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Foreign influence and welfare

Antras, Pol and Padró i Miquel, Gerard (2011) Foreign influence and welfare. Journal of International Economics, 84 (2). pp. 135-148. ISSN 0022-1996

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Abstract

How do foreign interests influence policy? How are trade policies and the viability of trade agreements affected? What are the welfare implications of such foreign influence? In this paper we develop a model of foreign influence and apply it to the study of optimal tariffs. In a two-country voting model of electoral competition, we allow the incumbent party in each country to take costly actions that probabilistically affect the electoral outcome in the other country. We show that policies end up maximizing a weighted sum of domestic and foreign welfare. Using this formulation we show that foreign influence increases aggregate world welfare when there are no other means of alleviating the externalities that arise from cross-border effects of policies. In contrast, when countries can engage in international agreements, foreign influence can prove harmful as powerful countries may refuse to offer concessions. We also show that power imbalances are particularly detrimental to cooperation when they are positively correlated with economic size.

Item Type: Article
Official URL: http://www.elsevier.com/wps/find/journaldescriptio...
Additional Information: © 2011 Elsevier
Library of Congress subject classification: H Social Sciences > HB Economic Theory
J Political Science > JZ International relations
Journal of Economic Literature Classification System: D - Microeconomics > D6 - Welfare Economics > D62 - Externalities
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy-Making and Implementation
F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade
F - International Economics > F1 - Trade > F13 - Commercial Policy; Protection; Promotion; Trade Negotiations; International Trade Organizations
F - International Economics > F5 - International Relations and International Political Economy > F51 - International Conflicts; Negotiations; Sanctions
F - International Economics > F5 - International Relations and International Political Economy > F59 - International Relations and International Political Economy: Other
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: UT ISI:000292667800001
Date Deposited: 27 Jun 2011 09:23
URL: http://eprints.lse.ac.uk/36886/

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