The Arbitrage Lobby: Theory and Evidence on the Political Economy of Dual Exchange Rates
44 Pages Posted: 23 Jun 2018 Last revised: 16 Aug 2019
Date Written: August 15, 2019
A subsidized exchange rate for imports is thought to lower prices and thus help consumers. We propose instead that importing firms themselves often capture much of the subsidy, at consumers’ expense. We formalize this logic and then use an original firm-level data set from Venezuela to study who captured tens of billions of dollars of exchange-rate subsidies. We find that the subsidies did lower certain consumer prices — but also that they lined importers’ pockets, ultimately creating a net transfer to elites.
Keywords: Exchange Rates, Interest Groups, Import Subsidies, Lobbies, Political Economy, Trade, Venezuela, Hugo Chávez
JEL Classification: D72, D78, F13, F14
Suggested Citation: Suggested Citation