Interest Groups and Trade Policy

by Gene M. Grossman, Elhanan Helpman

Overview

Gene Grossman and Elhanan Helpman are widely acclaimed for their pioneering theoretical studies of how special interest groups seek to influence the policymaking process in democratic societies. This collection of eight of their previously published articles is a companion to their recent monograph, Special Interest Politics. It clarifies the origins of some of the key ideas in their monograph and shows how their methods can be used to illuminate policymaking in a critical area.


Following an original introduction to the contents of the book and its relationship to Special Interest Politics, the first three chapters focus on campaign contributions and candidate endorsements—two of the tools that interest groups use in their efforts to influence policy outcomes. The remaining chapters present applications to trade policy issues. Grossman and Helpman demonstrate how the approaches developed in their monograph can shed light on tariff formation in small and large countries, on the conduct of multilateral trade negotiations, and on the viability of bilateral free trade agreements. They also examine the forms that regional and multilateral trade agreements are likely to take and the ways in which firms invest abroad to circumvent trade barriers induced by political pressures.


The articles collected in this volume are required reading for anyone interested in international relations, trade policy, or political economy. They show why Grossman and Helpman are global leaders in the fields of international economics and political economy.

Product Details

ISBN-13:	9780691095974
Publisher:	Princeton University Press
Publication date:	03/03/2002
Edition description:	New Edition
Pages:	272
Product dimensions:	6.00(w) x 9.25(h) x (d)

About the Author

Gene M. Grossman is the Jacob Viner Professor of International Economics at Princeton University, where he holds a joint appointment in the Woodrow Wilson School of Public and International Affairs and the Department of Economics. He is also the Director of Princeton's International Economics Section. Elhanan Helpman is Professor of Economics at Harvard University, the Archie Sherman Professor of International Economic Relations at Tel Aviv University, and Director of the Canadian Institute for Advanced Research's Economic Growth and Policy Program. Grossman and Helpman have collaborated on Innovation and Growth in the Global Economy and Special Interest Politics, and on numerous well-known articles.

Table of Contents

Introduction 1

1. Special Interest Politics 2

2. Articles in this Collection 7

2.1. Part I: Methodology 7

2.2. Part II: Applications to Trade Policy 11

3 Empirical Validation 17

References 21

PART I: INSTRUMENTS OF INFLUENCE 23

1. Common Agency and Coordination: General Theory and Application to Government Policy Making (with Avinash Dixit) 25

1. Introduction 25

2. General Theory 28

2.1. Equilibrium 28

2.2. Truthful Equilibria 32

2.3. Quasi-Linear Preferences 34

3. Application to Government Policy Making 35

References 41

2. Electoral Competition and Special Interest Politics 43

1. Introduction 43

2. Related Literature 45

3. The Model 47

3.1. The Voters 47

3.2. The Parties and the Government 49

3.3. The Special Interests 50

3.4. Political Equilibrium 52

3.5. Functional Forms 54

4. Equilibrium with One Lobby 54

4.1. Contributions with Only an Influence Motive 56

4.2. When Is an Electoral Motive Operative? 59

5. Equilibrium with Several Lobbies 61

6. Summary 67

APPENDIX 69

Strict Majority Rule 69

References 71

3. Competing for Endorsements 73

1. The Literature on Political Endorsements 77

2. The Model and a Benchmark 79

3. A Neutrality Result 84

4. Effective Endorsements 85

4.1. Mechanical Endorsements 86

4.2. Strategic Endorsements 92

5. Welfare 95

6. Conclusions 98

APPENDIX 100

Statement and Proof of Proposition 4 100

Proof of Proposition 5 104

References 107

PART II: TRADE POLICY 109

4. Protection for Sale 111

1. Overview 114

2. Formal Framework 116

3. The Structure of Protection 119

4. Political Contributions 126

5. Why Lobbies May Prefer Trade Policies 132

6. Summary and Extensions 134

References 136

5. Trade Wars and Trade Talks 139

1. Introduction 139

2. Model Outline and Relation to the Literature 141

3. The Formal Model 143

4. Trade Wars 147

5. Trade Talks 157

6. Conclusions 168

References 170

6. Politics and Trade Policy 173

1. Introduction 173

2. Political Economy Approaches 175

2.1. Direct Democracy 175

2.2. Political Support Function 178

2.3. Tariff-Formation Function 180

2.4. Electoral Competition 184

2.5. Influence-Driven Contributions 186

3. Double-Edged Diplomacy 191

3.1. Trade Wars 192

3.2. Trade Talks 193

3.3. Free Trade Agreements 194

References 197

7. The Politics of Free Trade Agreements 199

1. Analytical Framework 201

1.1. Objectives of Economic and Political Agents 202

1.2. The Political Game 204

1.3. Economic Equilibria Under an FTA 205

1.4. Effects of an FTA on Economic Interests 207

2. Unilateral Stances 208

3. Equilibrium Agreements 212

4. Industry Exclusions 219

4.1. Unilateral Stances 219

4.2. Bargaining over Industry Exclusions 224

5. Conclusions 228

APPENDIX 229

Contributions to Foreign Governments 229

References 232

8. Foreign Investment with Endogenous Protection 233

1. Introduction 233

2. Basic Model 236

2.1. Consumption and Production 237

2.2. The Special Interest Group and the Government 239

2.3. Multinationals 242

3. DFI and Protection 243

3.1. Tariff Response Curves 243

3.2. Profit Differential Curves 244

3.3. Entry 244

3.4. Equilibrium DFI and Protection 246

4. Does DFI Benefit the Average Voter? 249

5. Workers Versus Capitalists 251

6. Conclusions 255

References 255

Index 257

What People are Saying About This

From the Publisher

"The recent work by Grossman and Helpman is on the cutting edge of the theory of political influence and policy. This collection brings together and unifies their pathbreaking work and will be valuable to academics and students in both political science and economics."—Douglas Irwin, author of Free Trade Under Fire

Douglas Irwin

The recent work by Grossman and Helpman is on the cutting edge of the theory of political influence and policy. This collection brings together and unifies their pathbreaking work and will be valuable to academics and students in both political science and economics.
— Douglas Irwin, author of "Free Trade Under Fire"

Editorial Reviews

These readings showcase Grossman and Helpman's contributions to our understanding of how lobbying and interest groups affect international trade policy. Many people will want to have this collection on their shelf.

Journal of International Economics - Robert Feenstra

These readings showcase Grossman and Helpman's contributions to our understanding of how lobbying and interest groups affect international trade policy. Many people will want to have this collection on their shelf.
— Robert Feenstra, editor

Journal of International Economics

These readings showcase Grossman and Helpman's contributions to our understanding of how lobbying and interest groups affect international trade policy. Many people will want to have this collection on their shelf.—-Robert Feenstra, editor, Journal of International Economics


"The recent work by Grossman and Helpman is on the cutting edge of the theory of political influence and policy. This collection brings together and unifies their pathbreaking work and will be valuable to academics and students in both political science and economics."—Douglas Irwin, author of Free Trade Under Fire

From the Publisher