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Declining Industries and Persistent Tariff Protection
Author(s) -
Magee Christopher
Publication year - 2002
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00362
Subject(s) - economics , tariff , shock (circulatory) , international economics , politics , capital (architecture) , persistence (discontinuity) , free trade , international trade , macroeconomics , medicine , geotechnical engineering , archaeology , political science , law , history , engineering
The paper uses a political economy framework to explain the empirical observation that trade protection is persistent. The assumptions that are shown to generate endogenous tariff persistence in the model are quite plausible: agents are uncertain about future prices, tariffs are affected by political pressure, and producers of the import–competing good own sector–specific human capital that may be lost if they exit the industry. The model also reveals that, under the conditions listed above, industries decline gradually in response to a price shock even when producers do not face increasing costs of adjustment.