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date: 31 May 2020

Abstract and Keywords

Traditional international trade models explain the sources of comparative advantage and show how a country as a whole gains from trade and from terms-of-trade improvement. The traditional models assumed competitive market-determined outcomes with passive or benevolent government. Income-distribution consequences of trade policy were noted. The models did not address the politics of trade policy, the study of which requires two premises consistent with public-choice principles: (1) that political self-interest underlies policy decisions rather than benevolent-government social-welfare objectives, and (2) political decision makers prefer creation of politically assignable rents to non-assignable budgetary revenue or aggregate country-wide gains from free trade or terms-of-trade improvement. These two premises are acknowledged in the first-generation of models of politicized trade policy. A second generation of models includes the first but not the second premise. It is documented that public-choice premises have not always been included in mainstream economic models. The second-generation models devoid of the primacy of rents in trade-policy determination are mainstream for many members of the academic international trade community. The chapter explains how, by not including the political preference for rents over budgetary revenue, the second-generation models are at variance with the actual conduct of trade policy. Public-choice concepts are also used to re-evaluate a wide range of traditional trade-policy conclusions and recommendations. Empirical evidence is reviewed and interpreted.

Keywords: political self-interest, rent creation, rent seeking, trade negotiations, terms-of-trade

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