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Trade Policy Formation when Geography Matters for Specialisation

  • Susanna Thede
Publiceringsår: 2005
Språk: Engelska
Publikation/Tidskrift/Serie: UCD Centre for Economic Research Working Paper Series, 05/19.
Dokumenttyp: Working paper


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 in‡uenced 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 the 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.



  • Economics



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