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Endogenous Trade Policy with Heterogeneous Firms

  • Jennifer Abel-Koch

    (Nottingham Centre for Research on Globalisation and Economic Policy, University of Nottingham and Gutenberg School of Economics and Management, University of Mainz)

The present paper modifies the \Protection for Sale" model of Grossman and Helpman (1994) to account for heterogeneous firms lobbying for non-tariff barriers to trade, such as technical standards or certification requirements. They raise the fixed costs of market access for both domestic producers and foreign exporters, force the least efficient firms to exit and shift profits to the most efficient firms. Non-tariff barriers to trade shift profits both within and across countries, but not necessarily to the country in which firms are more productive on average. They decrease social welfare as they reduce competition and product variety, but may nevertheless be implemented if only the largest domestic firms lobby the government. When variable trade costs fall or foreign firms become relatively more competitive, the potential for profit shifting and hence non-tariff barriers to trade decrease. The paper also analyzes the case of international trade negotiations, and it addresses the issue of endogenous lobby formation.

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File URL: http://www.macro.economics.uni-mainz.de/RePEc/pdf/Discussion_Paper_1306.pdf
File Function: First version, 2013
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Paper provided by Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz in its series Working Papers with number 1306.

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Length: 35 pages
Date of creation: 01 Aug 2013
Date of revision: 01 Aug 2013
Handle: RePEc:jgu:wpaper:1306
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  1. Grossman, Gene M. & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Scholarly Articles 3450062, Harvard University Department of Economics.
  2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  3. Gianmarco I.P. Ottaviano & Gregory Corcos & Massimo Del Gatto & Giordano Mion, 2009. "Productivity and Firm Selection: Quantifying the “New” Gains from Trade," Working Papers 2009.115, Fondazione Eni Enrico Mattei.
  4. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2005. "Trade, wages, and the political economy of trade protection: evidence from the Colombian trade reforms," Journal of International Economics, Elsevier, vol. 66(1), pages 75-105, May.
  5. Ernst Fehr & Simon Gaechter, . "Cooperation and Punishment in Public Goods Experiments," IEW - Working Papers 010, Institute for Empirical Research in Economics - University of Zurich.
  6. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  7. Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
  8. Vincent Rebeyrol & Julien Vauday, 2008. "Live or let die : intra-sectoral lobbying on entry," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00282331, HAL.
  9. 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.
  10. William R. Kerr & William F. Lincoln & Prachi Mishra, 2014. "The Dynamics of Firm Lobbying," William Davidson Institute Working Papers Series wp1072, William Davidson Institute at the University of Michigan.
  11. Do, Quy-Toan & Levchenko, Andrei A., 2006. "Trade, inequality, and the political economy of institutions," Policy Research Working Paper Series 3836, The World Bank.
  12. Xiaoquan (Michael) Zhang & Feng Zhu, 2011. "Group Size and Incentives to Contribute: A Natural Experiment at Chinese Wikipedia," American Economic Review, American Economic Association, vol. 101(4), pages 1601-15, June.
  13. Zudenkova, Galina, 2012. "Lobbying as a Guard against Extremism," Working Papers 2072/184036, Universitat Rovira i Virgili, Department of Economics.
  14. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
  15. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  16. Susumu Imai & Hajime Katayama & Kala Krishna, 2008. "Is Protection Really for Sale? A Survey and Directions for Future Research," NBER Working Papers 13899, National Bureau of Economic Research, Inc.
  17. Chen, Natalie & Novy, Dennis, 2011. "Gravity, trade integration, and heterogeneity across industries," Journal of International Economics, Elsevier, vol. 85(2), pages 206-221.
  18. Bombardini, Matilde, 2008. "Firm heterogeneity and lobby participation," Journal of International Economics, Elsevier, vol. 75(2), pages 329-348, July.
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