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Protection for Sale Under Monopolistic Competition: An Empirical Investigation

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  • Pao-Li Chang

    ()
    (School of Economics and Social Sciences, Singapore Management University)

  • Myoung-jae Lee

    ()
    (Korea University, Seoul, Korea)

Abstract

This paper proposes a general empirical framework to estimate the protection-for-sale model, where the protection regime shifts according to a sector's market structure (perfectly or monop-olistically competitive). We base the protection structure on Grossman and Helpman (1994) for the subset of perfectly competitive sectors and on Chang (2005) for the subset of monop- olistically competitive sectors. The two protection regimes are simultaneously estimated with joint constraints. The results of the J-test consistently reject the homogeneous (perfect compe- tition) protection-for-sale model often adopted in previous literature and suggest a direction of improvement toward the proposed heterogeneous protection structure model.

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Bibliographic Info

Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 18-2006.

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Length: 32 pages
Date of creation: Aug 2006
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:18-2006

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Keywords: endogenous trade policy; campaign contribution; monopolistic competition; intrain- dustry trade; import penetration;

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References

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  1. Elhanan Helpman, 1998. "The Structure of Foreign Trade," NBER Working Papers 6752, National Bureau of Economic Research, Inc.
  2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  3. Kiefer, Nicholas M, 1978. "Discrete Parameter Variation: Efficient Estimation of a Switching Regression Model," Econometrica, Econometric Society, vol. 46(2), pages 427-34, March.
  4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  5. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
  6. Phillips, Robert F., 1991. "A constrained maximum-likelihood approach to estimating switching regressions," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 241-262.
  7. Powell, James L., 1984. "Least absolute deviations estimation for the censored regression model," Journal of Econometrics, Elsevier, vol. 25(3), pages 303-325, July.
  8. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  9. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-93, May.
  10. Fair, Ray C & Jaffee, Dwight M, 1972. "Methods of Estimation for Markets in Disequilibrium," Econometrica, Econometric Society, vol. 40(3), pages 497-514, May.
  11. Chang, Pao-Li, 2005. "Protection for sale under monopolistic competition," Journal of International Economics, Elsevier, vol. 66(2), pages 509-526, July.
  12. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
  13. Theo Eicher & Thomas Osang, 2002. "Protection for Sale: An Empirical Investigation: Comment," American Economic Review, American Economic Association, vol. 92(5), pages 1702-1710, December.
  14. Lee, Myoung-Jae, 1996. "Nonparametric Two-Stage Estimation of Simultaneous Equations with Limited Endogenous Regressors," Econometric Theory, Cambridge University Press, vol. 12(02), pages 305-330, June.
  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.
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