countries, we examined procurement laws that can come from national initiatives and ratifications of international treaties such as the Government Procurement Agreement of the World Trade Organization (WTO GPA) and Preferential Trade Agreements (PTAs). We read and coded the texts of these laws to identify instances of measures that can be characterized as protectionist. We classified them into three types commonly regarded as the main ones: lack of equal treatment provision, preferential treatment in favor of domestic bidders (e.g., preference margin), and domestic sourcing (e.g., “made in the country” provisions).

A descriptive analysis of the data reveals that the majority of countries in our sample adopt protectionist policies in their procurement regulations. Of 141 countries, 124 have preferential treatment provisions, and 37 percent of the legal systems in the sample lack a basic national treatment clause, while 60 percent of the countries apply domestic sourcing provisions. There is significant overlapping between the domestic sourcing and preferential treatment provisions: of the 83 countries where the law includes a “made in the country” provision, 81 also provide for preferential treatment in favor of domestic bidders.

We explore the main determinants of variation in protectionism across countries. As expected, we find that countries that participate in international agreements such as the WTO GPA and the EU have a lower protectionism index. That is also true of high-income countries (relative to the other, middle-income countries in the sample), and of countries with better institutions, as measured by the World Governance Indicators.

The main objective of our empirical analysis is to estimate the relationship between protectionist laws and trade openness. To achieve this, we leverage the variation in the adoption of discriminatory laws across countries and identify the correlation with the import share in total expenditure. Data on the value of bilateral imports by industry are sourced from the ITPD-E database, which includes information on domestic sales. By considering the relationship between procurement laws and total trade (whose cross-border procurement component represents a small part), we aim to include the effects of laws on imports by domestic firms that win procurement contracts. In the appendix, we also report the results of the empirical analysis performed with data from the TiVA inter-country input-output (ICIO) tables, which permit to separate out estimates of cross-border government procurement flows from the rest of trade flows. Because of data limitations (such as the lack of time variation in the law data), as well as the lack of an empirical strategy to identify causal effects, we interpret our empirical results as suggestive of the association (or lack thereof) between protectionism in the law and trade flows.

In the main cross-country regression specification, the outcome variable equals the value of imports from all countries, relative to total spending. We estimate the association between the import share in aggregate expenditure and indicators of protectionism in procurement law across countries, controlling for the influence of participation in the WTO GPA and EU, as well as other country-level variables, such as economic development and institutional quality. The results suggest that differences in the presence of protectionist laws correlate negatively with variation in trade openness across countries. The magnitudes of the implied relationship are substantial. We find that the import share in total expenditure is 9 percentage points lower in countries that have protectionist laws in government procurement (as classified by our three indicators) relative to a country with average trade openness. The results apply to most industries, even if they are stronger for services. When we estimate the association for 2