DP1039 What does the Political Economy Literature on Trade Policy (Not) Tell Us That We Ought to Know?

Author(s): Dani Rodrik
Publication Date: October 1994
Keyword(s): Political Economy, Trade Policy
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1039

Three questions lie at the core of the large and distinguished literature on the political economy of trade policy. First, why is international trade not free? Second, why are trade policies universally biased against (rather than in favour of) trade? Third, what are the determinants of the variation in protection levels across industries, countries, and institutional contexts? These questions are handled only imperfectly by the existing literature. Current models treat trade policy as a redistributive tool, but do not explain why it emerges in political equilibrium in preference over more direct policy instruments. Further, existing models do not generate a bias against trade, implying that pro-trade interventions are as likely as trade-restricting interventions. The greatest contribution of the political economy literature may lie in developing a better grasp of normative economic analysis - that is, in helping design policies, rules, and institutions.