35 Pages Posted: 13 Jul 2012 Last revised: 28 Nov 2012
Date Written: 2012
The political battles over trade are often pitched as multinational corporations seeking free trade over the survivalist claims of small businesses. However, most existing models in international political economy are unable to explain this, assuming firm homogeneity within industries. Empirically, trade engagement varies significantly at the firm level across industries: both importing and exporting are rare behaviors. Likewise, the characteristics of firms within industries differ greatly. I propose a model that introduces firm heterogeneity to the market for trade policy, building on an extension of the Melitz Model. High productivity firms across all industries favor and pursue trade liberalization, counter to the predictions of both classical trade theory-based models and the endogenous protection literature. I apply my model to lobbying activities undertaken in 2005 over the Central America Free Trade Agreement (CAFTA) as well as 2010-2011 attempts to influence the passage of three FTAs (Colombia, Korea, and Panama) and find support for my theory.
Keywords: CAFTA, Firm heterogeneity, FTA, International political economy, Lobbying, Trade policy
JEL Classification: D21, D22, F12, F13, F14, F50
Suggested Citation: Suggested Citation
Plouffe, Michael, Liberalization for Sale: Heterogeneous Firms and Lobbying Over FTAs (2012). APSA 2012 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2105262