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Protection for Sale Under Monopolistic Competition: An Empirical Investigation

Author

Listed:
  • 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.

Suggested Citation

  • Pao-Li Chang & Myoung-jae Lee, 2006. "Protection for Sale Under Monopolistic Competition: An Empirical Investigation," Working Papers 18-2006, Singapore Management University, School of Economics.
  • Handle: RePEc:siu:wpaper:18-2006
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    References listed on IDEAS

    as
    1. 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.
    2. Elhanan Helpman, 1999. "The Structure of Foreign Trade," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 121-144, Spring.
    3. Kiefer, Nicholas M, 1978. "Discrete Parameter Variation: Efficient Estimation of a Switching Regression Model," Econometrica, Econometric Society, vol. 46(2), pages 427-434, March.
    4. Chang, Pao-Li, 2005. "Protection for sale under monopolistic competition," Journal of International Economics, Elsevier, vol. 66(2), pages 509-526, July.
    5. 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.
    6. 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 138-160, February.
    7. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
    8. 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.
    9. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    10. Powell, James L., 1984. "Least absolute deviations estimation for the censored regression model," Journal of Econometrics, Elsevier, vol. 25(3), pages 303-325, July.
    11. 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.
    12. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
    13. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-793, May.
    14. Phillips, Robert F., 1991. "A constrained maximum-likelihood approach to estimating switching regressions," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 241-262.
    15. Fair, Ray C & Jaffee, Dwight M, 1972. "Methods of Estimation for Markets in Disequilibrium," Econometrica, Econometric Society, vol. 40(3), pages 497-514, May.
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    More about this item

    Keywords

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

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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