NEOCLASSICAL POLITICAL ECONOMY: AN APPLICATION TO TRADE POLICIES

Abstract. This paper starts with a review of the literature on 'neoclassical'political economy and then goes on to apply this perspective to the issue of trade liberalization. In this connection, the paper critically discusses various political economy models which have been advanced to explain patterns of trade policies in both developed and developing countries and assesses them in light of recent empirical evidence. The paper also makes a brief review of the empirical planning studies which estimate the gains from trade liberalization.     

Leveraging who you know by what you know: Specialization and returns to relational capital

Research Summary: This paper investigates the interaction effects of specialization and relational capital on performance. We distinguish between upstream and downstream relational capital and theorize that higher levels of specialization will buffer against decreases in upstream relational capital, because of deeper domain expertise and stronger downstream relational capital. Conversely, higher levels of generalization permit greater gains from increases in upstream relational capital, due to leverage across a more diversified downstream portfolio of activities. We test and find support for these hypotheses in the context of the US lobbying industry. Our study contributes to the strategic human capital literature by isolating the dimension of specialization and relational capital embodied within individuals and providing performance implications of the interactions. Managerial Summary: Both “what you know” and “whom you know” impacts performance. Generalists and specialists are different on the “what you know” dimension. On the “who you know” dimension, we distinguish between upstream (supplier) and downstream (client) relationships. We show that specialists are buffered by deeper downstream relations from performance declines when their powerful upstream connections lose power. Generalists benefit from broader networks when their upstream connections gain power. Thus, when the value of their relationships change, specialists and generalists should each assess when they can reap performance benefits, and when they need to bolster against adversities. For firms, our study suggests hiring the right mix of specialists and generalists is important to reduce risks from relational losses while enjoying the performance benefits from relational gains.     

Dynamic Career Incentive Versus Policy Rent-Seeking in Institutionalized Authoritarian Regimes: Testing a Long-Run Model of Trade Policy Determination in China

Abstract:

In this paper, I study the effect of political elites’ career incentives on China’s trade policy formation. I propose a theoretical dynamic view in which China’s authoritarian leaders can preempt protectionist actions of their selectorate (bureaucrats) by offering them future promotion opportunities within the authoritarian hierarchy as long as the leaders can credibly commit to these political promises. Drawing on a database of China’s sectors for 1999–2007, the empirical results support the dynamic perspective that while political organization still matters for China’s trade policy outcomes, it is less likely for a sector with a higher promotion expectation score to get politically organized.     

LOBBYING AND ELECTIONS

I analyse the interaction between post‐election lobbying and the voting decisions of forward‐looking voters. The existing literature has shown that in models with citizen candidates from a dispersed distribution of preferences, lobbying has no influence on implemented policy. In my model with ideological parties, lobbying is shown to have an effect on policy. In terms of welfare, I show that the median voter and the majority of voters can be better off with lobbying.     

Outward Foreign Direct Investment,Interindustry Networks,and U.S. Trade Politics

This article investigates how outward foreign direct investment by U.S. multinational corporations influences industry lobbying for trade protection in the United States, focusing on interindustry structure of goods sales networks between upstream and downstream sectors and also on the multinationals’ input procurement patterns. If foreign affiliates of U.S. multinationals switch input sources from U.S. to host-country suppliers, U.S. suppliers should receive a negative demand shock, ceteris paribus. An empirical test finds that those U.S. upstream sectors that are highly dependent upon U.S. multinationals for goods sales tend to lobby more as the multinationals’ overseas production and sales increase.     

Special interest politics: Contribution schedules vs. Nash bargaining

The article compares two models of lobby influence on policy choice: The Grossman and Helpman (1994) contribution‐schedules model and a negotiation between the lobbies and the government summarized by a Nash‐bargaining function. The literature uses the models interchangeably because they imply the same equilibrium policy. We show that particular assumptions about bargaining power and disagreement utility in the Nash‐bargaining solution are required for the models to lead to the same equilibrium payments and utilities. This implies that the models usually imply different sets of lobbies if lobby formation is an endogenous decision, such that the equilibrium policies also differ.     

Do interest groups reward politicians for their votes in the legislature? Evidence from the great recession

ABSTRACT

Interest groups lobby politicians in various ways to influence their policy decisions, especially, their voting decisions in the legislature. Most, if not all, of the studies on this issue examine ”pre-vote” lobbying activities of interest groups that occur before politicians vote in the legislature. In this paper, however, I examine ”post-vote” lobbying activities of interest groups that occur after politicians vote in the legislature. By using data on the amount of monetary contributions given by interest groups to the members of the U.S. House of Representatives who have served in the 109th (2005–06) through 111th (2009–10) Congress, I find evidence that voting in favour of the Emergency Economic Stabilization Act (EESA) of 2008, one of the most significant pieces of legislation and possibly the biggest government bailout in U.S. economic history, has increased the amount of monetary contributions that politicians receive from the interest groups in the financial sector after the passage of the EESA. I also discuss two reasons for such post-vote lobbying and find empirical evidence for one of them.     

Weight Perception and Efficiency Loss in Bilateral Trading: The Case of US and EU Agricultural Policies

This study determines the perceived weights of various producer groups by policy makers in selected sectors (wheat, corn, sugar, beef and veal, and milk), for both the US and the EU, from 1980 to 2000, in five-year intervals. Results show that the US’s weights deviate less than the EU’s, compared with the external protections, indicating that the lobbying efforts of interest groups in the US are reflected more closely in external policy design, and are therefore more efficient than those in the EU. Game simulation suggests that it is in the best interest of both blocs to choose the status quo action among various trade liberalization scenarios with the latest calculated weights.     

Does Centralization Increase the Size of Government? The Effects of Separation of Powers and Lobbying

Difficulties faced by the Economic and Monetary Union have strengthened the position of those who advocate a process of (further) political integration in the European Union (EU). A widespread fear is, though, that such a process would favor powerful interest groups able to lobby the EU policymakers. Persson and Tabellini (1994) argue that political centralization will increase the size of the government through lobbying because of free-riding incentives created by federally funded programs with localized benefits. We extend their analysis by presenting a model where the budgeting process is divided into two stages, instead of one, which better captures the EU institutional framework. A federal legislator (the Council) chooses the size of the budget at one stage, while a federal agency (the Commission) chooses the allocation of the budget at the next stage. We show that separation of powers in the budgeting process restricts free riding and, therefore, reduces the incentives to lobby. The result is an unchanged budget under centralization. Moreover, it is shown that if the lobbying activity is directed to both policymakers, competitive lobbying may actually reduce the size of the public sector under centralized policymaking.