Protection for Sale: An Empirical Investigation

Goldberg, Pinelopi Koujianou; Maggi, Giovanni

doi:10.1257/aer.89.5.1135

Cited by 641 publications

(547 citation statements)

References 13 publications

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“…While in reality political lobbies and government distributional preferences may well influence FTA decisions, we choose intentionally to ignore these factors to limit the scope and enhance the tractability of our analysis. We find empirical support for our approach in Goldberg and Maggi (1999), who found that "the weight of interests, and distributional preferences). Our paper is designed to develop an empirical "benchmark" for pure economic factors; we hope that future research will address empirically political economy factors influencing FTA formations.…”

Section: The Pure Economic Theory Of Trading Blocs Is Essentially Parsupporting

confidence: 65%

“…While in reality political lobbies and government distributional preferences may well influence FTA decisions, we choose intentionally to ignore these factors to limit the scope and enhance the tractability of our analysis. We find empirical support for our approach in Goldberg and Maggi (1999), who found that "the weight of [consumer economic] welfare in the government's objective function is many times larger than the weight of [political] contributions" (1135; italics added). Specifically, they estimated the weight of consumer welfare (political contributions) in government trade policy decisions to be 98 percent (2 percent).…”

Section: The Pure Economic Theory Of Trading Blocs Is Essentially Parmentioning

confidence: 54%

“…In theory, the presence or absence of an FTA in a given year depends only upon the economic characteristics in that year (thus precluding dynamic factors, such as existing FTAs, etc. ), similar to empirical endogenous cross-sectional trade policy studies such as Lee and Swagel (1997), Goldberg and Maggi (1999), and Gawande and Bandyopadhyay (2000); dynamic issues are important, but are outside the scope of the present paper and are left for future research.…”

Section: The Pure Economic Theory Of Trading Blocs Is Essentially Parmentioning

confidence: 97%

“…He adds that "the links between the empirical and theoretical have never been too strong in this area" (1480). To our knowledge, Goldberg and Maggi (1999) and Gawande and Bandyopadhyay (2000) are the only empirical studies in the political economy literature on determinants of trade protection based upon an explicit theoretical model. As this paper is the first to attempt to explain empirically the determinants of FTAs, we choose here to assume a social planner for each country that maximizes the welfare of its consumers.…”

Section: The Pure Economic Theory Of Trading Blocs Is Essentially Parmentioning

confidence: 99%

“…For example, in Grossman andHelpman (1994, 1995), Mitra (1999), and Goldberg and Maggi (1999), the government maximizes a weighted average of social welfare and political lobby contributions. In a competitive framework, the government reduces to a social planner and maximizes the representative While the assumption that governments maximize consumers' welfare may seem unrealistic, Goldberg and Maggi (1999) estimated, using US data, the relative weights for social welfare and political contributions based upon the Grossman-Helpman model. In their study, the weight on the consumers' welfare was estimated to be between 0.98 and 0.99 depending on parameter values, suggesting that consumer welfare dominates political contributions in government trade policy decisions.…”

Section: E the Social Plannermentioning

confidence: 99%

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Economic determinants of free trade agreements

Baier

Bergstrand

2004

Journal of International Economics

495

600

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The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements (FTAs) and of the likelihood of FTAs between pairs of countries using a qualitative choice model. We develop this econometric model based upon a general equilibrium theoretical model of world trade with two factors of production, two monopolistically competitive product markets, and explicit intercontinental and intracontinental transportation costs among multiple countries on multiple continents. The empirical model correctly predicts, based solely upon economic characteristics, 83 percent of the 289 FTAs existing in 1996 among 1,431 pairs of countries and 97 percent of the remaining 1,142 pairs with no FTAs. RESUMENEl propósito de este estudio es proveer el primer análisis empírico sistemático de los determinantes económicos de la formación de acuerdos de libre comercio (ALC) y de la probabilidad de que se suscriban ALC entre pares de países utilizando un modelo cualitativo de elección. Desarrollamos este modelo econométrico basado en un modelo teórico de equilibrio general del comercio mundial con dos factores de producción, dos mercados de productos monopolítiscamente competitivos y explícitos costos de transporte inter e intracontinentales entre múltiples países en múltiples continentes. El modelo empírico predice correctamente, basándose solamente en características económicas, el 83% de los 289 ALC existentes en 1996 entre 1431 pares de países y el 97% de los restantes 1142 pares de países sin ALC. [governments] are more likely to form free trade areas, since the benefits outweigh the costs (Lawrence 1998, 59). Free trade areas may well be an endogenous variable-that is, a response to, rather than a source of, large trade flows… Presumably,Ever since Viner (1950), international economists have debated whether or not free trade agreements-on net-enhance or reduce economic agents' welfare. For a half century, free trade agreements (FTAs) have been accepted if the anticipated trade "creation" exceeds the anticipated trade "diversion" for the members. In Vinerian terms, the formation of an FTA between two countries that leaves tariffs against other countries unchanged, could be beneficial or harmful to either country.While most of the literature has focused on the welfare gains or losses from FTAs for member (and nonmember) countries, there is no study in the literature that has tried to explain-or predict-FTAs between pairs of countries, in the spirit of Lawrence's quote.As the quote above notes, FTAs may well be an endogenous variable. Lawrence's remark, in fact, should come as no surprise to trade economists, as there is a large literature in international economics on endogenous trade policy. As Trefler (1993) notes:Trade theorists continue to puzzle over their surprisingly small estimates of the impact of trade liberalization on imports. All explanations of the puzzle…treat trade liberalization as a given. But the level of trade protection is not ...

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Section: The Pure Economic Theory Of Trading Blocs Is Essentially Parsupporting

confidence: 65%

“…While in reality political lobbies and government distributional preferences may well influence FTA decisions, we choose intentionally to ignore these factors to limit the scope and enhance the tractability of our analysis. We find empirical support for our approach in Goldberg and Maggi (1999), who found that "the weight of [consumer economic] welfare in the government's objective function is many times larger than the weight of [political] contributions" (1135; italics added). Specifically, they estimated the weight of consumer welfare (political contributions) in government trade policy decisions to be 98 percent (2 percent).…”

Section: The Pure Economic Theory Of Trading Blocs Is Essentially Parmentioning

confidence: 54%