Interest Groups and Trade Policy

For more than two centuries now, economists have advocated free trade. Yet, trade policy almost always and everywhere has involved some amount of import protection. Among the political‐economy theories studying the reasons behind the existence of protection, the Grossman and Helpman (1994) ‘Protection for Sale’ model is the first to provide detailed microfoundations to the behaviour of lobbies and politicians. Within a multisectoral framework in a small‐country setting, they use the ‘menu‐auctions’ approach to model the relation between lobbies (the multiple principals) who want to enhance their welfare by buying protection for the industries they represent and the government (the common agent) that sells protection to maximise a weighted sum of contributions and aggregate welfare. Industry‐level protection is derived as a function of industry characteristics and other political and economic factors. Grossman and Helpman have extended this framework to analyse other interesting issues such as determinants of tariffs when countries are large, the rationale behind international trade negotiations, the conditions that give rise to free trade areas, and the relationship between endogenous protection and foreign direct investment. Anyone interested in understanding these different aspects of the political economy of trade policy should try to acquire a copy of their book Interest Groups and Trade Policy. The second half of this book is a collection of all their previously published articles on endogenous trade policy, while the first half has all their published work on general aspects and techniques of political economy. Apart from their published papers, most of which have come out in major journals (and hence can be accessed online at the click of a button), there is the introductory chapter which by itself is quite useful. It nicely summarises all the papers in the book and provides the major results with their intuition. It also surveys some of the recent empirical work that has found support for their models

Commercial policy · Economics · Free trade · Government (linguistics · Grossman · International economics · International trade · Investment (military · Macroeconomics · Market economy · Microfoundations · Negotiation · Political science · Politics · Protectionism · Trade barrier · Welfare · Global trade and economics · Law · Merger and Competition Analysis

• Special Interest Politics

  Open Access•David Dreyer Lassen•The Economic Journal•2003

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