A Political Economic Analysis Of International Trade Policy With The Influence Of Interest Groups

This dissertation gives canonical interpretaitons for some already existent phenomena in the international trade policy field Neo-Classical trade theory cannot comprehend. Neo-Classical trade theory proposes the hypothesis that the target utility of a government is no different with that of consumers, the trade policy set by the government is to maximize the welfare of the whole country, so under such condition, free trade policy is almost the best choice for a country. However, in the reality, the true international trade policy is not as monotony as what Neo-Classical trade theory describes. The trade policis exerted by conutries are seldom kept to be free. With the expanding scale of the international trade amount in the globe, trade protectionism is revivaling again. Moreover, different protective degree is allocated to different industry, and the protection power distributed in the industry chain forms a ladder hiberarchy. A government could stimulate the export by export subsidies or export tax rebation in one hand, in the onther hand practise measures on certain products to limit its export. Therefore, to give explanations for the various international trade policies, this dissertation analyzes the political process that interest groups access to the trade policy through the government by using game theory based on the "Protection for Sale" model, and studies the characters of the final equilibrious trade policy, keeping the order that from small country to large country, perfect competition to monopolistic competition, and non-cooperative game to cooperative game.The method this dissertation adopted is based on the hypothesis that interest groups are able to change the trade policy by political contribution. Under such premise, at first, this dissertation begins with a small country under perfect competition, inserts a intermediate-good industry into the PFS model, then, make a comparison between the protection rates on the intermediate good and final good to discover whether the tariff structure obeys what ERP theory predicts. A conclusion shows that, tariff structure is endogenous in the political economics system, of which the pattern is determined by the organization of interest groups representing industries and the differentiation between final goods industries. In most cases, the tariff structue presents an echelon form. But in some extreme cases, the power of upstream industry is much stronger than that of downstream, which makes the tariff structure reverse. When the "free riders" exist in the final good industries, the tariff structure will fluctuate in an interval.Secondly, this dissertation analyzes the international trade policies executed by two large countries under perfect competition, based on the G-H Trade War Model. The conclusion drawn from the model shows that, there exists a non-cooperative Nash Equilibrium as a optimal import and export tariff between two large countries; the interest groups will lobby the government to adopt a more favorable trade policy to substitute the optimal tariff, by using political contribution; the power of the interest groups and the weight government place on the political contribution will determine the level of trade wars; in most case, the upgrade of trade wars can be attributed to the change taken place in the political and economic environments in the importer country. Furtheremore, this dissertation discovers that one country's augment of its import tariff will drive the other's increase of subsidy, in turn; the subsidy of one country will restrain the protection rate effectly of the other.Thirdly, because of the defacts of PFS model and G-H trade wars model, this dissertation changes the perfect competiton market in PFS and G-H trade wars models into monopolistic competiton situation, following the research approach by Pao-Li Chang, making a deep classification of small and large country. Introducing monopolistic competiton to PFS model, this dissertation studies the characteristics of import protection in a small contry. Conclusions shows that, even in a small country, an "optimal tarde protection" will be adopted, as long as a monopolistic competiton market exists; interest groups bring the redistribution of the protection among industries, the weight that the government places on aggregate welfare determines the pattern of the redistribution; the government offers protection generally with a consistent attitude, the protection rate for an industry is an increasing function of its relative market share and the degree of its production differentiation.Fourthly, by combining G-H trdae war model with monopolistic competiton, this dissertation studies the endogeous trade policy combination between two large countries and the scale of trade wars. The conclusion drawn from shows that, there also exists an "optimal import and export tariff set" in those two countries, the countries will make an adjustment for the preference of Interest Groups, based on the optimal tariff; the governments are intended to enclose the products of advantage in the domestic to consume, and set higher import and export tariffs for the products of higher differentiation degree; Interest Groups contribute to the occurrence of trade wars between those two countries, the increase of the weight the government put on the political contribution and the competition power of products will drive up trade wars unilaterally, the enlargement of the products differentiation will intensify trade wars generally.Finally, this dissertation sudies the trade policy as the outcome of trade negotiation at the existence of interest group.What differs in the condition of trade negotiation from the conclusions under trade wars is that there exist an "optimal export and import subsidy" instead of an "optimal tariff set". Interest groups will change the attitude of the negotiator tougher. The products with comparible advantage will expand their globel market share with the help of trade negotiation. The increase in the differentiation degree of products will impel the government to exert the trade policy which is helpful to maintain the trade flow between coutries.