Comparative growth and comparative advantage: Tests of the effects of interest group behavior on foreign trade patterns

The purpose of the present paper has been to examine one particular set of implications of the Olson theory: the effect on trade patterns of the accumulation of interest groups and organizational rigidities. The results of three different tests were consistent with the predictions of that theory. Given the types of tests employed, it is perhaps best to regard the present exercise as a partial test of the Olson hypothesis. As that hypothesis focuses on variables, such as class structure and interest group power, which are difficult to measure, there are inherent difficulties in formulating tests. In the present paper, a method was employed which obviated the need for measurement of those variables. This was perhaps necessary given the multi-country, economy-wide scope of the tests. One testing approach which would complement the method of this paper would be to narrow the scope of the tests but provide more detailed data on the formation of organizational rigidities. Thus, the present paper constitutes just one approach to the testing of the Olson hypothesis. The importance of that hypothesis and the supportive nature of the present results both argue that further testing should be conducted. Perhaps it is important to confront one objection which might be offered against the method of the tests in this paper. Although it is argued that organizational factors are responsible for the results of the tests, those organizational factors have not been directly measured. As has already been mentioned, the difficulty in testing any theory relying on organizational variables will be in measuring those variables. One important feature of the Olson theory is that it identifies variables which are themselves determinants of organizational structure. Therefore, a test of the whole theory can rely on the relationship between these determinants and economic performance. Nevertheless, the doubt may remain in the reader's mind whether the data patterns detected in any particular test actually reflect the influences of organizational rigidity. That is the reason why three different tests of the basic theory have been formulated. The tests give three results consistent with the basic theory: that length of freedom of organization is related to the association between the two measures of comparative advantage; that, on the one hand, the U.S., U.K., and Canada have similar trade patterns while, on the other, the F.R.R., Japan and Italy have similar trade patterns; and that comparative advantage is related to the age of an industry. Any competing explanation, not based on organizational factors, would need to explain not one but all three test results. The results have some significance for two major areas of economics. First, a new determinant of international commodity flows, organizational structure, has been suggested. The theory has shown that the inter-sectoral pattern of organizational structure will vary between seemingly similar economic systems. This variation will produce a distinctive pattern of trade flows: a pattern which has been detected in the trade data of six developed market economies. Secondly, this paper has also tested a new theory of comparative growth. The same factors which lead to variations in the pattern of organizational rigidities will also lead to variations in the average levels of those rigidities. That variation in levels will be responsible for differences in aggregate economic performance between nations. Copyright Martinus Nijhoff Publishers 1982