PDF, GB, 139 p., 796 Ko - Femise

ti
1+
ti
xi
Ii
−α
i mi
= ⋅ ,
β
+ α
ei
L
1−
β
(2)
where t i is the ad valorem tariff, and e i is the import demand elasticity for good i .
The main conclusion from the model indicates that for organized sectors the level of
protection increases with i mi
x (inverse of import penetration), since ( β 1 β ) + α > 0
70
α .
L
− L
In other words, if domestic output (in relation to imports) is larger, then the owners of the
specific factors have more to gain from increased protection. Also, sectors with higher price
elasticity should be less protected. This is because the deadweight loss is larger with higher
import demand elasticity.
Review of empirical studies
Maggi and Goldberg (1994), in their seminal paper, present a modified version of the
Grossman and Helpman model, that yields the same predictions but provides an estimable
equation. In their model, the objective function of the tariff setting government is dependent
on the welfare of the society (with weight β) and the contributions paid to the government
(with weight 1- β). Maximization of the objective function yields the following equation:
ti
I i − α L xi
xi
xi
ei
= ⋅ + ε i = γ + δI
+ ε i , (3)
1 + t β
i
mi
mi
m
+ α
i
L
1 − β
where ti is the tariff level, ei is the elasticity of demand, xi/mi is the import penetration ratio, Ii
is a dummy variable that takes a value of one if an industry is organized and εi is an error
term. This specification allows recovery of the structural parameters of the Grossman and
Helpman model since γ = [ − α L ( β 1 − β ) + α L ] and δ = [ 1 ( β 1−
β ) + α L ] . The (αL) denotes
a fraction of the population represented by a lobby, and (β) the weight of the society welfare
in the government objective function; thus allowing to assess the impact of lobbies in the
tariff setting process.