Christopher S. P. Magee

Endogenous trade policy and lobby formation: an application to the free-rider problem

Abstract This paper develops a model in which tariffs are determined through bargaining between a utility maximizing policy maker and an industry lobby. Individual firms only contribute to the lobbying effort if it is in their own self-interest so that both trade policies and lobby formation are endogenous. By introducing bargaining between the industry and the government, the paper provides microfoundations for the tariff-formation function approach taken by many authors in the political economy literature. Applied to the free-rider problem, the model identifies general conditions under which increasing the number of firms in an industry makes cooperation between them more difficult.

The United States is a Small Country in World Trade

Despite being the largest country in world trade and thus presumably having high optimal tariffs, the United States has long had low and declining levels of protection. This paradox suggests that the United States is failing to exploit its monopsony power by levying optimal tariffs. Using data on world output and trade flows, we find that the United States is a small country in world trade in that its trade policies have negligible impacts on world prices. In the median manufacturing industry, US tariffs reduce world prices by only 0.12%. United States optimal tariffs are also typically small (3.6% in the median industry) and are lower than existing US tariffs in most industries. It is no puzzle that the United States has been a champion of free trade since the 1930s-the United States, like other small countries, benefits economically from tariff reductions. Copyright

Openness and internal conflict

This article examines the relationship between economic openness and internal conflict. The article first discusses different theoretical perspectives on how openness affects a country’s internal stability and how internal conflict affects openness. Next, empirical estimates of the relationship between conflict and openness are presented, where conflict is measured with both a civil war dummy variable and an events dataset. The correlation between openness and conflict in the data is negative: more open countries have less internal conflict by some measures. However, internal conflict affects the level of openness, which suggests that openness should be treated as an endogenous variable. When the effect of openness on conflict is estimated using instrumental variables or full information maximum likelihood to control for endogeneity, openness does not significantly reduce internal conflict. There is robust evidence, on the other hand, that conflict within a country reduces its international trade. Together, these results suggest that the negative correlation between openness and conflict emerges because stability facilitates international trade rather than because trade flows reduce internal conflict.

Administered protection for workers: an analysis of the trade adjustment assistance program

Abstract One of the strongest justifications for the existence of the trade adjustment assistance (TAA) program is that it reduces workers’ lobbying efforts against trade liberalization. This paper tests the proposition that the government uses TAA to compensate workers for lost tariff protection. Consistent with this argument, a decline in tariffs over the previous year raises workers’ chances of receiving adjustment assistance in some specifications of the model. Equity and efficiency considerations also affect whether workers receive adjustment assistance. Workers from industries with high tariffs, high unemployment rates, and low wages are more likely to be approved for trade adjustment assistance.

Would NAFTA have been Approved by the House of Representatives Under President Bush? Presidents, Parties, and Trade Policy

This paper examines five trade policy votes in the United States House of Representatives, one during each of the last five presidential terms. The paper investigates the determinants of representative voting and shows that Congress members are more likely to support trade liberalization if the President is a member of their own party. The estimation allows a prediction to be made of the likely House trade votes under alternative presidential election outcomes. The model predicts that the probability of NAFTA being approved would have been greatly reduced by a victory for President Bush (41) in the 1992 election. Neither the trade promotion authority granted to President Bush (43) in 2001 nor the CAFTA signed in 2005 would likely have been approved under Democratic Presidents.

Endogenous tariffs and trade adjustment assistance

Abstract This paper examines whether trade adjustment assistance is an effective tool for blunting political opposition to trade liberalization. The traditional argument is that adjustment assistance bribes labor unions so that they will accept reduced tariff protection. In this way, a trade adjustment assistance program should help the government lower tariffs and increase social welfare. This paper introduces trade adjustment assistance into a political economy model of endogenous tariff formation. The model shows that adjustment assistance reduces policy makers’ incentives to press for trade liberalization and may slow down the pace of reform and lower social welfare under certain plausible conditions.

Own-race bias among NBA coaches.

This article finds that National Basketball Association (NBA) coaches gave greater minutes per game to players of their own race during the 1996-2004 seasons after controlling for player quality using performance statistics and player fixed effects. The authors estimate that having the same race as the coach increased playing time by between 45 and 55 seconds per game on average. One possible explanation for this result is an own-race bias on the part of NBA coaches, in which they subconsciously exhibit a preference for players whose race matches their own. The estimates reveal that the impact of race on playing time was relatively strong in the late 1990s but that it has declined over time since then. The authors hypothesize that racial bias may emerge more strongly in decisions made under pressure, such as substitution patterns during the flow of the game, than in decisions made after careful consideration, such as the choice of which player to start. Empirical tests provide little evidence, however, that deliberation completely removes the own-race bias since coaches both gave more playing time and were more likely to start players of their own race.

Third-Party Candidates and the 2000 Presidential Election*

This article examines how third-party candidates influenced the 2000 presidential election. Copyright (c) 2003 by the Southwestern Social Science Association.

Declining Industries and Persistent Tariff Protection

The paper uses a political economy framework to explain the empirical observation that trade protection is persistent. The assumptions that are shown to generate endogenous tariff persistence in the model are quite plausible: agents are uncertain about future prices, tariffs are affected by political pressure, and producers of the import-competing good own sector-specific human capital that may be lost if they exit the industry. The model also reveals that, under the conditions listed above, industries decline gradually in response to a price shock even when producers do not face increasing costs of adjustment. Copyright 2002 by Blackwell Publishing Ltd.

Trade and Democracy: A Factor-Based Approach

We study the relationship between trade openness and democracy using a data set with capital-labor ratios, trade flows, and regime type for 142 countries between 1960 and 2007. We are among the first to test a prediction that emerges from the model of Acemoglu and Robinson (2006): Relative factor endowments determine whether trade promotes democracy or not. The statistical results from two-stage least squares estimation indicate that trade is positively associated with democracy among labor-abundant countries but that trade has a negative effect on democracy in capital-abundant countries. The results are not robust, however, and thus we conclude that the evidence in support of their argument is relatively weak.