Skip to main content
×
Home

Political Cleavages within Industry: Firm-level Lobbying for Trade Liberalization

  • IN SONG KIM (a1)
Abstract

Existing political economy models explain the politics of trade policy using inter-industry differences. However, this article finds that much of the variation in U.S. applied tariff rates in fact arises within industry. I offer a theory of trade liberalization that explains how product differentiation in economic markets leads to firm-level lobbying in political markets. High levels of product differentiation eliminates the collective action problem faced by exporting firms while import-competing firms need not fear product substitution. To test this argument, I construct a new dataset on lobbying by all publicly traded manufacturing firms from reports filed under the Lobbying Disclosure Act of 1995. I find that productive exporting firms are more likely to lobby to reduce tariffs, especially when their products are sufficiently differentiated. I also find that highly differentiated products have lower tariff rates. The results challenge the common focus on industry-level lobbying for protection.

Copyright
Corresponding author
In Song Kim is Assistant Professor, Department of Political Science, Massachusetts Institute of Technology, Cambridge, MA, 02139 (insong@mit.edu), URL: http://web.mit.edu/insong/www/.
Footnotes
Hide All
Financial support from the National Science Foundation Doctoral Dissertation Research Improvement Grant SES-1264090 is acknowledged. I thank Christina Davis, Joanne Gowa, Kosuke Imai, Adam Meirowitz, Helen Milner, and Kris Ramsay for their valuable advice. I also thank Scott Abramson, Michael Barber, Graeme Blair, Alex Bolton, Jaquilyn Waddell Boie, Tom Christensen, Elisha Cohen, Ben Fifield, Gene Grossman, Raymond Hicks, Mike Higgins, Kentaro Hirose, Tobias Hofmann, Jeong-Ho (John) Kim, John Londregan, Lisa Camner McKay, Bethany Park, Marc Ratkovic, Steve Redding, Alex Ruder, Yuki Shiraito, David Andrew Singer, Brandon Stewart, Dustin Tingley, Carlos Velasco, and Meredith Wilf for their helpful comments. I thank seminar participants at Columbia University, Emory University, Harvard University, MIT, Princeton University, Stanford Graduate School of Business, and Vanderbilt University. The editor and the four anonymous reviewers provided helpful comments that have significantly improved this article.
Footnotes
References
Hide All
Ansolabehere Stephen, Snyder James M., and Tripathi Micky. 2002. “Are PAC Contributions and Lobbying Linked? New Evidence from the 1995 Lobby Disclosure Act.” Business and Politics 4 (2): 131–55.
Baccini Leonardo, Impullitti Giammario, and Malesky Edmund J.. 2015. “Globalization and State Capitalism: Assessing Vietnam’s Accession to the WTO.” Working paper available at http://www.freit.org/WorkingPapers/Papers/FirmLevelTrade/FREIT970.pdf.
Bagwell Kyle, and Staiger Robert W.. 1999. “An Economic Theory of GATT.” The American Economic Review 89 (1): 215–48.
Bailey Michael A., Goldstein Judith, and Weingast Barry R.. 1997. “The Institutional Roots of American Trade Policy: Politics, Coalitions, and International Trade.” World Politics 49 (3): 309–38.
Baldwin Robert E. 1985. The Political Economy of US Import Policy, Vol. 2. Cambridge, MA: MIT Press.
Bernard Andrew B., Eaton Jonathan, Jensen J. Bradford, and Kortum Samuel. 2003. “Plants and Productivity in International Trade.” The American Economic Review 93 (4): 1268–90.
Bernard Andrew B., and Jensen J. Bradford. 1999. “Exceptional Exporter Performance: Cause, Effect, or Both?Journal of International Economics 47 (1): 125.
Bernard Andrew B., and Jensen J. Bradford. 2004. “Why Some Firms Export.” The Review of Economics and Statistics 86 (2): 561–69.
Bernard Andrew B., Jensen J. Bradford, Redding Stephen J., and Schott Peter K.. 2007. “Firms in International Trade.” The Journal of Economic Perspectives 21 (3): 105–30.
Bernard Andrew B., Jensen J. Bradford, and Schott Peter K.. 2009. “Importers, Exporters, and Multinationals: A Portrait of Firms in the U.S. that Trade Goods.” In Producer Dynamics: New Evidence from Micro Data, edited by Dunne Timothy., Jensen J. Bradford, and Roberts Mark J., Chicago: Chicago University Press 513–52.
Bernheim B. Douglas, and Whinston Michael D.. 1986. “Menu Auctions, Resource Allocation, and Economic Influence.” The Quarterly Journal of Economics 101 (1): 131.
Bertrand Marianne, Bombardini Matilde, and Trebbi Francesco. 2014. “Is It Whom You Know or What You Know? An Empirical assessment of the Lobbying Process.” The American Economic Review 104 (12): 3885–920.
Bombardini Matilde. 2008. “Firm Heterogeneity and Lobby Participation.” Journal of International Economics 75 (2): 329–48.
Bombardini Matilde, and Trebbi Francesco. 2012. “Competition and Political Organization: Together or Alone in Lobbying for Trade Policy?Journal of International Economics 87 (1): 1826.
Bown Chad P. 2012. Temporary Trade Barriers Database. Version 6 The World Bank. http://go.worldbank.org/W5AGKE6DH0
Bradford Jensen J., Quinn Dennis P., and Weymouth Stephen. 2015. “The Influence of Firm Global Supply Chains and Foreign Currency Undervaluations on US Trade Disputes.” International Organization 69 (4): 913–47.
Brander James A., and Spencer Barbara J.. 1985. “Export Subsidies and International Market Share Rivalry.” Journal of International Economics 18 (1–2): 83100.
Broda Christian, and Weinstein David E.. 2006. “Globalization and the Gains from Variety.” The Quarterly Journal of Economics 121 (2): 541–85.
Carnegie Allison. 2015. Power Plays: How International Institutions Reshape Coercive Diplomacy. New York, NY: Cambridge University Press.
Destler I. M., and Odell John. 1987. Anti-protection: Changing Forces in U.S. Trade Politics. Washington, DC: Institute for International Economics.
Eaton Jonathan, and Grossman Gene M.. 1986. “Optimal Trade and Industrial Policy under Oligopoly.” The Quarterly Journal of Economics 101 (2): 383406.
Eaton Jonathan, Kortum Samuel, and Kramarz Francis. 2011. “An Anatomy of International Trade: Evidence From French Firms.” Econometrica 79 (5): 1453–98.
Gawande Kishore, and Bandyopadhyay Usree. 2000. “Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection.” The Review of Economics and Statistics 82 (1): 139–52.
Gilligan Michael J. 1997a. Empowering Exporters: Reciprocity, Delegation, and Collective Action in American Trade Policy. Ann Arbor: University of Michigan Press.
Gilligan Michael J. 1997b. “Lobbying as a Private Good with Intra-Industry Trade.” International Studies Quarterly 41 (3): 455–74.
Goldberg Pinelopi Koujianou, and Maggi Giovanni. 1999. “Protection for Sale: An Empirical Investigation.” The American Economic Review 89 (5): 1135–55.
Goldstein Judith, and Gulotty Robert. 2014. “America and Trade Liberalization: The Limits of Institutional Reform.” International Organization 68 (2): 263–95.
Gowa Joanne, and Kim Soo Yeon. 2005. “An Exclusive Country Club: The Effects of the GATT on Trade, 1950–94.” World Politics 57 (4): 453–78.
Grossman Gene M., and Helpman Elhanan. 1994. “Protection for Sale.” The American Economic Review 84 (4): 833–50.
Hainmueller Jens, and Hiscox Michael J.. 2006. “Learning to Love Globalization: Education and Individual Attitudes Toward International Trade.” International Organization 60 (2): 469–98.
Hansen Wendy L., and Mitchell Neil J.. 2000. “Disaggregating and Explaining Corporate Political Activity: Domestic and Foreign Corporations in National Politics.” The American Political Science Review 94 (4): 891903.
Helpman Elhanan, Itskhoki Oleg, Muendler Marc-Andreas, and Redding Stephen J. 2012. “Trade and Inequality: From Theory to Estimation.” Technical report, National Bureau of Economic Research.
Helpman Elhanan, Itskhoki Oleg, and Redding Stephen. 2010. “Inequality and Unemployment In a Global Economy.” Econometrica 78 (4): 1239–83.
Helpman Elhanan, Melitz Marc J., and Yeaple Stephen R.. 2004. “Export versus FDI with Heterogeneous Firms.” The American Economic Review 94 (1): 300–16.
Hillman Arye L. 1982. “Declining Industries and Political-Support Protectionist Motives.” The American Economic Review 72 (5): 1180–7.
Hiscox Michael J. 2002. “Commerce, Coalitions, and Factor Mobility: Evidence from Congressional Votes on Trade Legislation.” The American Political Science Review 96 (3): 593608.
Keohane Robert O. 1984. After Hegemony: Cooperation and Discord in the World Political Economy. Princeton NJ: Princeton University Press.
Krugman Paul. 1980. “Scale Economies, Product Differentiation, and the Pattern of Trade.” The American Economic Review 70 (5): 950–9.
Kuno Arata, and Naoi Megumi. 2015. “Framing Buisiness Interests: How Campaigns Affect Firms’ Positions on Preferential Trade Agreements.” Available at SSRN: http://ssrn.com/abstract=2671986.
Xiaobo, Scheve Kenneth, and Slaughter Matthew J.. 2012. “Inequity Aversion and the International Distribution of Trade Protection.” American Journal of Political Science 56 (3): 638–54.
Ludema Rodney D., Mayda Anna Maria, and Mishra Prachi. 2010. Protection for Free?: The Political Economy of US Tariff Suspensions. London, United Kingdom: Centre for Economic Policy Research.
Magee Stephen P., Brock William A., and Young Leslie. 1989. Black Hole Tariffs and Endogenous Policy Theory: Political Economy in General Equilibrium. Cambridge; New York: Cambridge University Press.
Maggi Giovanni, and Rodríguez-Clare Andrés. 2007. “A Political-Economy Theory of Trade Agreements.” The American Economic Review 97 (4): 1374–406.
Mansfield Edward D., and Mutz Diana C.. 2009. “Support for Free Trade: Self-Interest, Sociotropic Politics, and Out-Group Anxiety.” International Organization 63 (3): 425–57.
Marvakov Jordan, Becker Randy A., and Gray Wayne B.. 2000. “NBER- CES Manufacturing Industry Database.” http://www.nber.org/data/nberces5809.html
Mayer Wolfgang. 1984. “Endogenous Tariff Formation.” The American Economic Review 74 (5): 970–85.
Melitz Marc J. 2003. “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.” Econometrica 71 (6): 1695–725.
Melitz Marc J., and Ottaviano Gianmarco. 2008. “Market Size, Trade, and Productivity.” Review of Economic Studies 75: 295316.
Milner Helen. 1987. “Resisting the Protectionist Temptation: Industry and the Making of Trade Policy in France and the United States During the 1970s.” International Organization 41 (4): 639–65.
Milner Helen V. 1988. Resisting Protectionism: Global Industries and the Politics of International Trade. Princeton, NJ: Princeton University Press.
Milner Helen V., and Yoffie David B.. 1989. “Between Free Trade and Protectionism: Strategic Trade Policy and a Theory of Corporate Trade Demands.” International Organization 43 (2): 239–72.
Olley G. Steven, and Pakes Ariel. 1996. “The Dynamics of Productivity in the Telecommunications Equipment Industry.” Econometrica 64 (6): 1263–97.
Olson Mancur. 1971. The Logic of Collective Action: Public Goods and the Theory of Groups, Vol. 124. Cambridge, MA: Harvard University Press.
Osgood Iain. 2016. “Differentiated Products, Divided Industries: Firm Preferences over Trade Liberalization.” Economics and Politics 28: 161–80.
Pinto Pablo M., and Weymouth Stephen. 2016. “Partisan Cycles in Offshore Outsourcing: Evidence from U.S. Imports.” Economics and Politics 28 (3): 233–61.
Rauch James E. 1999. “Networks Versus Markets in International Trade.” Journal of International Economics 48 (1): 735.
Roberts Molly, Stewart Brandon, and Tingley Dustin. 2016. stm: R Package for Structural Topic Models. R package version 1.1.3. http://www.structuraltopicmodel.com
Rogowski Ronald. 1987. “Political Cleavages and Changing Exposure to Trade.” The American Political Science Review 81 (4): 1121–37.
Schattschneider Elmer Eric. 1935. Politics, Pressures and the Tariff: A Study of Free Private Enterprise in Pressure Politics, as Shown in the 1929–1930 Revision of the Tariff. Englewood Cliffs, NJ: Prentice-Hall.
Scheve Kenneth F., and Slaughter Matthew J.. 2001. “What Determines Individual Trade-Policy Preferences?Journal of International Economics 54 (2): 267–92.
Tibshirani Robert. 1996. “Regression Shrinkage and Selection via the LASSO.” Journal of the Royal Statistical Society. Series B (Methodological) 58 (1): 267–88.
Trefler Daniel. 1993. “Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy.” The Journal of Political Economy 101 (1): 138–60.
Yaşar Mahmut. 2013. “Political Influence of Exporting and Import-Competing Firms: Evidence from Eastern European and Central Asian Countries.” World Development 51: 154–68.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

American Political Science Review
  • ISSN: 0003-0554
  • EISSN: 1537-5943
  • URL: /core/journals/american-political-science-review
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×
Type Description Title
PDF
Supplementary Materials

Kim supplementary material
Web Appendix

 PDF (910 KB)
910 KB

Metrics

Altmetric attention score

Full text views

Total number of HTML views: 48
Total number of PDF views: 627 *
Loading metrics...

Abstract views

Total abstract views: 1404 *
Loading metrics...

* Views captured on Cambridge Core between 24th February 2017 - 17th November 2017. This data will be updated every 24 hours.