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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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