PROTECTION FOR SALE: AN EMPIRICAL INVESTIGATION

PROTECTION FOR SALE: AN EMPIRICAL INVESTIGATION

February 1997 | Pinelopi Koujianou Goldberg, Giovanni Maggi
This paper investigates the empirical validity of Grossman and Helpman’s (1994) “Protection for Sale” model, which predicts that cross-sectional differences in trade protection are explained by import elasticity, import penetration ratio, and the presence of a lobby. The authors use data on non-tariff barriers for the U.S. in 1983 to test the model's predictions. They find that the pattern of protection in the U.S. in 1983 is consistent with the model's predictions. The estimated weight of welfare in the government's objective function is surprisingly high, ranging from 50 to 88 times the weight of contributions. The paper also discusses the limitations of the study, such as the use of coverage ratios instead of tariffs and the lack of reliable data on foreign export supply elasticities. The results suggest that the U.S. is relatively open to trade, even when non-tariff barriers are considered, and that the government attaches a significant weight to social welfare and there is a high degree of lobby representation.This paper investigates the empirical validity of Grossman and Helpman’s (1994) “Protection for Sale” model, which predicts that cross-sectional differences in trade protection are explained by import elasticity, import penetration ratio, and the presence of a lobby. The authors use data on non-tariff barriers for the U.S. in 1983 to test the model's predictions. They find that the pattern of protection in the U.S. in 1983 is consistent with the model's predictions. The estimated weight of welfare in the government's objective function is surprisingly high, ranging from 50 to 88 times the weight of contributions. The paper also discusses the limitations of the study, such as the use of coverage ratios instead of tariffs and the lack of reliable data on foreign export supply elasticities. The results suggest that the U.S. is relatively open to trade, even when non-tariff barriers are considered, and that the government attaches a significant weight to social welfare and there is a high degree of lobby representation.
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