TRADE POLICY AND INDIRECT RENT SEEKING: A SYNTHESIS OF RECENT WORK†

This paper synthesizes a body of work in trade theory and commercial policy. A common theme unifies this literature: The prospect of protection, institutionalized in the policy formation process and the rules for administered protection, can induce real changes in economic activity independent of whether actual barriers to trade have been imposed. These changes are designed to indirectly manage policy outcomes by either encouraging or defusing protectionist pressures. Thus firm conduct may be distorted by incentives to optimize on a politically-determined margin and the evolution of protectionist events may be shaped by more than the direct lobbying efforts of interest groups.