Protection for Sale under Monopolistic Competition: An Empirical Investigation

• Main Authors: CHANG, Pao Li, LEE, Myoung-jae
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2006
• Subjects: International Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/929
• Institution: Singapore Management University

Previous cross-sectional empirical works based on Grossman and Helpman (1994) have often adopted homogeneous (perfect competition) market structure. Recently, Chang (2005) suggested that the endogenous protection structure under the political framework of Grossman and Helpman (1994) changes systematically when the underlying market structure is monopolistically competitive. In this paper, we adopt a general empirical specification that accommodates both monopolistically and perfectly competitive sectors. Our results favor the general specification of heterogeneous market structures over the homogeneous perfect competition specification. This empirical finding thus suggests an intricate relationship between import protection and import penetration: it depends on whether the sector is perfectly competitive or monopolistically competitive and whether the sector is politically organized or not.