Interindustry Goods Market Networks and Industry Lobbying for Trade Policy

Abstract

This study investigates how interindustry goods market networks influence industry lobbying as foreign firms' direct investment and local production increase in the United States. The goods market networks consist of each sector's procurement of inputs from other sectors and the sectoral destinations of its outputs. I found that domestic upstream sectors modify their lobbying in ways dissimilar to those of downstream sectors when foreign firms' local production and sales increase. Upstream sectors lobby more when US affiliates of foreign firms that procure inputs from their own supply chains gain market share at the expense of domestic firms in investment-receiving sectors. In contrast, downstream sectors lobby less when they save input procurement costs as domestic and foreign firms compete to produce quality goods at a lower price. The empirical results imply that goods market networks provide another theoretical framework, in addition to that provided by factor or sector models, in the analysis of demand side of trade policy.