Foreign Lobbies and U.S. Trade Policy

Abstract

In popular discussion, much has been made of the susceptibility of government policies to lobbying by foreigners-the general presumption being that this is harmful to the home economy. However, in a trade policy context this may not be the case. If the policy outcome absent any foreign lobbying is characterized by welfare-reducing trade barriers, foreign lobbying may reduce such barriers and possibly raise welfare. Using a new data set on foreign political activity in the United States, this paper investigates this question empirically. Tariffs and nontariff barriers are both found to be negatively related with foreign lobbying activity. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Do countries free ride on MFN?

“…That the two forms of protection are affected by the same domestic political-economy factors was established by Ray (1981) and can be seen by comparing our results with those of Goldberg and Maggi (1999) and Gawande and Bandyopadhyay (2000), which focus only on NTBs. Foreign lobbying also affects tariffs and NTBs in a similar manner, as shown by Gawande et al (2006). One important difference is that, while in theory NTBs too are subject to the MFN clause (GATT Article I), in practice they constitute one of the most common departures from nondiscrimination.…”

Foreign Influence and Welfare

“…Hence, in contrast to the existing literature and to analyze the consequences of the obvious existence of such influences, we let foreigners play an active role in a country's political game. In that respect, our work is related to that of Hillman and Ursprung (1988) and Gawande, Krishna and Robbins (2006), which both introduce foreign lobbying in alternative models of trade 5 For the case of trade policy choices distorted by domestic lobbying see for instance Magee, Brock and Young (1989) or Grossman and Helpman (1994). 6 See for instance the two-country model in Grossman and Helpman (1995).…”

International trade and investment

“…41 They find that foreign lobbying activity has a significant impact on trade policy, and in the predicted direction: tariffs and non-tariff barriers are both negatively related to foreign lobbying activity. Pushan Dutt and Mitra investigated the influence of domestic ideology on trade policies, finding that left-wing governments adopt more protectionist trade policies in capital-rich countries, but more pro-trade policies in laborrich economies than right-wing ones.…”