Lobbying Influence in International Trade: Protection for Sale

Abstract

Lobbying contributions affect international trade policies. This paper presents theoretical and empirical analysis of lobbying contributions in international trade. The main focus is on the seminal protection for sale model by Grossman and Helpman (1994). This model predicts the relationships between the level of protection and the import penetration ratio. Protection is positively related to import penetration for politically unorganized sectors and negatively related for the organized ones. We suggest that the model should include other factors that influence international trade policies to make the analysis more accurate. We analyze the inclusion of nontariff barriers, contributions to influence domestic policies, endogenous lobby formation, endogenous protection, non-political factors, asymmetric information and lobbying competition. In most cases, the empirical tests of the model demonstrate a negative parameter for the level of protection for unorganized sectors and a positive parameter for organized sectors. We suggest new methods and instruments to identify the effect of lobbying influence in international trade. New instruments can be used in order to obtain unbiased and robust parameters.