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Protection for Sale: An Empirical Investigation

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  • Pinelopi Koujianou Goldbe
  • Giovanni Maggi

Abstract

A prominent model in the recent political-economy literature on trade policy is Grossman and Helpman's (1994) Protection for Sale' model. This model yields clear predictions for the cross-sectional structure of trade protection. The objective of our" paper is to check whether the predictions of the Grossman-Helpman model are consistent with the data and, if the model finds support, to estimate its two key structural parameters: the government's valuation of welfare relative to contributions, and the fraction of the voting population represented by a lobby. We find that the pattern of protection in the U.S. in 1983 is consistent with the basic predictions of the model. Our estimate of the government's valuation of welfare relative to contributions is surprisingly high; the weight of welfare in the government's objective function is estimated to be between 50 and 88 times the weight of contributions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5942.

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Date of creation: Feb 1997
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Publication status: published as American Economic Review (December 1999): 1135-1155.
Handle: RePEc:nbr:nberwo:5942

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  1. Maddala,G. S., 1986. "Limited-Dependent and Qualitative Variables in Econometrics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521338257.
  2. Grossman, Gene M & Helpman, Elhanan, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(2), pages 265-86, April.
  3. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, American Economic Association, vol. 74(5), pages 970-85, December.
  4. Gene M. Grossman & Elhanan Helpman, 1993. "Trade Wars and Trade Talks," NBER Working Papers 4280, National Bureau of Economic Research, Inc.
  5. Anderson, James E & Neary, J Peter, 1996. "A New Approach to Evaluating Trade Policy," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(1), pages 107-25, January.
  6. Helpman, E., 1995. "Politics and Trade Policy," Papers, Tel Aviv - the Sackler Institute of Economic Studies 30-95, Tel Aviv - the Sackler Institute of Economic Studies.
  7. Ronald Findlay & Stanislaw Wellisz, 1982. "Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare," NBER Chapters, National Bureau of Economic Research, Inc, in: Import Competition and Response, pages 223-244 National Bureau of Economic Research, Inc.
  8. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "Import Peneteration and the Politics of Trade Protection," NBER Working Papers 6711, National Bureau of Economic Research, Inc.
  9. Shiells, C.R. & Stern, R.M. & Deardorff, A.V., 1988. "Estimates Of The Elasticities Of Substitution Between Imports And Home Goods For The United States: Reply," Working Papers, Research Seminar in International Economics, University of Michigan 235, Research Seminar in International Economics, University of Michigan.
  10. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 891-951, July.
  11. Jong-Wha Lee & Phillip Swagel, 2000. "Trade Barriers And Trade Flows Across Countries And Industries," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 372-382, August.
  12. Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 4(S), pages S29-59, Supplemen.
  13. Edward E. Leamer, 1986. "Cross Section Estimation of the Effects of Trade Barriers," UCLA Economics Working Papers, UCLA Department of Economics 417, UCLA Department of Economics.
  14. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers, C.E.P.R. Discussion Papers 827, C.E.P.R. Discussion Papers.
  15. 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.
  16. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(1), pages 1-31, February.
  17. Ray, Edward John, 1981. "The Determinants of Tariff and Nontariff Trade Restrictions in the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(1), pages 105-21, February.
  18. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, Elsevier, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  19. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, American Economic Association, vol. 72(5), pages 1180-87, December.
  20. Chesher, Andrew & Irish, Margaret, 1987. "Residual analysis in the grouped and censored normal linear model," Journal of Econometrics, Elsevier, Elsevier, vol. 34(1-2), pages 33-61.
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