DP4168 India's Trade Policy For Sale: How Much? Who Buys?

Author(s): Olivier Cadot , Jean-Marie Grether , Marcelo Olarreaga

Publication Date: December 2003

Keyword(s): India , political economy , protection

JEL(s): F10 , F11 , F13

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP4168.asp

This Paper proposes a new method to test the Grossman-Helpman model of endogenous protection and lobby formation. This method, which does not require outside data on lobbies or contributions, identifies politically organized industries for trade protection purposes and calculates equilibrium contributions directly from the model using structural parameter estimates. Its emphasis on vertical inter-industry linkages makes it also possible to trace the effects of duty drawbacks and counter-lobbying from downstream users on endogenous protection. Applied to India, it yields results that are qualitatively consistent with the model’s predictions and that seem quantitatively more plausible than estimates given for the US by alternative methods. The weight on social welfare in the government’s objective function is 5, and the average contribution per ISIC sector is $33 million.