Endogenous trade policy and political contributions in a standard-trade model (HOS trade model)

The paper developed a political economy model about endogenous trade policy along the lines of the well known contribution of Grossman and Helpman (1994). In our case the structure of the economy is standard (neoclassical trade model instead of the specific factor trade model of the original paper) and more general (preferences are not quasilinear). In this new environment an equilibrium of the game is derived. Two basic proposition resume the results related to the level of the trade policy instruments set by the policy makers and the political contribution made by the active group of consumers (lobbies). This new general result is analysed in a particular small economy abundant in a factor different from labor, e.g. natural resources.Three cases are studied to present the results of the two general propositions according with the different active lobby in the contribution game :labor unions that allow the income contribution of workers to influence the trade policy; factor owners associations that allow the income contribution of the others consumers in the other extreme of the income distribution; contributions of both types of consumers workers and owners.