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THE POLITICAL ECONOMY OF PROTECTION

STANFORD UNIVERSITY PRESS

Contents

List of Tables and Figures..............................................................................................viiPreface and Acknowledgments.............................................................................................xiIntroduction............................................................................................................11. The Political Economy of Protection: An Interdisciplinary Literature Review..........................................52. Searching for Chilean Trade Policy Cycles: "Openness" and Policies...................................................333. International Trade, Structural Change, and Trade Policy Changes in Chile: Empirical Assessments.....................684. The Fall of Protection, 1974-2000....................................................................................935. Summary of Findings, Future Research, and the Future of Chilean Trade Policy.........................................133Appendix A. The Political Economy of Protectionism: A Review of the Economics Literature................................141Appendix B. The Political Economy of Protectionism: A Review of the Political Science Literature........................146Appendix C. Chronology of Trade and Economic Policy Changes in Chile, 1765-1970.........................................149Appendix D. Political Chronology of Chile, 1810-1939....................................................................153Notes...................................................................................................................157Bibliography............................................................................................................169Index...................................................................................................................185

Chapter One

An Interdisciplinary Literature Review

The literature on the political economy of trade policy in economics and political science experienced a revival in the 1980s and continued to grow in the 1990s. Hillman (1989) and Rodrik (1995) provide selective reviews of the economics literature, although both reviews are already out-of-date. Nelson (1999) offers an economist's critique of the economic approach. Ikenberry et al. (1988) provide an early review of the political science literature on the determinants of U.S. foreign economic policy. This literature is useful for understanding various approaches applicable to the narrower topic of the determinants of trade policy. Verdier (1994, 3-60) provides a review of the voter-centered literature.

Corden (1986b), Hillman (1989), and Rodrik (1995) all suggest an analytical distinction among questions related to the imposition of protectionist policies, which can help organize the literature review. Corden (1986b, 7-8), for example, states that there are actually three questions about the "political economy issue" related to the existence of protectionist trade policies: First, why do some countries have a higher level of protection than others? Second, why is the level of protection raised one year but not another? Third, what explains the structure of protection across industries in a given country at any given time? The first two questions are about the determinants of the level of protection across countries or over time, and the third is about the protection granted to some industries (or factors of production) more so than to others within a given country.

Although many analysts have advocated an interdisciplinary approach to studying these three political economy questions (Odell and Willet 1990; Baldwin 1996; Nelson 1999), the literature remains segmented across disciplinary lines. The main objectives here are to summarize the literature by contrasting different emphases and to position this study within the academic literature. Several hypotheses about the determinants of trade policies are evaluated with historical examples and econometric analyses in subsequent chapters.

The economics literature has focused mainly on the determinants of the structure of protection within countries, especially in industrialized countries, and primarily in the United States. This literature has been widely reviewed (Baldwin 1985 and 1989b). The main analytical lens applied by economists emphasizes distributional conflicts, where the main actors are organized interest groups (Pincus 1975), voters (Baldwin 1982), and, sometimes, politicians seeking to maintain their political support (Grossman and Helpman 2002).

Interest groups usually represent industries and/or the owners of factors of production. Independent firms from the same industry then get organized to form trade associations; owners of capital and workers get organized and form associations, such as labor unions. The efficacy of an interest group's lobbying efforts is determined by characteristics that affect the costs of collective action. Hence, Olson's (1965) discussion of collective action and the free-rider problem is very influential in this literature. Economists have undertaken these analyses both theoretically and empirically by applying econometric techniques (Pincus 1975; Lavergne 1983; Magee and Young 1987; Trefler 1993; Lee and Swagel 1997; Gawande and Bandyopadhyay 2000).

In contrast, the political science literature puts greater emphasis on the evolution of the level of protection in nation states. Political scientists have explanations for general economic policy regimes in developing countries, their persistence over time, or the adoption of more general development strategies of which trade policies are but one element (Pastor and Wise 1994; Hira 1998). They have done so mainly by looking at historical episodes and making international comparisons among a limited number of developed and developing countries (Gourevitch 1986; Sikkink 1991; Waterbury 1993; Verdier 1994). More recently, political scientists have focused on the role of ideas, ideologies, and domestic institutions in determining the level of protection of a given country during certain periods (Goldstein 1993; Hira 1998). A notable trend in the literature is its move away from "system-centered" theories, such as those favored by Gilpin (1975), and the adoption, in the terminology of Ikenberry et al., of "society-centered" and "state-centered" theories.

Nevertheless, there are exceptions to these characterizations. As will be discussed below, many economists do not ignore the issue of the level of protection and its persistence over time, nor have they completely ignored the role of ideas, ideologies, or institutions. Also, many political scientists acknowledge the role of interest groups in determining both the level and the structure of trade protection. In fact, there are some examples of interdisciplinary ventures, which present a challenge for the chosen literature categories. But the popular themes in each discipline are clearly different.

It is useful to frame the discussion in terms of the factors that determine the demand and supply of protection as discussed by McKeown (1984), Corden (1986b), Rodrik (1995), and many other analysts from both disciplines. These factors can be interest-group pressures, ideologies, or academic ideas...