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Trade policy & lobbying effectiveness: Theory and evidence for India

Amrita Saha ()

European Journal of Political Economy, 2019, vol. 56, issue C, 165-192

Abstract: How do we understand differences in effectiveness in lobbying for trade policy? To explain lobbying effectiveness, I introduce a new measure into Grossman and Helpman's (1994, American Economic Review 84: 833–850) model of protection-for-sale (PFS). Differences in effectiveness are explained on the basis that some groups make a better case for protection by sending a signal regarding information they possess and that is considered by policy makers before setting trade policies. I begin by estimating a standard PFS model for India using a measure of political organization, a common approach in the empirical literature on PFS. To overcome the need to define such a binary political organization variable, I then use panel data to estimate the new measure of relative lobbying effectiveness. For the most effective sectors, a high output to import ratio translates into higher trade protection; for the least effective sectors, higher output to import ratio translates into lower trade protection. Examining some of the political economy influences on lobbying effectiveness, I find that producing similar goods reduces the positive effect of geographical proximity on effectiveness. Hence, within a sector, firms in close proximity and producing similar goods compete to lobby rather than cooperating or free-riding.

Keywords: Lobbying effectiveness; Trade policy; India (search for similar items in EconPapers)
JEL-codes: F13 F14 F5 (search for similar items in EconPapers)
Date: 2019
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