A Theory of Trade Policy Under Dictatorship and Democratization
Paper number: 14/03
Paper date: June 28th, 2014
Paper Category: Discussion Paper
This paper develops a new model of trade policy under dictatorship and democratization. The paper makes two contributions. One is to provide a deeper understanding of the relationship between political institutions and economic efficiency by studying the endogenous interaction between the form of government and trade policy. The paper's second contribution is to show how a dictatorship can manipulate trade policy to maintain the status quo in the face of world price shocks, thus opening the door to a re-examination of trade policy responses to technology shocks. The model is used to explain an interesting episode of trade policymaking between 1815 and 1846, during which time Britain substantially liberalized trade while Prussia, on the other side of the grain market, signi cantly increased protectionism. The model is also used to shed light on the wide-spread imposition of export restrictions in response to the 2007-08 food crisis.
Keywords: Efficiency, institutions, protectionism, social conict, trade policy.
JEL Classification Numbers: D30, D74, F11, F13, P16.