Chapter 5 – A State-Centered Approach to Trade Politics Flashcards
Why do national policy-makers intervene per the state-centered approach?
They do so independent from domestic groups.
1) raise social welfare
2) to embody the goals of national policymakers rather than the demand of the domestic interest groups
How can state intervene?
1) They can protect infant industries
2) They can protect high-technology industry
What is an infant-industry?
They are initially inefficient but given time to mature they may get there due to
a) Economies of scale
b) Economies of experience
Over time cost basis will decrease, spread out over more units as well as knowledge and skill to produce more efficiently in order to compete in international markets.
Is a tariff the best solution?
No, because it reduces consumer welfare. Subsidies could provide a more preferable outcome. It would allow to borrow on the financial markets to cover short term losses until it can compete.
What is industrial policy?
It depends on political institutions and state strengths, central authority and coordination among agencies and has little influence on policy by societal actors
What is the standard model?
It Standard model argues that government intervention harms welfare, instead it must specialize production.
When can protection be useful?
Must demonstrate that factors do not shift in higher yielding industries
What are strong states?
Strong states are characterized by a high degree of centralization of authority, a high degree of coordination among state agencies, and a limited number of channels through which societal actors can attempt to influence policy.
What is the state-structured approach?
This approach argues that factors may not move automatically from relatively low-return industries into relatively high-return industries. In such instances, targeted government intervention, in the form of a tariff or a production subsidy, can encourage movement into these industries. But you need a strong state structure
What are high technology industries?
These industries tend to have high rents. Rents are higher than normal on ROI and pay higher wages
What is strategic trade theory?
Government intervention needed for economies of scale, but markets characterized by oligopolistic competition (only small number can capture excess returns).
Therefore it is a zero-sum competition, where first entries will gain the market.
But, targeted government intervention may enable late entrants to challenge first movers.
==> financial assistance to pay for R&D (subsidies), reduces up-front investment and allows firm to enter
