Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpit/0310003.html
   My bibliography  Save this paper

Why is there an Anti-trade Bias in Trade Policy?

Author

Listed:
  • Nuno Limão

    (University of Maryland)

  • Arvind Panagariya

    (University of Maryland)

Abstract
Small economies rarely embrace free trade, a fact that is commonly explained as a consequence of the government's use of trade policy to redistribute income. But why is this redistribution typically biased in favor of import-competing sectors and is consequently trade restricting rather than trade promoting? This remains an important puzzle in trade policy. Most models assume the puzzle away by restricting the government set of policies or else generate the opposite, and empirically counterfactual, prediction--that trade policy has a pro-trade bias (e.g. Grossman-Helpman AER 1994). We show that if the government's objective reflects a concern for inequality, or diminishing marginal political support from factor owners, then trade policy exhibits anti-trade bias. Importantly the mechanism that we analyze generates the anti-trade bias independently of whether factors are specific or mobile across sectors. The mechanism also generates an anti-trade bias between large countries even after they sign reciprocal trade agreements that eliminate any terms-of-trade motivation for the use of trade protection.

Suggested Citation

  • Nuno Limão & Arvind Panagariya, 2003. "Why is there an Anti-trade Bias in Trade Policy?," International Trade 0310003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpit:0310003
    Note: Type of Document - pdf; prepared on win2000; pages: 41
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/it/papers/0310/0310003.pdf
    Download Restriction: no
    ---><---

    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. Richard E. Caves, 1976. "Economic Models of Political Choice: Canada's Tariff Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 9(2), pages 278-300, May.
    3. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-1187, December.
    4. Magee,Stephen P. & Brock,William A. & Young,Leslie, 1989. "Black Hole Tariffs and Endogenous Policy Theory," Cambridge Books, Cambridge University Press, number 9780521377003, September.
    5. Mihir A. Desai & James R. Hines, Jr., 2001. "The Uneasy Marriage of Export Incentives and the Income Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 15, pages 41-94, National Bureau of Economic Research, Inc.
    6. Jonathan Eaton & Gene M. Grossman, 1985. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 258-272, May.
    7. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    8. Van Long, Ngo & Vousden, Neil, 1991. "Protectionist responses and declining industries," Journal of International Economics, Elsevier, vol. 30(1-2), pages 87-103, February.
    9. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
    10. Helpman, Elhanan, 1995. "Politics and Trade Policy," Foerder Institute for Economic Research Working Papers 275606, Tel-Aviv University > Foerder Institute for Economic Research.
    11. Rodrik, Dani, 1986. "Tariffs, subsidies, and welfare with endogenous policy," Journal of International Economics, Elsevier, vol. 21(3-4), pages 285-299, November.
    12. Pushan Dutt & Devashish Mitra, 2016. "Endogenous trade policy through majority voting: an empirical investigation," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 4, pages 67-93, World Scientific Publishing Co. Pte. Ltd..
    13. Maggi, Giovanni & Rodriguez-Clare, Andres, 2000. "Import penetration and the politics of trade protection," Journal of International Economics, Elsevier, vol. 51(2), pages 287-304, August.
    14. Venables, Anthony J. & Limao, Nuno, 2002. "Geographical disadvantage: a Heckscher-Ohlin-von Thunen model of international specialisation," Journal of International Economics, Elsevier, vol. 58(2), pages 239-263, December.
    15. Ray, Edward John, 1981. "Tariff and Nontariff Barriers to Trade in the United States and Abroad," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 161-168, May.
    16. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
    17. Kevin H. O'Rourke & Jeffrey G. Williamson, 2001. "Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650592, April.
    18. Panagariya, Arvind & Rodrik, Dani, 1993. "Political-Economy Arguments for a Uniform Tariff," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 685-703, August.
    19. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
    20. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494, Elsevier.
    21. Ronald Findlay & Stanislaw Wellisz, 1982. "Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare," NBER Chapters, in: Import Competition and Response, pages 223-244, National Bureau of Economic Research, Inc.
    22. Ruffin, Roy & Jones, Ronald, 1977. "Protection and real wages: The neoclassical ambiguity," Journal of Economic Theory, Elsevier, vol. 14(2), pages 337-348, April.
    23. Levy, Philip I., 1999. "Lobbying and international cooperation in tariff setting," Journal of International Economics, Elsevier, vol. 47(2), pages 345-370, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Patricia Tovar, 2004. "The Effects of Loss Aversion on Trade Policy and the Anti-Trade Bias Puzzle," Econometric Society 2004 North American Summer Meetings 499, Econometric Society.
    2. Maurice, Noemie & Davis, Junior, 2011. "Unravelling the underlying causes of price volatility in world coffee and cocoa commodity markets," MPRA Paper 43813, University Library of Munich, Germany, revised 2012.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nuno Limão & Arvind Panagariya, 2018. "Inequality and endogenous trade policy outcomes," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 8, pages 237-254, World Scientific Publishing Co. Pte. Ltd..
    2. Richard E. Baldwin & Frédéric Robert-Nicoud, 2007. "Entry and Asymmetric Lobbying: Why Governments Pick Losers," Journal of the European Economic Association, MIT Press, vol. 5(5), pages 1064-1093, September.
    3. Dutt, Pushan & Mitra, Devashish, 2009. "Explaining Agricultural Distortion Patterns : The Roles of Ideology, Inequality, Lobbying and Public Finance," Agricultural Distortions Working Paper Series 50299, World Bank.
    4. Tovar, Patricia, 2009. "The effects of loss aversion on trade policy: Theory and evidence," Journal of International Economics, Elsevier, vol. 78(1), pages 154-167, June.
    5. Christis G. Tombazos, 2003. "Unprotective Tariffs, Ineffective Liberalization, and Other Mysteries: An Investigation of the Endogenous Dimensions of Trade Policy Formation in Australia," Southern Economic Journal, John Wiley & Sons, vol. 70(1), pages 49-74, July.
    6. Pravin Krishna & Devashish Mitra, 2003. "Reciprocated Unilateralism in Trade Policy: An Interest-Group Approach," NBER Working Papers 9631, National Bureau of Economic Research, Inc.
    7. Theo S Eicher & Thomas Osang, 2000. "Politics and Trade Policy: An Empirical Investigation"," Working Papers 0004, University of Washington, Department of Economics.
    8. Pokrivcak, Jan, 2007. "Economics and Political Economy of Regional Trade Agreements," Working Papers 7286, TRADEAG - Agricultural Trade Agreements.
    9. Kishore Gawande & Pravin Krishna & Michael J. Robbins, 2006. "Foreign Lobbies and U.S. Trade Policy," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 563-571, August.
    10. Yu-Fu Chen & I-Hui Cheng, 2003. "Lobbying for Protection under Uncertainty: A Real Option Approach," Dundee Discussion Papers in Economics 155, Economic Studies, University of Dundee.
    11. Patricia Tovar, 2004. "The Effects of Loss Aversion on Trade Policy and the Anti-Trade Bias Puzzle," Econometric Society 2004 North American Summer Meetings 499, Econometric Society.
    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. Freund, Caroline & Ozden, Caglar, 2004. "Loss aversion and trade policy," Policy Research Working Paper Series 3385, The World Bank.
    14. kishore gawande & pravin krishna, 2005. "The Political Economy of Trade Policy: Empirical Approaches," International Trade 0503003, University Library of Munich, Germany.
    15. Yasar, Mahmut, 2013. "Political Influence of Exporting and Import-Competing Firms: Evidence from Eastern European and Central Asian Countries," World Development, Elsevier, vol. 51(C), pages 154-168.
    16. Giovanni Facchini & Johannes Van Biesebroeck & Gerald Willmann, 2006. "Protection for sale with imperfect rent capturing," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 845-873, August.
    17. Helpman, E., 1995. "Politics and Trade Policy," Papers 30-95, Tel Aviv - the Sackler Institute of Economic Studies.
    18. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    19. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    20. Imai, Susumu & Katayama, Hajime & Krishna, Kala, 2009. "Protection for sale or surge protection?," European Economic Review, Elsevier, vol. 53(6), pages 675-688, August.

    More about this item

    Keywords

    trade policy; protectionism; anti-trade bias; inequality;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpit:0310003. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.