Endogeneous Protection, Factor Returns and Resource Allocation

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Abstract
We consider a Heckscher-Ohlin-Samuelson trade model with two lobbies, representing the interests of factor owners, and two political parties. The lobbies contribute resources to politics, equating their returns to political and economic activity at the margin, while the parties maximize their probability of election, trading off general voter dissatisfaction with protection against the electioneering resources that favorable policies attract from the lobbies. The equilibrium level of protection of a factor and its expected rate of return increase with its relative endowment. If this relative endowment is high (low) then the factor will be better (worse) off than under free trade but at intermediate factor endowment ratios, both factors will be worse off. Under parameter changes making lobbies more sensitive to the commodity price, the lobbies contribute more resources to politics and can both be worse off even though the parties are proposing lower trade distortions.

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