The Received Theory of trade policy, based solely on terms-of-trade externalities between national governments, has become the conventional wisdom among international trade theorists. But it displays two puzzles that render that theory inconsistent with reality. Significant empirical work, however, supports aspects of the Grossman-Helpman Protection-for-Sale model, a subset of the Received Theory. This paper shows that a simple formulation of the political economy of protection, that dispenses with terms-of-trade externalities, predicts the properties that the empirical work has confirmed, and is free of the counterfactual implications of the Received Theory. The implication is that, despite its claims to the contrary, the empirical literature offers no real support for the Protection-for-Sale model or, therefore, for the Received Theory.
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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number
06-014.
Find related papers by JEL classification: F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Grossman, Gene M & Helpman, Elhanan, 1994.
"Protection for Sale,"
American Economic Review,
American Economic Association, vol. 84(4), pages 833-50, September.
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Gene M. Grossman & Elhanan Helpman, 1992.
"Protection For Sale,"
NBER Working Papers
4149, National Bureau of Economic Research, Inc.
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Kyle Bagwell & Robert W. Staiger, 1999.
"An Economic Theory of GATT,"
American Economic Review,
American Economic Association, vol. 89(1), pages 215-248, March.
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