Protection for Sale with Imperfect Rent Capturing

Giovanni Facchini (), Johannes Van Biesebroeck () and Gerald Willmann
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Gerald Willmann: University of Kiel

No 207, Development Working Papers from Centro Studi Luca d\'Agliano, University of Milano

Abstract: The Grossman and Helpman (1994) model explains tariffs as the outcome of a lobbying game between special interests and the government. Most empirical implementations of this framework use instead non-tariff barriers to measure the extent of protection. Importantly, while the former set of instruments allow the government to fully capture the rents from protection, the latter does not. As a result, structurally estimating the ‘protection for sale’ model using data on non-tariff barriers is likely to lead to biased parameter estimates. To address this problem, we augment Grossman and Helpman’s (1994) model by explicitly considering trade policy instruments allowing only partial capturing. Taking our specification to the data, we find that, on average, 72–75 percent of the rent is actually captured. Furthermore, we obtain more realistic, lower estimates of the implied share of the population involved in lobbying activities than in the previous literature, while the estimated weight of aggregate welfare in the objective function of the government is as high as in previous studies.

Keywords: Protection for Sale; Non-tariff Barriers; Partial Rent Capturing (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-int and nep-pol
Date: 2005-06-15
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Related works:
Working Paper: Protection for Sale with Imperfect Rent Capturing (2005)
Working Paper: Protection for Sale with Imperfect Rent Capturing (2003)
Journal Article: Protection for sale with imperfect rent capturing (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:csl:devewp:207

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