Chapter 12: Rents and international trade policy
Whether the presence of politically created rents is acknowledged has distinguished two approaches to the study of international trade policy. A model that excludes politically created rents proposes that: (1) governments’ efficiency objectives give rise to protectionist policies; (2) social welfare can be increased by a government providing subsidies to firms competing in international markets; (3) tariffs are used by governments to improve the terms of trade, with the population benefitting through distribution of tariff revenue; and (4) trade liberalization takes place to reduce or eliminate the trade restrictions that were imposed to improve the terms of trade. A second model that includes politically created rents offers quite different interpretations of governments’ trade policy decisions. The latter rent-inclusive model is consistent with revealed political preference for using trade policy to provide private benefits and with the political insignificance of tariff revenue. McCloskey (1998) has proposed that we view economists as storytellers. Given the evidence that governments’ trade policy decisions create rents for private benefit, we can ask why the story without rents has been told.
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