DP19418 Protection for sale without aggregation bias
Estimates of Grossman and Helpman (1994) "Protection For Sale" (PFS) model yield unrealistically high estimates of the weight governments put on social welfare relative to lobbying contributions, with estimates of the former often being more than ten times larger than the latter. We argue this is due to the level of aggregation at which the model has been estimated so far. While protection is determined at the tariff line level, production data is only available at the industry level. Using a new production dataset at the tariff level, our estimates confirm the presence of aggregation bias when estimating the PFS model at the industry level. At the tariff line level, the average weight on social welfare in a sample of 146 countries declines by 80 percent.
