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 Voterspolicypreferencesareonlyimperfectlyreflectedingovern- 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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