Essays in trade policy and the New Political Economy

This dissertation contains two essays in the New Political Economy field. The first essay develops a Ricardo-Viner specific factors model of trade with an endogenous tariff. Factor owners who stand to gain (lose) from a tariff affect policy decisions by contributing real resources for (against) the formation of a tariff. The tariff policy is then determined by a "tariff formation function" based on the net of the contributions by factor owners for protection. In the context of this model I examine the effects of alternative assumptions on internal lobby group organization on economy-wide expenditure on the lobbying. I find that as groups become better organized internal free-riding declines and contributions rise. The end result for tariff policy and welfare are ambiguous in the general case. Under an assumption of perfect symmetry, however, the elimination of free-riding will be welfare worsening. The model is then examined under a first mover assumption. It is find that if one group is allowed to "move" first and pick optimal contributions, taking into account the other groups reactions, then the first mover can use this advantage to improve his welfare relative to the case where each group moves simultaneously. Finally, the model is illustrated by examining two historical examples.; The second essay is an empirical analysis of commercial in Israel. There has emerged from the literature four main models aimed at explaining the structure of trade protection across industries: the "pressure group" model, the "displacement costs" model, the "status quo" model and the "comparative disadvantage" model. In this essay I use data for the 15 major industrial branches of the Israeli economy in a single equation test of the success of these models in explaining tariff protection across industries. The empirical results provide support for several of the models. In particular the pressure group model performs well reflecting the lobbying power of the Histadrut/public sector in Israel. The displacement costs model is also supported suggesting that officials, when deciding on tariff rates, are sensitive to the displacement costs associated with different levels of protection for various industries. The results, however, do not support the status quo and comparative disadvantage models. This evidently reflects the desire of the policy makers in Israel to reduce protection in order to increase efficiency via competition and improved resource allocation.