Selling Protection for Sale

Wilfred Ethier ()

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: The Received Theory of trade policy, based solely on terms-of-trade externalities between national governments, has become the conventional wisdom among international trade theorists. But it displays two puzzles that render that theory inconsistent with reality. Significant empirical work, however, supports aspects of the Grossman-Helpman Protection-for-Sale model, a subset of the Received Theory. This paper shows that a simple formulation of the political economy of protection, that dispenses with terms-of-trade externalities, predicts the properties that the empirical work has confirmed, and is free of the counterfactual implications of the Received Theory. The implication is that, despite its claims to the contrary, the empirical literature offers no real support for the Protection-for-Sale model or, therefore, for the Received Theory.

Keywords: The Protection-for-Sale model; the Received Theory; the Terms-of-Trade Puzzle; the Export-Subsidy-Transfer Puzzle (search for similar items in EconPapers)
JEL-codes: F02 F13 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2006-05-08, Revised 2006-06-01
New Economics Papers: this item is included in nep-int and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:06-014

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