Endogenous Tariff Formation with Intra-Industry Trade

Pao-Li Chang ()

No 476, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: Previous theoretical contributions on endogenous tariff formation have focused on trade mod-els with homogeneous goods and constant returns to scale. This paper investigates the political equilibrium of trade policy when economic structure is instead characterized by differentiated products and increasing returns to scale and there exists intra-industry trade. The result shows that endogenous tariffs are positive for all industries with non-negligible shares of world pro-duction. However, the level of protection is less than the optimal tariff that would otherwise be imposed by a benevolent government in an unorganized industry, and higher in an organized industry. The protection provided to all unorganized (organized) industries increases (falls) with the relative weight the government attaches to aggregate welfare vis-` a-vis campaign contribu-tions and falls with the fraction of the population that belongs to a lobby group. The model also indicates that the endogenous tariff level in an organized industry might be explosive. The higher is the fraction of the population represented by a lobby and the higher is the weight on aggregate welfare in the government’s objective function, the smaller is the possibility for such an explosive tariff.

Keywords: endogenous tariff; intra-industry trade (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Pages: 23 Pages
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://fordschool.umich.edu/rsie/workingpapers/Papers476-500/r476.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mie:wpaper:476

Access Statistics for this paper

More papers in Working Papers from Research Seminar in International Economics, University of Michigan Contact information at EDIRC.
Bibliographic data for series maintained by FSPP Webmaster ().