orientation of the party in the dimensions
that are most relevant for the voters. Also imposing an unnecessary cost to the
parties derived from the needs to position itself in the discussion of issues that are
not of interest to a large numbers of voters. In other words, the costs of the pro-
motion of the debate and dissemination of images and ideas about many cleavages
can be greater than the benefits of the potential achievement of more voters. The
parties, thus, tend to choose some topics that are more profitable electorally from
the range of potential dimensions that exist in a given socio- economic context.
In closed societies, the economic opening theme has this attractive potential on
voters.
Hence, we assume that it must be taken into account both the demand and the
supply side of trade protection. On the supply side, we accept the argument from
the literature. On the demand side, however, we believe it is necessary to examine
what is the socio- economic context in which a major share of voters support the
adoption of liberalizing measures. In this work, we do not deny the explanatory
element of the supply-side trade protection. We just try to go beyond the insti-
tutions to understand the interaction of political leaders and trade liberalization
processes. Thus, we seek to observe in which scenario the subject of trade policy
is more attractive electorally for the political competitors. That is, in which eco-
nomic scenario the president tends to emphasize the debate about the economic
benefits of trade liberalization. Our explanation say, therefore, that the effect of
presidential systems would be stronger in economically closed countries; that is,

8
it would be heterogeneous in accordance with the degree of opening of each unit
under analysis.
We formalized our hypothesis in the following propositions:

Hypothesis 1: The presidential systems have an average negative effect on the

levels of tariff protection..

Hypothesis 2: The presidential systems have a heterogeneous effect on tariff

protection levels according to the degree of the country protectionism. Thus, its
effect would be greater in democracies with more closed economies..

Method, Data, and Preliminary Results

Method

To test the hypothesis described above, we believe it is necessary to adopt a

method that is flexible enough to allow the estimation of the heterogeneous effects
of presidential systems on trade liberalization along the own distribution of eco-
nomic opening, since we want to test the hypothesis that these effects are higher
in more closed economies. The most appropriate way to respond to this specific
research problem is the framework of quantile regression introduced by Koenker
and Bassett Jr (1978).
This problem was not addressed in any of the previous quantitative studies that
assessed the effects of presidential systems on liberalization. All of them elaborate
the analysis looking for the average effects of presidents, often via Panel Data –
Ordinary Least Squares (OLS) inference. Hence, one of the contributions of this
research is the exam of these effects across all magnitudes of inequality.

9
 Quantile Regressions are a straightforward extension of the classical OLS esti-
mation of conditional mean models to estimating models for conditional quantile
functions. It employs a least absolute deviation estimator that can be used to
estimate percentiles of the conditional distribution. Hence, Quantile Regression
detects distinct causal relationships for various points on the dependent variable
distribution. The advantage of the Quantile Regression is that it provides estimates
of each covariate across the conditional distribution of the dependent variable. In
contrast, traditional OLS regression delivers only one estimate, based on the con-
ditional mean (Breunig, 2011). An important property of the quantile regression
method is its robustness to the presence of outliers in the dependent variable, since
the estimation is conditioned of the point position in the distribution of the depen-
dent variable itself.
Moreover, as the data is structured in a longitudinal way, we intend to estimate
the relationship between presidential systems and trade protect through quantile
regression with pooled data (pooled regression). The estimation of fixed effects
is not appropriate because the systems of government are very stable along the
period of analysis. More than 57,8% of the data points are from countries that did
not experienced any transition of government system.Thus, the fixed effect esti-
mator would consider staying in a system of government throughout the period as
a fixed effect to be eliminated along with the specific unobserved heterogeneity.
With the objective of reducing the variation in the data, we included in the regres-
sion continental fixed effects. Thus, any kind of specific regional or exogenous
shocks that have affected the levels of protection are taken in the estimation of the
covariates effects.
The equation to be estimated is given as follows:

10
 Protectionit = αi + β1Controlsit + β2 Presidentit +

β3Continents + β4 Trend + πit (1)

Assuming a linear specification for the τ -th quantile,

Qτ [. |X = x] = αi + β1Controlsit + β2 Protectionit +

β3Continents + β4 Trend + εit (2)

In which

h
In f
Qτ . |X = x] ≡ q P (. ≤ q |X = x) ≥ τ

is the τ -th quantile conditional on distribution of the dependent variable.

Data

To determine our variable of interest, President, we use the classification of gov-

ernment systems made by Cheibub, Gandhi and Vreeland (2009). itially, the au-
thors report six different categories of political regimes: parliamentary democra-
cies, semi- presidential democracies, presidential democracies, military dictator-
ships, civil dictatorships, and monarchical dictatorships. As we have limited our
study just to democracies, we are left with only the first three categories and pro-

11
ceeded to create a new dummy variable: 1 for presidential democracies and 0 for
other democracies - parliamentary or semi- presidential.
Since the main objective is to estimate the impact of government systems on
commercial protection levels, we grant special attention to this measure, shown
in equation 1 and 2 above by the variable Protection. Therefore, we use the sim-
ple average applied tariff - the simple mean of applied tariff - and the number
of domestic tariff peaks, as there is interest in both explaining the general level
of protection depicted by the average tariff as the phenomena of residual tariff
protection, measured by the number of tariff peaks.
Tariff peaks, according to the WTO, are relatively high tariffs on sensitive
products amid a low tariff protection level. In this sense, tariff peaks are only
one type of residual protection, that is, those rates which have remained high
even after a strong tariff liberalization. It is usually found on specific items and it
represents an exception before the standard tariff applied to other products in the
same industry sector or the general level of protection. We expect to find more
conclusive results about the average tariff variable, since voters are more sensitive
to changes in this variable than on specific rates. On the other hand, tariff peaks
reflect specific protection and not the general level of well-being of the consumers
– voters, which is reduced with protection in favor of the well-being of producers.
The variables Area, Population, GDP per capita, Continents, Education, Man-
ufacturing, Agriculture and Services are controls for socio-economic and geo-
graphic factors commonly used in the literature and are represented in equation
1 and 2 by the vector Controls. With the exception of the variables Education,
available at Gakidou et al. (2010), the other variables were collected directly from
the World Development Indicators of the World Bank (World Bank, 2012). Ed-

12
 Table 1: Descriptive Statistics

Variable x̄ s Min Max

Tariff 10.7 8.6 0.0 106.5
Number of Tariff Peaks 260.2 361.4 0.0 2272.0
GDP per capita 10609.9 10758.2 340.2 49415.9
Education 7.6 3.4 0.4 13.8
Area 1363632.2 2665108.8 300.0 9984670.0
Population 54047411.2 133818370.0 69968.0 1140000000.0
Manufacturing 29.7 8.4 6.8 62.4
Agriculture 13.1 11.4 0.3 57.3
Services 57.2 11.2 18.4 78.3

ucation represents the number of schooling years of men with 25 years or more.
Within variable Continents, the countries are classified according to the following
geographical areas: 1) Africa and Middle East; (2) America; (3) Asia; (4) Europe;
and (5) Australia. Finally, Manufacturing, Agriculture and Service represent the
weight of the respective sector on the GDP. The above summary of statistical vari-
ables is available in Tables 1 and 2.
Table 2: Descriptive Statistics

Variable Levels n %
President No 303 49.1
Yes 314 50.9
Total 617 100.0
Continents Africa 86 13.9
America 277 44.9
Asia 105 17.0
Europe 111 18.0
Australia 38 6.2
Total 617 100.0

With regard to the selection of countries, we employ the criterion adopted by

Przeworski et al. (2000), considering that at the present study the analysis is strict
to democratic countries. They adopt a dichotomous and minimalist definition of

13
democracy, as the system in which incumbents lose elections and leave office
when the rules so dictate (2000, 24). The concept is operationalized as follows:
the country is considered democratic when (1) the Chief Executive is elected by
popular vote; (2) the legislature is elected by popular vote; (3) there is more than
one party competing for power; (4) there is alternation in power. If a country
does not meet one of the requirements, it is classified as authoritarian. 2 Finally,
it should be noted about that the members of European Union (UE) are excluded
from the analysis as they adopt a common external tariff, which means that there is
the same rate for each product for all members of the union. The inclusion of the
UE would be incongruous with a database based on country-year observations.
The final sample of this study brings together 84 democratic countries between
1988 and 2008.
Table 3:List of Countries

2 Anupdated version of the data base of Przeworski et al. (2000) was made available by
Cheibub, Gandhi and Vreeland (2009).

14
Preliminary Results

As noted in Figure 1, the variable President has on average a negative effect on

a country’s tariff level, represented by the red dashed line and their standard er-
rors. Presidential countries have lower rates than non-presidential systems, but
the effect of presidential systems is not homogeneous across different levels of
trade openness. The continuous green curve shows the heterogeneous effects of
President on liberalization. The more open a country is, having lower rates, the
smaller is the lowering effect of President on the level of trade protection. Indeed,
there are no significant differences between the effects of presidential and non-
presidential democracies among the most liberal countries. However, the more
a country has a closed economy – having higher average tariffs - the greater the
lowering effect of President.
Moreover, we can also realize that the average effect found in OLS corre-
sponds to a non-existent homogeneous effect, that it is actually obscuring the acute
effects that presidential systems have in increasing liberalization in closed coun-
tries. Presidents tend to reduce the average tariffs by about 8 percentage points
among the 10% most closed economies
When measuring the effect of the political system in a country liberalization
through tariff peaks, as seen in Figure 2, we found a distinct pattern. Again, Pres-
ident has an average negative effect on a country’s tariff level and these effects are
heterogeneous along the liberalization axis. However, the pattern of heterogeneity
is reversed. In countries where the presidential system has a greater potential to
induce reduction of tariff peaks are precisely those in which the economy has al-
ready a few peaks. In countries with the highest number of tariff peaks, presidents

15
 Graph 1:Quantile Regression on Tariffs

Graph 2:Quantile Regression on the Number of Tariffs Peaks

16
do not affect the degree of trade protection so strongly.
In short, we can tell that at most liberal countries, the president has no effect
on the overall average level of tariffs, but it is important inducer of the reduction
of lasting tariff peaks – the role of the lobby of specific sectors is reduced at
liberal presidential democracies. Among the countries with closed economies,
the president has a strong effect on the overall average of the rates; however, he is
not an important inducer of the reduction of the existing tariff peaks – the role of
lobby of specific sectors in closed countries are so effective in presidential as in
non-presidential democracies.
The discrepancy between the results can be explained by the fact that tariff
peaks tend to affect less the median voter and benefit by a more incisively way
the producers. However, the fact that countries with less tariff peaks are more
sensitive to the liberalizing effects of presidential democracies is a question yet
to be answered in further studies. Finally, it is important to take into account the
fact that the horizons of protection and liberalization presented in the two graphs
are different. The dimension of the average tariff does not converge absolutely to
the dimension of tariff peaks. The correlation between the two is negative (-0.32).
Hence, a country with high average tariff is not necessary a country with many
tariff peaks.

17
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20
A Appendix

Table 3: OLS with Clustered Standard Errors by Country (Model 1) and Quantile
Regression on the Median (Model 2)

(1) (2)
Model 1 Model 2
President -4.088 -1.678
(-2.56) (-4.05)
GDP -13.38 2.590
(-0.88) (0.95)
GDP2 0.637 -0.211
(0.78) (-1.42)
Area -0.0925 -0.265
(-0.27) (-3.16)
Service -0.200 -0.0598
(-1.48) (-1.75)
Education -1.649 -0.984
(-3.58) (-9.30)
Americas 5.371 1.176
(1.35) (1.74)
Asia 9.359 2.371
(2.17) (3.73)
Europe 3.190 -1.797
(0.72) (-2.24)
Australia 3.005 -0.0559
(0.75) (-0.06)
Year -0.930 -0.555
(-6.81) (-18.78)
Constant 1952.2 1127.3
(6.03) (18.23)
Observations 1006 1006
t statistics in parentheses

21
 Graph 3:Kernel Density of Tariffs

Graph 4:Kernel Density of the Number of Tariff Peaks

22