DP1269 Politics and Trade Policy

Author(s): Elhanan Helpman
Publication Date: November 1995
Keyword(s): Political Economy, Trade Policy
JEL(s): F13, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1269

The paper first describes a number of political economy approaches that have been developed to explain trade policies. All approaches are presented in a unified framework that helps to identify the key differences between them. These comparisons revolve around tariff formulas that are predicted by political equilibria. A typical formula explains cross-sectoral variations in rates of protection as well as differences in average rates of protection across countries. Second, I review a set of results that emerge from a new approach to the interaction of international economic relations with domestic politics. Importantly, there are two-way interactions in such systems. They link the formation of trade policies in the international arena with the activities of domestic special interest groups. The use of a framework of this sort is essential for a proper analysis of a host of important problems, such as negotiations about tariff levels or the formation of free trade areas. Recent studies have developed suitable tools for this purpose.