Protection for sale: evidence from around the world

The “protection-for-sale” motive introduced by Grossman and Helpman (Am Econ Rev 84: 833–850, 1994) has been adopted widely in the literature, but only a few papers test the theory empirically. To provide empirical evidence for the protection-for-sale theory, we proceed in three steps. First, we arg...

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Bibliographic Details
Published in:Public choice 2022-04, Vol.191 (1-2), p.237-267
Main Authors: Jonelis, Andrew, Suwanprasert, Wisarut
Format: Article
Language:English
Subjects:
Economics
Economics and Finance
Panel data
Political power
Political Science
Politics
Public Finance
Tariffs
Theory
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Summary:The “protection-for-sale” motive introduced by Grossman and Helpman (Am Econ Rev 84: 833–850, 1994) has been adopted widely in the literature, but only a few papers test the theory empirically. To provide empirical evidence for the protection-for-sale theory, we proceed in three steps. First, we argue that among all existing theories, only the mechanism in the protection-for-sale theory depends on the government’s political strength. Second, we develop a theoretical model to rationalize the connection between political strength and import tariffs. Our extended protection-for-sale model predicts that a government with greater political power generally imposes higher tariffs. Third, we propose that political strength can be proxied by the share of legislative seats held by the governing party or coalition. We test the model prediction using panel data covering 95 product categories and 105 countries, from 1996 to 2014. Our estimates provide support the protection-for-sale theory. The estimated effects of political strength on tariffs are larger in small and democratic countries.
ISSN:0048-5829
1573-7101
DOI:10.1007/s11127-022-00964-8