Politics and Trade Policy

Abstract

INTRODUCTION 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. And they 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. Recent examples include quantitative studies of the single-market program in Europe (e.g., Flam (1992)) and of NAFTA (e.g., Garber (1993)). At the same time another strand of the literature has examined possible explanations for prevailing trade policies. Here efficiency considerations have not played center stage. Many policies - such as quotas and voluntary export restraints - impose large burdens on society. Therefore research looked for objectives of the policymakers other than overall efficiency in order to explain them. This literature emphasizes distributional considerations. It views trade policy as a device for income transfers to preferred groups in society. And it explains the desire of a policymaker to engage in this sort of costly transfer by means of political arguments in her objective function (see Hillman (1989) for a review).