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Trade policy formation when geography matters for specialisation
Author(s)
Date Issued
2005-11
Date Available
2010-01-19T15:19:12Z
Abstract
In this paper, trade policy formation is incorporated into an economic geography model. The political setup used is a modified version of that introduced by Grossman and Helpman (1994) in which policy makers may be influenced by lobbying contributions.
On the basis of the underlying trade framework, lobbying activity is performed in benefit of capital interests. Optimal policy outcomes indicate that the largest countries and countries that are disadvantaged by trade regulation favour trade liberalisation. Moreover, the optimal domestic policy is more open to trade when the local and global competition facing domestic firms is less fierce, the welfare dependency on manufacturing imports is larger and when there is a more intense preference for variety in consumption. It is shown that lobbying influence on policy is increasing in the concentration of capital ownership in the population. It is also revealed that, in the cases when domestic special and general interests do not coincide, lobbying activity is performed
to liberalise trade. In addition, this actually implies that the presence of lobbying influence on policy raises the long-run national welfare.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Series
UCD Centre for Economic Research Working Paper Series
WP05/19
Classification
D72
F12
F13
Subject – LCSH
Commercial policy
Economic geography
International division of labor
Lobbying
Free trade
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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