Abstract
This paper investigates a basic question about the international political economy—why is international trade not free? To answer this question, we modified Grossman and Helpman (1994) by considering that interest lobbies make political contributions to both the incumbent government and the political challenger in order to influence the incumbent government’s choice of trade policy. By examining the contribution schedules under a framework of bilateral direct investments, we find that the modified Ramsey rule still holds under our setting.
Similar content being viewed by others
References
Baldwin R (1987). Politically realistic objective functions and trade policy proofs and tariffs. Economics Letters, (24): 287–290
Bernhein D, Whinston M (1986). Menu auctions, resource allocation, and economic influence. Quarterly Journal of Economics, (1)
Blanchard E J (2002). Liberalizing tariff and factor mobile policies: The expropriation effect. Unpublished manuscript, University of Wisconsin
Brock W A, Magee S P (1978). The economics of special interest policies: The case of the tariff. American Economic Review, 68: 246–250
Caves R E (1976). Economic models of political choice: Canada’s tariff structure. Canadian Journal of Economics, (9): 278–300
Feenstra R C (2001). Program report of the international trade and investment program. NBER Reporter, winter 2000/2001
Feenstra R C, Bhagwati J N (1982). Tariff seeking and the efficient tariff. In: Bhagwati J N, ed. Import Competition and Response. Chicago: The University of Chicago Press
Feenstra R C, Lewis T R (1991). Negotiated trade restrictions with private political pressure. Quarterly Journal of Economics, 106: 1287–1307
Grossman G M, Helpman E (1994). Protection for sale. American Economic Review, 84: 833–850
Grossman G M, Helpman E (1995). Trade wars and trade talks. Journal of Political Economy, 103: 675–708
Grossman G M, Helpman E (1996). Electoral competition and special interest politics. Review of Economic Studies, 63: 265–286
Helpman E (1995). Politics and trade policy. NBER working paper 5309
Hillman A L (1982). Declining industries and political-support protectionist motives. American Economic Review, 72: 1180–1187
Johnson H G (1953–1954). Optimum tariffs and retaliation. Review of Economic Studies, 21: 142–153
Krishna P, Mitra D (2001). Reciprocated Unilateralism: A Political Economy Approach. Mimeo: Brown University Press
Levy PI (1999). Lobbying and international cooperation in tariff setting. Journal of International Economics, 47(2): 345–370
Mayer W (1984). Endogenous tariff formation. American Economic Review, 74: 970–985
Mayer W, Li J (1994). Interest groups, electoral competition, and probabilistic voting for trade policies. Economics and Politics, (6): 59–77
Rodrik D (1986). Tariffs, and welfare with endogenous policy. Journal of International Economics, 21: 285–299
Rodrik D (1997). Political economy of trade policy. In: Grossman G E, Rogoff K, ed. Handbook of International Economics, 3: 1458–1490
Staiger R W, Tabellini G (1987). Discretionary trade policy and excessive protection. American Economic Review 77: 340–348
Author information
Authors and Affiliations
Corresponding author
About this article
Cite this article
Yu, M. Political competition and bilateral direct investments. Front. Econ. China 2, 250–274 (2007). https://doi.org/10.1007/s11459-007-0014-0
Received:
Issue Date:
DOI: https://doi.org/10.1007/s11459-007-0014-0