Essays on Interest Groups and Trade Policy
Abstract: This thesis explores the relationship between domestic political processes and interindustry variations in unilateral and multilateral trade policies. The literature on endogenous protection is extended to account for the potential importance of information flows, to explore the consequences of adapting the analyses to political systems which differ from the American kind, and to build a framework suitable for empirical examination. The first essay is devoted to an analysis of special interest influence on trade policy through the provision of biased information to voters. The roles of freely available objective information and prior voter knowledge are highlighted. The provision of biased information and campaign contributions serve as complements in the pursuit of protection by special interests, which implies that restrictions on the use of campaign contributions can yield significant reductions in both protection and the use of resources to influence public opinion. The second essay introduces the possibility of intermediate uses of goods, and shows how the conflict of interest between upstream and downstream lobby groups influence equilibrium protection levels. The essay is also concerned with how trade policies and resources expended for political purposes are affected by the institutional setting in which special interest groups and the government interact. The allocation of bargaining power between the government and special interest groups affects the character and division of rents but not equilibrium protection levels. The third essay integrates models from recent work on endogenous policy choice to provide a constructive review of parts of this literature, and to derive a broad yet consistent theoretical framework suitable for an initial examination of its empirical relevance. We exploit the fact that, for a broad range of specifications of the details of the political process represented by the various models referred to above, a reelection-seeking government would end up making its policy choices as if it were maximizing a weighted sum of individual utilities. The simultaneous presence of intermediate goods, optimum tariff considerations and variable political costs are features novel to this range of models. The fourth essay is devoted to an empirical examination of the theoretical framework derived in the third essay. The results indicate that the variations in protection levels in a set of OECD countries are correlated with variations in ratios of special interest to general interest marginal utilities in the way predicted by the theoretical model. Furthermore, terms of trade concerns seem important to the larger countries in our sample as implied by the model.
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