Revisiting the Trade Restrictions-Industrialization Nexus in Developing Countries: The Case of Log Export Ban and Wood Processing

Many developing countries impose restrictions on the export of logs primarily to promote local wood processing. This study focuses on the Log Export Ban (LEB) policy and investigates if this policy impacts both the production and exports of sawn timber (a less complicated stage of processing) and veneer (a more complicated stage of processing). We implement the propensity score matching method to assess the Average Treatment Effect on the Treated (ATT) of the LEB policy in 86 developing countries. We find a positive and significant effect of the LEB policy on both sawnwood and veneer production while the effect is stronger in the case of sawnwood (about 2%) compared to veneer (about 1%). Moreover, we also find a positive and significant effect on the exports of sawnwood (around 8%) while we find no significant results on the exports of veneer. Moreover, we study the short-term ATT of the LEB policy. We find that the ATT during the first 5 years of the LEB policy is higher than estimated ATTs reported in the baseline results. Lastly, we investigate the heterogeneity in treatment effects using control function with some institutional variables. It is worth noting that the impact of the LEB policy on the exports of the two types of processed wood is highly sensitive to the quality of the judicial system and bureaucracy. Overall, our study suggests that the LEB policy should be associated to more complex industrial, employment policies and better institutions to produce positive and lasting impact on wood processing industries.