lec16-eco101-11

lec16-eco101-11 - InternationalTrade Lecture16 c ⃝...

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Unformatted text preview: InternationalTrade Lecture16 c ⃝ Marc-AndreasMuendler UniversityofCalifornia,SanDiego November22,2011 16.PoliticalEconomyofTradePolicies Econ101, c ⃝ M.Muendler FreeTrade • Freetrademaximizesnationalwelfareinthelongterm • Gainsfromtrademaynotbefullyrealizedimmediatelybutovertime • Tradehasdistributionaleffects • Inpractice,governmentsmaintaintraderestrictions • Tradepoliciestendtobedominatedbyspecialinterestgroupsrather thannationalwelfareconsiderations 16.PoliticalEconomyofTradePolicies Econ101, c ⃝ M.Muendler TheoryoftheSecondBest • Market-failureargumentsagainstfreetradeareapplicationsofthe theoryofthesecondbest • TheoryoftheSecondBest : Laissez-faire (nointervention)isonly desirableforonemarketifallothermarketsareworkingproperly – Governmentinterventionsmayimprovewelfare – However,directremovalofthemarketfailureswouldbemoreef- ficientthansecond-bestpolicies Example .Environmentalsideeffects(negativeexternalities)arebetteraddressed withpollutionlicensesthantraderestrictions 16.PoliticalEconomyofTradePolicies Econ101, c ⃝ M.Muendler PoliticalEconomy • Politicaloutcomesdonotnecessarilyhavetodowithgovernmental benevolence • Inpractice,tradepolicyisdominatedbyincomedistributionconsid- erations.Governmentsmaximizepoliticalsuccess • Voters’policypreferencesareonlyimperfectlyreflectedingovern- mentobjectives • Politicaleconomymodels:(1)ElectoralCompetition,(2)Collective Action,(3)PoliticalProcessmodel 16.PoliticalEconomyofTradePolicies Econ101, c ⃝ M.Muendler (1)ElectoralCompetition • Politicalpartiespursuepoliciessoastomaximizetheirvotes Singlepolicydecision:Theoverallimporttarifflevel • Considertwocompetingparties,eachaimingatelectiontooffice Votersdifferinthepreferredtarifflevel • Medianvotertheorem :Bothpartieswillofferthesametradepolicy, consistinginthetariffthatthe median voterprefers Reason .Ifapartyproposesaslightlylowertariffthanthemedianvoterprefer- ence(atthe49%pointofthevoterspectrum),itwillonlycapture49.5%ofthe votes(fromfreetraders),whereastheotherpartykeepsthe50%onitssideofthe (protectionist)spectrumandgains.5%of(freetraders’)votes. 16.PoliticalEconomyofTradePolicies Econ101, c ⃝ M.Muendler (2)CollectiveAction • Politicalactivityresultsintheprovisionofpublicgoodssuchastrade protection.Animporttariffprotectsallfirmsinanindustry • Itiscostlytoorganizepoliticalgroups,rallyingaroundsingleissues • Lobbyingeffortsandcampaigncontributionswillbethehigherthe moreconcentratedinterestsareamongfewagents.Conversely,ef- fortswillbelessthemorewide-spreadthegainsareacrossagents • Prediction .Smallandwell-organizedindustriesgethighprotectionat the(wide-spread)costofallothervoters 16.PoliticalEconomyofTradePolicies Econ101, c ⃝ M.Muendler (3)PoliticalProcess • Interestgroupsbuypoliciesbyofferingcontributionsthatarecontin- gentonthepoliciesfollowedbypoliticians • BaldwinandMagee(2000):VotesonNAFTAandGATT Congressionalvotes ForNAFTA1993 ForGATT1994 Actualvotes 229 283 Predictedbymodel 229 290 Absenceoflaborcontributions...
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lec16-eco101-11 - InternationalTrade Lecture16 c ⃝...

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