Goldberg and Maggi (1999) - Protection for sale: An empirical investigation
Pinelopi Koujianou Goldberg, Giovanni Maggi (1999, AER)
Abstract
The Grossman-Helpman “Protection for Sale” model, concerning the political economy of trade protection, yields clear predictions for the cross-sectional structure of import barriers. Our objective is to check whether the predictions of the Grossman-Helpman model are consistent with the data and, if the model finds support, to estimate its key structural parameters. We find that the pattern of protection in the United States in 1983 is broadly consistent with the predictions of the model. A surprising finding is that the weight of welfare in the government’s objective function is many times larger than the weight of contributions.
Summary by ChatGPT
The paper “Protection for Sale: An Empirical Investigation” by Pinelopi Goldberg and Giovanni Maggi empirically tests the Grossman-Helpman (G-H) “Protection for Sale” model, which examines how trade protection is influenced by political contributions from special-interest groups. Using data from the United States in 1983, including nontariff barriers, import elasticities, and political contributions, the authors find that the pattern of trade protection broadly supports the G-H model’s predictions. Notably, they estimate that the government places a much higher weight on social welfare compared to political contributions, reflecting relatively low trade barriers. The study also shows that political organization, import elasticity, and import penetration collectively determine the level of protection, and additional variables traditionally considered (e.g., unemployment rate, industry size) do not significantly improve the model’s explanatory power. Despite some issues, such as measurement and endogeneity concerns, the authors conclude that the G-H model effectively captures the cross-sectional structure of trade protection in the U.S. during the studied period.