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An important question that has continued to elude trade economists is why trade interventions are biased in favor of import-competing rather than exportable sectors. Indeed, as Philip Levy (1999) points out, under a set of neutrality assumptions, the dominant political-economy model, Grossman and Helpman (1994), predicts a pro-trade bias. We demonstrate that if we replace the almost partial equilibrium model with a general equilibrium model in the Grossman-Helpman political economy model, anti-trade bias may emerge even if we assume symmetric technologies, endowments and preferences across sectors provided that the elasticity of substitution in production exceeds unity. In addition, we show that ceteris paribus, in general equilibrium, increases in the imports-to-GDP ratio lower the endogenously chosen tariff and the production share of the import sector in GDP has an ambiguous effect.

We present a bargaining model of the interaction between a government and interest groups in which, unlike most existing models, neither side is assumed to have all the bargaining power. The government finds it optimal to constrain itself in the use of transfer policies to improve its bargaining position. In a model of redistribution to lobbies, the government finds it optimal to cap the size of lump-sum transfers it makes below the unconstrained equilibrium level. With a binding cap on efficient subsidies in place, less efficient subsidies will be used for redistribution even when they serve no economic function. Analogously, if it must choose either efficient or inefficient transfers, it may find it optimal to forego use of the former if its bargaining power relative to the lobby is sufficiently low. Even if the lobby can bargain over the type of redistribution policy with the government, the inefficient policy may still be used in equilibrium. If policymakers are elected, rational fully informed voters may choose a candidate who implements the inefficient policy over one who would implement the efficient policy and may prefer the candidate with the lower weight on voter welfare We thus offer an alternative theory that explains why governments may optimally choose to restrict efficient lump-sum transfers to interest groups and replace them with relatively less efficient transfers.

Small economies rarely embrace free trade, a fact that is commonly explained as a consequence of the government's use of trade policy to redistribute income. But why is this redistribution typically biased in favor of import-competing sectors and is consequently trade restricting rather than trade promoting? This remains an important puzzle in trade policy. Most models assume the puzzle away by restricting the government set of policies or else generate the opposite, and empirically counterfactual, prediction--that trade policy has a pro-trade bias (e.g. Grossman-Helpman AER 1994). We show that if the government's objective reflects a concern for inequality, or diminishing marginal political support from factor owners, then trade policy exhibits anti-trade bias. Importantly the mechanism that we analyze generates the anti-trade bias independently of whether factors are specific or mobile across sectors. The mechanism also generates an anti-trade bias between large countries even after they sign reciprocal trade agreements that eliminate any terms-of-trade motivation for the use of trade protection.

Small economies rarely embrace free trade, a fact that is commonly explained as a consequence of the government's use of trade policy to redistribute income. But why is this redistribution typically biased in favor of import-competing sectors and is consequently trade restricting rather than trade promoting? This remains an important puzzle in trade policy. Most models assume the puzzle away by restricting the government set of policies or else generate the opposite, and empirically counterfactual, prediction--that trade policy has a pro-trade bias (e.g. Grossman-Helpman AER 1994). We show that if the government's objective reflects a concern for inequality, or diminishing marginal political support from factor owners, then trade policy exhibits anti-trade bias. Importantly the mechanism that we analyze generates the anti-trade bias independently of whether factors are specific or mobile across sectors. The mechanism also generates an anti-trade bias between large countries even after they sign reciprocal trade agreements that eliminate any terms-of-trade motivation for the use of trade protection.

We analyse the trade and production patterns of countries located at varying distances from an economic centre. Exports and imports of final and intermediate goods bear transport costs which increase with distance. We show how production and trade depend on factor endowments and factor intensities, and also on countries’ locations and the transport intensities of different goods. Countries divide into zones with different trade patterns, some export oriented and others import substituting. We study the implications of distance for factor prices and real incomes, the effects of changes in transport costs, and the locational choice of new activities.

If, in international agreements, governments “link'' trade to environmental policy (or other issues with non-pecuniary externalities), will this promote more cooperation in both policies or will cooperation in one policy be strengthened at the expense of the other? We analyze this question in the context of self-enforcing agreements. We show that if the two policies are independent in the government's objective function then linkage -- the ability to use both policies to punish non- compliance in either individual agreement -- promotes cooperation in one policy at the expense of the other (e.g. strengthens environmental standards at the expense of higher tariffs). However, if the linked policies are not independent in the governments' objective function (e.g. a tariff on cars and an environmental tax on oil) and if these policies are strategic complements then linkage promotes more cooperation in both issues (higher environmental standards and lower tariffs) than no-linkage. The policies are strategic complements only if: (i) the production externality has cross-border effects; (ii) the weight on the externality cost is high; (iii) import competing lobbies are not “powerful''.