Chapter 4 - A Society-centred Approach to Trade Politics Flashcards
What is the society-centred approach to trade politics?
Policy is shaped by politicians’ responses to interest group’s demands, because trade policy reflects interest-group demands (example Brexit and NAFTA Trump)
Which are the 3 approaches?
1) Factor incomes & class conflict
2) Sector incomes and industry conflict
Model of class conflict?
Based on competition between factors of production, distinct preferences due to income effects.
If endowed with capital, export capital intensive good, import labour intensive good, price of labour goes down and capital up
Eventually factor-price equalization (Stolper-Samuelson Theorem)
Sector incomes and industry conflict?
Competition between industries, K/L move in conjunction per industry
Factors are not mobile and tied to a specific sector, there is no specific interest of a unified labour group or capital class
Sectors that rely on abundant factor will win (export-orientated)
Sectors that rely on scarce factor will lose (import-competing sector)
Trade as a collective action problem
Everybody gains from trade, but incentive to free-ride = public good
1) consumers face strong incentive to free-ride
2) bias towards protectionism from protected industry
3) Reciprocal trade agreements instead of unilateral
Political institutions and their role in trade policy?
They will transform interest group demands into policy + shape competition between organized interests.
They will establish the rules that influence strategies in pursuit of policy objectives
What is the impact of an electoral system on trade bargaining?
Majoritarian: organised around common sector-based interests, so need to satifsy demand of district
Proportional representation: organized around factors, hence broader support base
Furthermore, veto players make it even more difficult to alter
