Two essays in international relations: Trade protection and water diversion

The first essay proposes to test the Grossman and Helpman "Protection for Sale" model using data from the U.S. food processing industries at the 4-digit level. The Grossman and Helpman model departs from previous frameworks of trade protection in that it provides micro-foundations to the behavior of organized lobbies and politicians and displays clear predictions of the structure of trade protection. The empirical results confirm the main predictions of the G-H model relative to the structure of trade protection. Unequivocally, for organized sectors, protection positively increases with lower levels of import penetration and elasticities of import demand. The other substantial result relates to the unorganized sectors, which suffer negative protection. The results also show that the government places a heavier weight on aggregate welfare, net of contributions, vis-à-vis total political contributions. This conclusion confirms the results by Goldberg and Maggi (1999) but departs from Gawande and Bandyopadhyay's findings (2000) stating that the government places equal weights on aggregate welfare net of contributions vis-à-vis political contributions. The objective of the second essay is to determine the cost-benefit of diverting water from the Senegal River. Specifically, this study proposes to develop and implement an empirical model for the socially optimal level of water diversion, and to ascertain the policy implications. Three scenarios are compared: the social planner's scenario, which implies that all costs are fully borne; the competitive situation assuming countries need not worry about their impacts on others; and the status quo. Although the first two scenarios give positive present values of net benefits, the social planner's scenario uses smaller quantities of water while providing higher returns to society. The empirical results indicate that the diversion project is profitable. However, the benefits are one-sided while the costs are spread over the different countries that share the River. But the magnitude of the net benefits implies the possibility of potentially compensating the losers if the project were to be implemented. This is significant especially with regards to the farmers of flood recession agriculture, identified as the main deprived group.