Liberalization for Sale: Heterogeneous Firms and Lobbying Over FTAs

Abstract

Firm-based approaches to international trade have revolutionized the study of trade politics. While the political economy of trade has conventionally emphasized the role of export propensity at the industry level in determining interests over policy outcomes, engaging in trade is an inherently firm-level activity. Highly productive firms benefit from access to foreign markets, while unproductive firms may be harmed by competition from foreign producers. However, the costly nature of lobbying precludes the latter group from engagement in the political process. Consequently, productivity features centrally in determining which firms lobby on trade policy, as well as those that make their positions publicly known. I analyze the lobbying efforts of publicly-traded American firms over recent free trade agreements (FTAs) and find that high productivity firms, not just those actively engaging foreign markets, lobby in favor of trade liberalization. These results stand in stark contrast to the conventional wisdom that the losers from globalization lobby harder, while adding to the growing body of firm-based research on trade politics.

Keywords: CAFTA, Firm heterogeneity, FTA, International political economy, Lobbying, Trade policy

JEL Classification: D21, D22, F12, F13, F14, F50