Protection for Sale and Trade Liberalization: An Empirical Investigation

Abstract

This paper uses Grossman and Helpman's (1994) Protection for Sale model to analyze the process of trade liberalization that has occurred in Australia. First, this paper verifies that the predictions of the Protection for Sale model are consistent with the data. Then, it analyzes the endogenous dimension of the Australian experience of trade liberalization. The estimated structural parameters imply that the process of trade liberalization has been driven by increases in both the fraction of the voting population represented by lobbies, and the government's relative valuation of welfare (the former playing the more prominent role).

Keywords: endogenous protection, tariffs, trade liberalization

JEL Classification: F13, F14