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Economists have devoted much effort to the study of efficiency properties of trade policies. These efforts have produced a coherent body of literature that describes how trade policy instruments – such as tariffs, export subsidies, quotas or voluntary export restraints – affect economies that trade with each other. They have also produced empirical models that have been extensively used to evaluate the efficiency losses from trade policies on the one hand and prospective gains from trade reforms on the other. At the same time, another strand of the literature has examined possible explanations for prevailing trade policies. Here efficiency considerations have not played centre stage. Many policies – such as quotas and voluntary export restraints – impose large burdens on society. Researchers have thus looked for policy-making objectives other than overall efficiency to try to explain them. This literature emphasizes distributional considerations. It views trade policy as a device for transferring income to preferred groups in society. It also explains the desire of policy-makers to engage in this sort of costly transfer by means of political arguments in their objective function. In Discussion Paper No. 1269, Research Fellow Elhanan Helpman 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 their key differences. These comparisons revolve around tariff formulas that are predicted by political equilibria. Second, a set of results that emerge from a new approach to the interaction of international economic relations with domestic politics are reviewed. Politics and Trade Policy |