Literature Review Expansion

[oagarcia086]

This issue will be used to report findings, issues and/or ask questions as Orlando works on expanding the literature review of this project.

[oagarcia086]

Saturday, June 1

• Hours Worked Today: 2
  • Hours Worked this week: 2
• Reflection: Before I attempt to perform a deep dive into the literature of endogenous politics I read (and made notes) the abstract and introduction of the paper. I also made sure I understood the concept of endogenous politics as it is used in the paper. My next steps will consist of having a high level understanding of the literature that has already been examined in the paper. After that, I will start looking for the most recent literature (if any). I expect this to be done either tomorrow or by Monday. @kbuzard

[oagarcia086]

I want to make sure that I understand the escape clause (and its application to the paper) and have come up with an example.

Assume that countries A and B have signed a trade agreement in which country A reduces tariffs for one of the products imported from country B. The escape clause says that if country A experiences a political economy shock then they would be allow to "ignore" the agreement for a period of time until the effect of the shock goes away. Did I get that right?

Also, is the paper arguing that due to political pressure from protectionists, the tariff rate negotiated in the trade agreement would never be reestablish? @kbuzard

[oagarcia086]

Thursday June 6 and Friday June 7

• Hours Worked Today: 1.5 (Thursday), 1.5 (Friday)
  • Hours Worked this week: 3
• Reflection: High level understanding of the literature and research question was completed. I submitted the question above for clarification. I performed an initial scan in JSTOR using "endogenous politics trade policy" and "political pressure endogenous politics trade policy" as keywords.
• My search yielded papers by Mitra (1999), Baldwin (1989) and several political science papers that study endogenous politics (other than lobbying) and its effect on trade. Ehrlich (1999) which looks at lobbying, political institutions, interest groups and U.S. trade policy. Chyzh (2016) builds an endogenous model to study the relationship between trade and human rights
• I do not think any of these papers would contribute much to the literature review but I have included them so you can see what I am finding. I will continue searching and report any relevant findings. I also do a high level "review" of the introduction (of your paper) before I start working just so its fresh in my mind. @kbuzard

[kbuzard]

Assume that countries A and B have signed a trade agreement in which country A reduces tariffs for one of the products imported from country B. The escape clause says that if country A experiences a political economy shock then they would be allow to "ignore" the agreement for a period of time until the effect of the shock goes away. Did I get that right?

@oagarcia086 I'd agree with this statement, with the caveat that there it's not totally predicated on when a shock goes away. In principle that's the idea, but in practice, I'm not convinced. One thing to note (that doesn't matter in a two-country model): an escape clause is a multilateral (i.e., non-discriminatory) instrument. Escape clause tariffs apply to all trading partners. This is different from most of the other forms of administered protection, like anti-dumping, which are trading-partner specific (i.e. discriminatory).

• I should also clarify: the escape clause is really meant as an example, and not as the main point of the paper. If it seems like the main point of the paper, then I definitely need to re-frame...

Also, is the paper arguing that due to political pressure from protectionists, the tariff rate negotiated in the trade agreement would never be reestablish?

I'm not trying to make a dynamic argument. But if you extended the static argument of the paper, yes, I believe this is a reasonable implication.

My search yielded papers by Mitra (1999), Baldwin (1989) and several political science papers that study endogenous politics (other than lobbying) and its effect on trade. Ehrlich (1999) which looks at lobbying, political institutions, interest groups and U.S. trade policy. Chyzh (2016) builds an endogenous model to study the relationship between trade and human rights

If I'm not already citing Devashish's 1999 paper, I should do that, if only because he's my colleague. I'm most interested in papers that interact endogenous politics with international institutional arrangements like the WTO.

• Secondarily: I may have missed some older papers, so it's a good idea to do a scan backward. I'm most interested in making sure that nothing new has come out in the last ten years.
• I don't think the Erhlich or Chyzh papers are relevant--both looks like political science and so aren't the literature I want to speak to.
• I'm not sure I've read this Baldwin paper. Could you run it through ChatGPT and get a 2-3 paragraph summary?

[oagarcia086]

@kbuzard Thank you it makes sense. I don't think the escape clause comes across as the main point of the paper but it is something that caught my attention. I was familiar with tariff bindings because we covered those in Shafaat's class. Also, the paper you cite by Devashish is 2002. I will get a summary of the Baldwin paper over the weekend.

[oagarcia086]

@kbuzard here is a 3 paragraph summary generated by ChatGPT (attached the paper and asked it to generate a 3 paragraph summary)

In "The Political Economy of Trade Policy," Robert E. Baldwin addresses the puzzling issue of why protectionist measures are frequently adopted in the United States despite the widespread agreement among economists that such policies are detrimental to overall economic welfare. Economists typically advocate for free trade or, at the very least, less harmful forms of protectionism like tariffs instead of voluntary export restraints (VEAs). Moreover, production subsidies are seen as a more efficient way to support domestic industries compared to import restrictions. Baldwin highlights that these economic recommendations are often ignored by policymakers, who continue to implement protectionist strategies in various sectors such as automobiles, steel, textiles, and semiconductors.

Baldwin explores two principal approaches to understanding the political economy of trade policy: the economic self-interest approach and the social concerns approach. The economic self-interest approach suggests that individuals and groups support policies that enhance their personal economic well-being. For example, workers in industries threatened by foreign competition are likely to support protectionist measures that safeguard their jobs and incomes, while capitalists, who benefit from lower production costs and increased market access, tend to favor free trade. Baldwin points out that the costs associated with redistributing income and the practical challenges of voting can lead to protectionist outcomes, as the benefits of free trade are often diffuse and the incentives for individual action to support free trade are weak.

The social concerns approach, in contrast, emphasizes the broader societal values and the role of government in addressing social welfare issues. This perspective considers the political motivations behind trade policies, including the desire to protect vulnerable groups and maintain social stability. Baldwin suggests that these two approaches can be integrated to provide a more nuanced understanding of trade policy decisions. He argues that a combination of economic incentives and political considerations explains why policymakers often choose protectionist measures despite the economic consensus against them. By examining both the economic self-interest and social concerns, Baldwin provides a comprehensive framework for analyzing the complexities of trade policy and the persistence of protectionism.

[oagarcia086]

Here is a summary without providing the paper in case you need it:

Baldwin (1989) highlights the significant role of interest groups in lobbying for policies that favor their interests. They exert considerable influence on policy makers. Baldwin also discusses how government balance multiple objectives, including economic efficiency, political support, and social welfare, when crafting trade policies. He points out that while economic theory suggests free trade maximizes national welfare, political pressures frequently result in trade restrictions (protectionist measures).

The article examines various trade policy instruments (tariffs, quotas, subsidies). Baldwin explains how the choice of instrument is influenced by political considerations as well as economic objectives. The role of international negotiations, such as GATT is also discussed, Baldwin analyzes how political negotiations and compromises shape the outcomes of these agreements.

Key Insights: • Policymakers act rationally within their political constraints, seeking to balance economic benefits with political feasibility. • Political pressure often leads to protectionist policies, even when economic theory would favor liberalization. This is due to the concentrated benefits of protectionism for specific groups versus the dispersed costs to the public. • Trade policy Is not static but evolves with changing political and economic landscapes. Baldwin stresses the importance of considering both short-term and long-term impacts.

[kbuzard]

@oagarcia086 Thank you for the summaries of the Baldwin paper. I have one follow up question: does he actually model the government's objective function (that is, specify a functional form)?

[oagarcia086]

@kbuzard He does not model the government's objective function. What he does is to compare and contrast (through intuition) the different approaches to trade policy

[kbuzard]

@kbuzard He does not model the government's objective function. What he does is to compare and contrast (through intuition) the different approaches to trade policy

Okay, there's no need to include it then. It would be good to catalog all the various ways that people have modeled endogenous decision-making on tariffs, but I want to stick to formal models.

[oagarcia086]

@kbuzard do you have access to AER Articles? I found a paper by Maggi and Ossa (2023) that discusses "The Political Economy of International Regulatory Cooperation". I think this paper may be a candidate to add to the literature but I cannot access it.

[kbuzard]

@kbuzard do you have access to AER Articles? I found a paper by Maggi and Ossa (2023) that discusses "The Political Economy of International Regulatory Cooperation". I think this paper may be a candidate to add to the literature but I cannot access it.

You should be able to access anything from the AER if you search for it on the library website, choose the full text option, and then log into the proxy server.

Also, most authors will post the last version of the paper before publication on their websites.

[oagarcia086]

Thursday June 13 (edited to reflect the time I worked on determining the government's objective function and lobby influence for each paper)

• Hours Worked Today: 3

  • Hours Worked this week: 3

• Reflection: Per our conversation, I did a forward citation of the following papers:

  • Mitra (2002)
  • Henrik, Maggi and Steiger (2010)
  • Maggi and Rodgriguez-Clare (2007)

After carefully reviewing the search, I believe the following papers might be of interest:

• Maggi (2020) studies how international agreements can mitigate rent-seeking behavior by domestic and foreign lobbies. It demonstrates that policy caps imposed by such agreements can change the strategic behavior of lobbies, leading to potential reductions in wasteful lobbying activities. The analysis reveals that international commitments may not completely eliminate ex-post lobbying but can significantly influence the equilibrium strategies of domestic and foreign lobbies.

• Maggi and Ossa (2023) studies how international regulatory agreements influenced by producer lobbying, affect welfare by distinguishing between product standards and process standards. The findings indicate that while cooperation on product standards often leads to excessive deregulation and potential welfare reduction, cooperation on process standards tends to enhance welfare through tighter regulations.

Please let me know what you think of these @kbuzard. I will do additional forward citations tomorrow and report any findings.

P.S. There is a paper by Devashish (Mitra 2021) that discusses Lobbying in the Political Economy of International Trade that I am trying to get access to. It seems that the library database does not have it.

[kbuzard]

Please let me know what you think of these @kbuzard. I will do additional forward citations tomorrow and report any findings.

Can you add some detail about how they model the government objective function and how the lobbies influence them?

P.S. There is a paper by Devashish (Mitra 2021) that discusses Lobbying in the Political Economy of International Trade that I am trying to get access to. It seems that the library database does not have it

There are two routes to try: one is to contact the economics subject librarian and ask them for help. Pointing out that these are articles by one of our faculty members might provide additional motivation. The other would be to ask Devashish for copies. Under a lot of publishing agreements, authors are allowed to share manuscripts 1-on-1 even when they're not allowed to post them on their website.

[oagarcia086]

Can you add some detail about how they model the government objective function and how the lobbies influence them?

Below is a pdf that contains the government objective function for each paper and how the lobbies influence them. This is probably more than what you asked but I decided to take a gamble and practice my latex skills. Please let me know if this is what you requested or if I missed anything.

Government_objective_function_and_lobby_influence.pdf

[kbuzard]

Thanks--this is very helpful.

Okay, so Maggi and Ossa (2023) have exogenous political economy weights a la Baldwin 1987. It goes into the list of institutional design papers that have exogenous political economy.

Maggi (2020) is more interesting. It's fundamental a PFS objective function, BUT accounting for lobbying costs. Giovanni and I had some discussions about this pre-pandemic in regards to the endogenous lobbying paper that we're working on now. I think this may create some decreasing returns to lobbying, which helps with one of my big criticisms of the PFS model. We're going to need to understand exactly what the implications of accounting for the lobbying costs are.

BTW, you can use LaTeX right in the Github window, e.g. $\alpha$ or $$\alpha.$$ That's one of the beauties of markdown!

[oagarcia086]

Thanks--this is very helpful.

Okay, so Maggi and Ossa (2023) have exogenous political economy weights a la Baldwin 1987. It goes into the list of institutional design papers that have exogenous political economy.

Maggi (2020) is more interesting. It's fundamental a PFS objective function, BUT accounting for lobbying costs. Giovanni and I had some discussions about this pre-pandemic in regards to the endogenous lobbying paper that we're working on now. I think this may create some decreasing returns to lobbying, which helps with one of my big criticisms of the PFS model. We're going to need to understand exactly what the implications of accounting for the lobbying costs are.

BTW, you can use LaTeX right in the Github window, e.g. α or α. That's one of the beauties of markdown!

Amazing! Thank you for the LaTeX trick. Should I invest more time in Maggi (2020)? I could read the paper more in depth and see if I can find anything else related to lobbying costs.

[oagarcia086]

Friday June 14

• Hours Worked Today: 1

  • Hours Worked this week: 4

• Reflection: Did additional forward citation but was not able to find papers that would contribute to the literature review. I have 4-5 more papers to do forward citation on. I will contact the library on Monday to see if I can get a copy of Devashish's paper.

[kbuzard]

Amazing! Thank you for the LaTeX trick. Should I invest more time in Maggi (2020)? I could read the paper more in depth and see if I can find anything else related to lobbying costs.

This will need to be done, but let's get through the forward citation search first. When you're done with all of them, will you include the list of papers for which you did the forward cite search so we have a record of it here?

[oagarcia086]

I reached out to the Economics librarian (Winn Wasson) but got an out of office message. He should be back by Thursday of this week.

[kbuzard]

I reached out to the Economics librarian (Winn Wasson) but got an out of office message. He should be back by Thursday of this week.

Thanks--and thanks for copying me on the email (it's useful for my information and also strategically a good move). It was perfect.

[oagarcia086]

Friday June 21 Hours Worked Today: 1.5

Hours Worked this week: 1.5 Reflection: Did additional forward citation but was not able to find papers that would contribute to the literature review. I thought I only had a few more papers left to do but turns out I had 10 to go. I worked on 5 of them today and have 5 more to go. I will finish the forward citation tomorrow. I also started to put together a list of papers that I did forward citation on. I will share it with you when I am done.

Lastly, I replied to Winn's email but have not heard back from him.

[oagarcia086]

Saturday June 22

Hours Worked Today: 2 Hours Worked this week: 3.5

Reflection: I finished the forward citation task. I've identified three papers that might be of interest. Two of them are empirical checks of Protection for Sale and the third one is a Maggi and Rodriguez Clare paper.

• Goldberg and Maggi (1999) provide robust empirical evidence for the Grossman- Helpman findings.
• Kishore and Bandyopadhyay (2000) also provide robust empirical evidence for the Grossman-Helpman findings, highlighting the significant role of lobbying in determining protectionist policies and the government's balancing act between welfare considerations and political contributions
• Maggi and Rodriguez-Clare (1998) found that governments might value trade agreements not only for traditional reasons like avoiding the terms-of-trade prisoner’s dilemma but also for managing domestic political pressures. The decision to commit to free trade is influenced by the government’s bargaining power and its balance between valuing political contributions and social welfare.

The list of papers that I did forward citation is as follows:

• Amador, Manuel and Kyle Bagwell (2012), “Tariff Revenue and Tariff Caps,” The American Economic Review: Papers and Proceedings 102.3, pp. 459–465.
• Bombardini, Matilde and Francesco Trebbi (2012), “Competition and Political Organization: Together or Alone in Lobbying for Trade Policy,” Journal of International Economics 87.1, pp. 18– 26
• Bown, Chad P. and Meredith A. Crowley (2013), “Self-Enforcing Trade Agreements: Evidence from Time-Varying Trade Policy,” American Economic Review 103.2, pp. 1071–1090
• Dixit, Avinash (1987), “Strategic Aspects of Trade Policy,” Advances in Economic Theory: Fifth World Congress, ed. by Truman F. Bewley, New York: Cambridge University Press, pp. 329– 362
• Dixit, Avinash, Gene Grossman, and Elhanan Helpman (1997), “Common Agency and Coordination: General Theory and Application to Government Policy Making,” Journal of Political Economy 105.4, pp. 752–769.
• Grossman, Gene and Elhanan Helpman (1994), “Protection for Sale,” The American Economic Review 84.4, pp. 833–850
• Grossman, Gene and Elhanan Helpman (1995), “Trade Wars and Trade Talks,” The Journal of Political Economy 103.4, pp. 675–708.
• Horn, Henrik, Giovanni Maggi, and Robert W. Staiger (2010), “Trade Agreements as Endogenously Incomplete Contracts,” American Economic Review 100.1, pp. 394–419.
• Maggi, Giovanni (1999), “The Role of Multilateral Institutions in International Trade Cooperation,” The American Economic Review 89.1, pp. 190–214.
• Maggi, Giovanni and Andres Rodriguez-Clare (2007), “A Political-Economy Theory of Trade Agreements,” The American Economic Review 97.4, pp. 1374–1406.
• Mitra, Devashish (2002), “Endogenous Political Organization and the Value of Trade Agreements,” Journal of International Economics 57.2, pp. 473–485.
• Rosendorff, B. Peter (2005), “Politics and Design of the WTO’s Dispute Settlement Procedure,” American Political Science Review 99.3, pp. 389–400.
• Sykes, Alan O. (2003), “The Safeguards Mess: A Critique of WTO Jurisprudence,” World Trade Review 2.03, pp. 261–295.
• Zissimos, Ben (2007), “The GATT and Gradualism,” Journal of International Economics 71.2, pp. 410–433.

[oagarcia086]

Given that we do not have access to Devashish's paper through the library. Would you like me to reach out to him and ask for a copy or should I go through the interlibrary loan system as described in Winn's email? @kbuzard

[kbuzard]

Given that we do not have access to Devashish's paper through the library. Would you like me to reach out to him and ask for a copy or should I go through the interlibrary loan system as described in Winn's email? @kbuzard

Please reach out to Devashish first. If you don't hear back from him in 24 hours, make the ILL request.

The next step is for me to go over the list you supplied above and see if there are any others that I would add. I'm still visiting family so this is unlikely to happen until later in the week when I'm back in Syracuse.

[oagarcia086]

Thank you. I emailed Devashish. Hopefully he can send us a copy of the paper :)

[oagarcia086]

@kbuzard I did not hear back from Devashish. I was going to put the ILL request but the system is down until 6/28 due to a system upgrade. I will put the request in a soon as it reopens.

[oagarcia086]

Devashish just emailed us. I am attaching the paper to this issue for our records. Mitra_ORE.pdf