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Endogenous Trade Policies in a Developing Economy

Author

Listed:
  • N.M. Hung
  • N.V. Quyen

Abstract

Consider a small developing economy with a manufacturing sector opened to international trade, and an agricultural sector having limited, not to say any, access to world markets. We modify the Grossman and Helpman's influence-driven model of trade policy formation to allow for an endogenously determined wage rate in a three-sector economy where the manufacturing sector can lobby policy makers for favorable policies. Beside protectionist policies, namely an import tariff or an export subsidy, we show that the owners of the specific factor in agriculture - a non-lobby group - have to bear a consumption tax imposed on their products. This would further strengthen the trade protectionist measure, and imply possibly undesirable general equilibrium repercussions: there will be a reallocation of labor to the manufacturing sector which enjoys an output expansion, an output contraction in the agricultural sector, and a lower workers' "real" income.

Suggested Citation

  • N.M. Hung & N.V. Quyen, 2006. "Endogenous Trade Policies in a Developing Economy," Cahiers de recherche 0602, Université Laval - Département d'économique.
    • Handle: RePEc:lvl:laeccr:0602
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    File URL: http://www.ecn.ulaval.ca/w3/recherche/cahiers/2006/0602.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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