A Test of Tariff Endogeneity in the United States

Alok K. Bohara · William H. Kaempfer

90 citations0/0 files storedAmerican Economic Review

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Global trade and economics Monetary Policy and Economic Impact Historical Economic and Social Studies

Abstract

The high level of protection that exists in many countries is a source of irritation to the normative biases that most economists hold in favor of liberal trade policies. Public-choice explanations of protection, however, suggest that groups vie in the political system for self-serving policies, including tariffs and other forms of protection. Such an approach explains the existence of policies that do not seem to be in the national interest of aggregate economic efficiency. This paper examines aggregate time-series data for the United States from 1890 to 1970 in order to test some of the hypotheses that arise from this public-choice approach. Specifically, Granger-causality tests are carried out over a set of international and macroeconomic variables for the 1890-1970 period. A vector autoregressive (VAR) methodology is employed to examine the data for several reasons. First, theories of tariff endogeneity suggest that tariffs are created and changed in the political system in response to certain economic factors. However, the standard theory of tariffs suggests that feedback effects exist from tariffs to many of the same economic factors: for instance, the price level, income, unemployment, and the trade balance. Therefore, a structural regression model with causality preestablished may be misspecified. Furthermore, the political process is slow to respond to pressure in some cases. This implies that an uncertain lag structure lies behind the relationship among time-series variables. Using a VAR model allows flexibility in selecting a lag structure. A VAR model is also useful for eliminating secular changes in variables.' Consequently, we expect to establish a set of causal relationships through the VAR methodology.

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References

1985The Political Economy of Federalism 1981Autoregressive modelling and money-income causality detection 1974Time series analysis and simultaneous equation econometric models 1990Black Hole Tariffs and Endogenous Policy Theory: Political Economy in General Equilibrium.1982Endogenous Tariffs, the Political Economy of Trade Restrictions, and Welfare 2016The Economics of Special Interest Politics: The Case of the Tariff 1985The Political Economy of U. S. Tariffs: An Empirical Analysis 1988The World Economy: Trade and Finance

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