DP1574 | Lobbying and the Structure of Protection

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This paper extends the influence-driven model of trade policy determination to include general equilibrium effects on the supply side resulting from labour-market interaction and intermediate goods. The model?s predictions for the structure of protection are related to underlying taste and technology parameters, and we derive analytically several propositions that are consistent with the stylized results of the empirical literature. Finally, numerical simulations are carried out for archetypal ?rich? and ?poor? economies. It turns out that the endogenously-determined structure of protection is broadly consistent with the observed pattern of protection in rich and poor economies, suggesting the usefulness of the approach.