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Endogenous Trade Policy with Heterogeneous Firms

Jennifer Abel-Koch ()

No 1306, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

Abstract: The present paper modifies the \Protection for Sale" model of Grossman and Helpman (1994) to account for heterogeneous firms lobbying for non-tariff barriers to trade, such as technical standards or certification requirements. They raise the fixed costs of market access for both domestic producers and foreign exporters, force the least efficient firms to exit and shift profits to the most efficient firms. Non-tariff barriers to trade shift profits both within and across countries, but not necessarily to the country in which firms are more productive on average. They decrease social welfare as they reduce competition and product variety, but may nevertheless be implemented if only the largest domestic firms lobby the government. When variable trade costs fall or foreign firms become relatively more competitive, the potential for profit shifting and hence non-tariff barriers to trade decrease. The paper also analyzes the case of international trade negotiations, and it addresses the issue of endogenous lobby formation.

Keywords: Endogenous trade policy; non-tariff barriers to trade; heterogeneous firms; lobbying (search for similar items in EconPapers)
JEL-codes: D70 F12 F13 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013-08-01, Revised 2013-08-01
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (12) Track citations by RSS feed

Downloads: (external link) First version, 2013 (application/pdf)

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