Why is There an Anti-Trade Bias in Trade Policy?

University of Maryland Center for International Economics Working Paper No. 02-03

41 Pages Posted: 3 Apr 2003

See all articles by Nuno Limão

Nuno Limão

University of Maryland - Department of Economics

Arvind Panagariya

University of Maryland - Department of Economics; Columbia University

Date Written: December 2002

Abstract

Small economies rarely embrace free trade, a fact that is commonly explained as a consequence of the government's use of trade policy to redistribute income. But why is this redistribution typically biased in favor of import-competing sectors and is consequently trade restricting rather than trade promoting? This remains an important puzzle in trade policy. Most models assume the puzzle away by restricting the government set of policies or else generate the opposite, and empirically counterfactual, prediction--that trade policy has a pro-trade bias (e.g. Grossman-Helpman AER 1994). We show that if the government's objective reflects a concern for inequality, or diminishing marginal political support from factor owners, then trade policy exhibits anti-trade bias. Importantly the mechanism that we analyze generates the anti-trade bias independently of whether factors are specific or mobile across sectors. The mechanism also generates an anti-trade bias between large countries even after they sign reciprocal trade agreements that eliminate any terms-of-trade motivation for the use of trade protection.

Keywords: trade policy, inequality, anti-trade bias

JEL Classification: F13

Suggested Citation

Limão, Nuno and Panagariya, Arvind, Why is There an Anti-Trade Bias in Trade Policy? (December 2002). University of Maryland Center for International Economics Working Paper No. 02-03. Available at SSRN: https://ssrn.com/abstract=367000 or http://dx.doi.org/10.2139/ssrn.367000

Nuno Limão (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-7842 (Phone)
301-405 3542 (Fax)

Arvind Panagariya

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3546 (Phone)
301-405 7835 (Fax)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
79
Abstract Views
758
rank
305,836
PlumX Metrics