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On The Endogenous Choice Between Protection And Promotion

In: The Political Economy of Trade Policy Theory, Evidence and Applications

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  • DEVASHISH MITRA

Abstract

In a model of strategic interaction between firms in lobbying activity, I show that capitalists might prefer tariffs (protection) to production subsidies (promotion). This is due to the congestion problem arising from the government's convex welfare costs of providing subsidies as opposed to both the free-rider problem and the congestion problem acting in opposite directions in the case of tariffs. If an industry association exists, coordination can be achieved when lobbying for tariffs, but not in the case of production subsidies.

Suggested Citation

  • Devashish Mitra, 2016. "On The Endogenous Choice Between Protection And Promotion," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 11, pages 201-219, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814569156_0011
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    Cited by:

    1. Glazer, Amihai & Ranjan, Priya, 2007. "Trade protection to reduce redistribution," European Journal of Political Economy, Elsevier, vol. 23(3), pages 790-805, September.
    2. Bradford, Scott, 2003. "Protection and jobs: explaining the structure of trade barriers across industries," Journal of International Economics, Elsevier, vol. 61(1), pages 19-39, October.
    3. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoĝlu, 2016. "Protection Versus Promotion: An Empirical Investigation," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 12, pages 221-236, World Scientific Publishing Co. Pte. Ltd..
    4. Afonso, Oscar & Silva, Armando, 2012. "Non-scale endogenous growth effects of subsidies for exporters," Economic Modelling, Elsevier, vol. 29(4), pages 1248-1257.
    5. Helmers, Christian & Trofimenko, Natalia, 2009. "Export subsidies in a heterogeneous firms framework," Kiel Working Papers 1476, Kiel Institute for the World Economy (IfW Kiel).
    6. Bradford, Scott, 2006. "Protection and unemployment," Journal of International Economics, Elsevier, vol. 69(2), pages 257-271, July.

    More about this item

    Keywords

    Political Economy; Protection; Trade Policy; Tariffs; Subsidies; Reciprocal Trade Liberalization; Unilateral Trade Liberalization; Unilateralism; Reciprocity; Lobbying; Median Voter Models;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • F6 - International Economics - - Economic Impacts of Globalization

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