Reconsidering the Empirical Evidence on the Grossman-Helpman Model of Endogenous Protection

Abstract

The emergence of the Grossman and Helpman (1994) model of endogenous protection as the preeminent model in the political economy of trade literature has been significantly advanced by the finding that its predictions about the cross-industry pattern of protection are broadly consistent with the data. Specifically, Goldberg and Maggi (1999) and Gawande and Bandyopadhyay (2000) both find that trade protection is decreasing with import penetration among organized industries and increasing with import penetration among unorganized industries. However, an unaddressed puzzle is the fact that industries classified as unorganized make lobbying contributions to the government and receive positive amounts of protection. In this paper we argue that reconciling these puzzles with the Grossman-Helpman model significantly changes its predictions about the cross-industry pattern of protection, and thus has important implications for the empirical implementation of the Grossman-Helpman framework.

JEL Classification: F1