Protection for Sale: An Empirical Investigation

Protection for Sale: An Empirical Investigation

February 1997 | Pinelopi Koujianou Goldberg, Giovanni Maggi
This paper evaluates the empirical validity of Grossman and Helpman's (1994) "Protection for Sale" model, which predicts that trade protection depends on import elasticity, import-penetration ratio, and whether an industry is represented by a lobby. Using U.S. data from 1983, the authors find that the model's predictions are consistent with the data. They estimate that the government's valuation of welfare relative to contributions is surprisingly high, with welfare weight estimated to be between 50 and 88 times that of contributions. The model also predicts that protection is higher in organized sectors and lower in sectors with higher import elasticity. The authors find that the protection pattern differs between organized and non-organized sectors, with protection increasing with import penetration in non-organized sectors and showing weak evidence of inverse relationship in organized sectors. They also find that none of the additional variables improves the explanatory power of the strict G-H model, with the exception of employment size and unemployment rate. The authors conclude that the model provides a reasonable explanation of trade protection, although it may not capture all aspects of the phenomenon. The results suggest that the U.S. is relatively open to trade, even when non-tariff barriers are considered.This paper evaluates the empirical validity of Grossman and Helpman's (1994) "Protection for Sale" model, which predicts that trade protection depends on import elasticity, import-penetration ratio, and whether an industry is represented by a lobby. Using U.S. data from 1983, the authors find that the model's predictions are consistent with the data. They estimate that the government's valuation of welfare relative to contributions is surprisingly high, with welfare weight estimated to be between 50 and 88 times that of contributions. The model also predicts that protection is higher in organized sectors and lower in sectors with higher import elasticity. The authors find that the protection pattern differs between organized and non-organized sectors, with protection increasing with import penetration in non-organized sectors and showing weak evidence of inverse relationship in organized sectors. They also find that none of the additional variables improves the explanatory power of the strict G-H model, with the exception of employment size and unemployment rate. The authors conclude that the model provides a reasonable explanation of trade protection, although it may not capture all aspects of the phenomenon. The results suggest that the U.S. is relatively open to trade, even when non-tariff barriers are considered.
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