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Food Protection for Sale

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  • Rigoberto A. Lopez
  • Xenia Matschke

Abstract

This article tests the Protection for Sale (PFS) model using detailed data from US food-processing industries under alternative import-demand specifications. All empirical results support the PFS model predictions and previous empirical work qualitatively. However, a surprising result is that we obtain weights between 2.6 and 3.6 for domestic welfare using import slopes or elasticities derived from domestic demand and supply functions. In contrast, results based on directly specified import demands (including the Armington model) yield the usual, unrealistically large estimates for the domestic welfare weight. We contend that this empirical paradox arises mainly because the explanatory variables tend to be extremely large for industries with low import ratios and/or low import elasticities (or slopes) resulting from relatively volatile import prices. The results with derived import parameters point to a much stronger role of campaign contributions within the PFS model than previously found. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 14 (2006)
Issue (Month): 3 (08)
Pages: 380-391

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Handle: RePEc:bla:reviec:v:14:y:2006:i:3:p:380-391

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References

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  1. Clinton Shiells & Robert Stern & Alan Deardorff, 1989. "Estimates of the elasticities of substitution between imports and home goods for the United States: Reply," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 125(2), pages 371-374, June.
  2. Matschke, Xenia N. & Sherlund, Shane M, 2003. "Do Labor Issues Matter In The Determination Of U.S. Trade Policy? An Empirical Reevaluation," Santa Cruz Department of Economics, Working Paper Series qt82k4x4f5, Department of Economics, UC Santa Cruz.
  3. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  4. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  5. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
  6. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  7. Christine A. McDaniel & Edward J. Balistreri, 2003. "A Discussion on Armington Trade Substitution Elasticities," Computational Economics 0303002, EconWPA.
  8. Rigoberto A. Lopez, 2001. "Campaign Contributions and Agricultural Subsidies," Food Marketing Policy Center Research Reports 059, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  9. Robert C. Feenstra, 1996. "U.S. Imports, 1972-1994: Data and Concordances," NBER Working Papers 5515, National Bureau of Economic Research, Inc.
  10. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, EconWPA.
  11. Gallaway, Michael P. & McDaniel, Christine A. & Rivera, Sandra A., 2003. "Short-run and long-run industry-level estimates of U.S. Armington elasticities," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 49-68, March.
  12. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  13. Phillip McCalman, 2004. "Protection for Sale and Trade Liberalization: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 81-94, 02.
  14. Devashish Mitra, 1999. "Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination," American Economic Review, American Economic Association, vol. 89(5), pages 1116-1134, December.
  15. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  16. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoglu, 2002. ""Protection For Sale" In A Developing Country: Democracy Vs. Dictatorship," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 497-508, August.
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Citations

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Cited by:
  1. Etienne Farvaque & Gael Lagadec, 2009. "Electoral Control when Policies are for Sale," CESifo Working Paper Series 2522, CESifo Group Munich.
  2. Xenia Matschke, 2005. "Costly Revenue-Raising and the Case for Favoring Import-Competing Industries," CESifo Working Paper Series 1502, CESifo Group Munich.
  3. Anderson, Kym & Rausser, Gordon & Swinnen, Johan, 2013. "Political economy of public policies : insights from distortions to agricultural and food markets," Policy Research Working Paper Series 6433, The World Bank.
  4. Fredriksson, Per & Mamun, Khawaja, 2009. "Tobacco Politics and Electoral Accountability in the United States," Working Papers 2009003, Sacred Heart University, John F. Welch College of Business.
  5. Johan F.M.Swinnen & Thijs Vandemoortele, 2011. "On Butterflies and Frankenstein: A Dynamic Theory of Regulation," LICOS Discussion Papers 27611, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

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