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Exrending "Protection for Sale" with Heterogeneous Sectoral Political Organization

  • Author(s): Baden, Robert Brian
  • Advisor(s): McCalman, Phillip
  • et al.
Abstract

The Grossman and Helpman (1994) "Protection for Sale" literature as-

sumes a binary sectoral political organization; lobbies do or do not exist for each industry. By extending the theory to encompass heterogeneity, I argue that sectors are politically organized to heterogeneous degrees.

The "Protection for Sale" empirical papers use country-by-country idiosyncratic methods to determine the binary sectoral political organization. I use a consistent method based on Principal Component Analysis, valid for many countries, to generate the country-specific heterogeneous sectoral political organization vector. Using the "Trade, Production and Protection Database, 1976-2004" (Nicita and Olarreaga, 2006) covering one-hundred countries, a common set of trade-focused sectoral political organization characteristics are proposed.

With this consistent methodology and the common set of characteristics, this new approach is applied to many Latin American countries, uncovering the intertemporal Government Weight on Population Welfare (GWPW) for each country. GWPW conveys the importance an incumbent government places on population welfare, and is shown to be highly correlated with the Trade Openness Index and key political and economic events for these countries. GWPW may be used by international development organizations to negotiate country-specific political and economic goals, and to potentially better measure progress.

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