A Bias in the System : Types of Government May Be Related to Trade Protection
Carolyn L. Evans
Associate Professor of Economics
In an increasingly globalized world, trade and tariff policy can have vast consequences, yet there has been surprisingly little research into how the structure of the democratic governments that make those policies may be related to policy outcomes.
Carolyn L. Evans, associate professor of economics at SCU’s Leavey School of Business, is contributing to the research on relationships between electoral systems and trade policy with her recent paper, “A Protectionist Bias in Majoritarian Politics: An Empirical Investigation.” The paper — completed in December 2007 and now under review — supports the theory that countries with “majoritarian” forms of government, such as the United States, tend to take more protectionist positions than countries, such as the Netherlands, with “proportional” systems of government.
Evans observes that a standard assumption of most economists is that the best outcome for many countries is free trade with no tariffs. “If you can produce a product in your country for ten dollars or import it for five, it’s better to import it and focus on producing goods where you can be more competitive,” she says.
In a majoritarian system of government, where legislators are elected by specific districts, which they solely represent, that’s less likely to happen, Evans found. In the situation just described, legislators may direct tariff protection to their home districts and such protection would raise the price of the imported product to a level closer to the domestic one.
For example, she notes, “If you have a congressman in a district with a given industry, it’s in his interest to protect that industry, since he’s accountable only to the people in that district — even though it means that everyone else in the country pays more for that industry’s product.”
In a proportional political system, where legislators are either elected by the country as a whole or proportionally by parties in specific districts, there seems to be less of a tendency for protectionist policies. Evans says that may be because when a politician is elected by the whole country, he or she may tend to be more responsive to the overall national interest, rather than the interests of specific groups.
This general theory was put out in a 2005 paper by Gene Grossman and Elhanan Helpman, and what Evans has done is to evaluate tariff information from a number of democratic countries to see if the theory holds up.
Doing this required extensive formulas and tables to take into account other factors, such as a country’s legal origins, colonial history, per capita income level and geographic location. “You have to be sure that the bias toward protection is because of the governmental system and not some other factor,” she says.
The implications of this research could affect nations re-examining their governmental systems as well as emerging nations in the process of developing a constitution. For such countries it could be important to understand the possible relationship between forms of democratic government and trade policy.
Evans, who served as an economist with the Federal Reserve Bank of New York, the White House Council of Economic Advisers, and the Federal Reserve Board of Governors before coming to SCU, sees that trade issues such as protective tariffs have a serious real-world impact.
“When I was with the Council of Economic Advisers, I observed first-hand the interest that many different groups take in trade policy and its effects,” she says. “My research is trying to provide some insight into how the structure of government may be related to trade policy decisions in different countries.”