Working Paper: NBER ID: w11269
Authors: Giovanni Facchini; Johannes Van Biesebroeck; Gerald Willmann
Abstract: Structurally estimating the Grossman and Helpman (1994) model using coverage ratios that include non-tariff barriers leads to biased parameter estimates. We develop a "protection for sale" theoretical framework consistent with the data, by explicitly allowing for non-tariff barriers. Introducing partial rent capturing we obtain a testable specification which finds support in the data. Our results suggest that average rent capturing is in the order of 72-75 percent.
Keywords: Protection for Sale; Non-Tariff Barriers; Rent Capturing; Trade Policy
JEL Codes: F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Non-tariff barriers (NTBs) coverage ratios (F13) | biased parameter estimates (C51) |
| Modified model (allowing for any degree of rent capturing) (D43) | more accurate representation of trade policy effects (F17) |
| Political contributions from organized lobbies (D72) | government trade policy choices (F13) |
| Government maximizes weighted sum of political contributions and aggregate welfare (D72) | government trade policy choices (F13) |
| Average rent capturing (72%-75%) (R31) | U.S. government captures rents associated with trade policies (H82) |
| Assumption of perfect rent capturing (D41) | rejection (Y60) |
| Partial rent capturing (D33) | affects other structural parameters of the model (C20) |
| Results supporting protection for sale framework (D18) | importance of theoretically consistent models (C20) |