INFANT-INDUSTRY TARIFF PROTECTION WITH PRESSURE GROUPS

This paper analyzes the increasing tariff protection in the Spanish ir on and steel industry over the first third of the 20th Century. Learni ng effects are explicitly included to model a dynamic game of trade li beralization. The government chooses the tariff level while firms deci de how much to produce each period. Firms' production decisions determ ine their future cost levels. Assuming that learning reduces only fixe d costs, the dynamic game may be solved in closed form, so that the op timality and time consistency of the actual policy can be evaluated. F urthermore, the model is used to measure the relative importance of pr oducers and consumers on the government's equilibrium tariff strategy. The model is calibrated for: year 1913 and it is shown that the exist ence of important, unexploited, dynamic economies of scale may have ju stified high tariff levels at that time. In addition the results also show that the Spanish iron and steel producers behaved more competitiv ely than what is commonly assumed, and that the government's protectio n policy was not significantly conditioned by steel producers. (C) 199 8 Elsevier Science B.V. All rights reserved.