Essays on Political Economy

Abstract

This essay develops a stochastic model of electoral competition in order to study the economic and political determinants of trade policy. Ideal policies of the different socioeconomic groups in society (landlords, industrialists, labor and skilled workers) are explicitly derived from a small open economy model. Then those ideal policies (trade policy and local public goods) are used to model the individual probabilistic voting behavior of the members of each of these socioeconomic groups. The model sheds light on how differences in the comparative advantages of countries explain trade policy divergence between countries as well as trade policy instability within countries. Specifically, in natural resource (land) abundant economies with very little capital, or in economies that specialize in the production of manufactures, parties tend to converge to the same policy platform, and trade policy is likely to be stable and relatively close to free trade. In contrast, in a natural resource abundant economy with an important domestic industry that competes with imports, parties tend to diverge, and trade policy is likely to be more protectionist and unstable.