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Protection for Free? the Political Economy of U.S. Tariff suspensions

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  • Prachi Mishra
  • Rodney D. Ludema
  • Anna Maria Mayda

Abstract

This paper studies the political influence of individual firms on Congressional decisions to suspend tariffs on U.S. imports of intermediate goods. We develop a model in which firms influence the government by transmitting information about the value of protection, via costless messages (cheap-talk) and costly messages (lobbying). We estimate our model using firm-level data on tariff suspension bills and lobbying expenditures from 1999-2006, and find that indeed verbal opposition by import-competing firms, with no lobbying, significantly reduces the probability of a suspension being granted. In addition, lobbying expenditures by proponent and opponent firms sway this probability in opposite directions.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/211.

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Length: 48
Date of creation: 01 Sep 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/211

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Keywords: Trade policy; Corporate sector; Economic models; Import tariffs; Tariff structures; expenditures; probability; expenditure; equation; statistics; instrumental variables; correlation; statistical significance; standard errors; survey; equations; correlations; predictions; statistic; regression equation; probability model; probabilities; significance level; logarithms; regression analysis; random variable; standard error; integrals; expenditure level; instrumental variable; prediction; mathematics; expenditure levels; econometrics; sample selection; total expenditures; sample size; binary decision; expenditure functions; measurement error;

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References

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  1. Kishore Gawande & Pravin Krishna & Michael J. Robbins, 2004. "Foreign Lobbies and US Trade Policy," NBER Working Papers 10205, National Bureau of Economic Research, Inc.
  2. Giovanni Facchini & Anna Maria Mayda & Prachi Mishra, 2009. "Do Interest Groups affect US Immigration Policy?," CReAM Discussion Paper Series 0904, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  3. By Kishore Gawande & Pravin Krishna & Marcelo Olarreaga, 2012. "Lobbying Competition Over Trade Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 115-132, 02.
  4. Gawande, Kishore & Maloney, William & Montes-Rojas, Gabriel, 2009. "Foreign informational lobbying can enhance tourism: Evidence from the Caribbean," Journal of Development Economics, Elsevier, Elsevier, vol. 90(2), pages 267-275, November.
  5. Matilde Bombardini & Francesco Trebbi, 2009. "Competition and Political Organization: Together or Alone in Lobbying for Trade Policy?," NBER Working Papers 14771, National Bureau of Economic Research, Inc.
  6. Ludema, Rodney D & Mayda, Anna Maria, 2005. "Do Countries Free Ride on MFN?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5160, C.E.P.R. Discussion Papers.
  7. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, Elsevier, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  8. Dutt, Pushan & Mitra, Devashish, 2002. "Endogenous trade policy through majority voting: an empirical investigation," Journal of International Economics, Elsevier, Elsevier, vol. 58(1), pages 107-133, October.
  9. Chen, Hui & Parsley, David & Yang, Ya-wen, 2010. "Corporate Lobbying and Financial Performance," MPRA Paper 21114, University Library of Munich, Germany.
  10. Susumu Imai & Hajime Katayama & Kala Krishna, 2007. "Is Protection Really for Sale? A Survey and Directions for Future Research," Working Papers, Queen's University, Department of Economics 1151, Queen's University, Department of Economics.
  11. Bohara, Alok K & Kaempfer, William H, 1991. "A Test of Tariff Endogeneity in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 81(4), pages 952-60, September.
  12. Josh Ederington & Jenny Minier, 2008. "Reconsidering the empirical evidence on the Grossman-Helpman model of endogenous protection," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 41(2), pages 501-516, May.
  13. Arnaud Costinot, 2009. "Jobs, Jobs, Jobs: A "New" Perspective on Protectionism," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(5), pages 1011-1041, 09.
  14. Milyo Jeffrey & Primo David & Groseclose Timothy, 2000. "Corporate PAC Campaign Contributions in Perspective," Business and Politics, De Gruyter, De Gruyter, vol. 2(1), pages 1-15, April.
  15. Omer Gokcekus & Amber Barth, 2007. "Political economy of the U.S. temporary duty suspension program: An empirical note," Public Choice, Springer, Springer, vol. 131(3), pages 345-350, June.
  16. 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.
  17. Theo Eicher & Thomas Osang, 2002. "Protection for Sale: An Empirical Investigation: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1702-1710, December.
  18. Christian Broda & Nuno Limao & David E. Weinstein, 2008. "Optimal Tariffs and Market Power: The Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 2032-65, December.
  19. Pinsky, Laura & Tower, Edward, 1995. "Temporary duty suspension in the United States," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 6(1), pages 17-36.
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Cited by:
  1. Baldwin, Richard, 2010. "Unilateral tariff liberalisation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8162, C.E.P.R. Discussion Papers.
  2. Prachi Mishra & Giovanni Facchini & Anna Maria Mayda, 2008. "Do Interest Groups Affect U.S. Immigration Policy?," IMF Working Papers 08/244, International Monetary Fund.
  3. Bombardini, Matilde & Trebbi, Francesco, 2012. "Competition and political organization: Together or alone in lobbying for trade policy?," Journal of International Economics, Elsevier, Elsevier, vol. 87(1), pages 18-26.

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