Exogenous Tariff Changes with an Endogenous Lobbying Response.

As pointed out by Krueger (1993a, 1993b), changes in policy which are exogenous to the lobbying process may lead to a vicious cycle of protectionism. A sector which receives protection will tend to grow, thereby increasing the constituency for greater protection and reducing the constituency which opposes protection. The possibility of such a vicious circle is examined in the context of a trade model where capital, which is immobile in the short run, may lobby for a sector specific import tariff. If costs associated with overcoming the free rider problem do not rise too quickly, exogenous policy changes will be reinforced by the endogenous lobbying response, as capital flows into the protected sector in the long run. The implications of lobbying by third parties versus lobbying by the specific factors themselves are also examined. Copyright 1997 by Kluwer Academic Publishers