Page 118 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes provide incentives for the dominant states to behave in a commercially predatory manner. Based on
these considerations, we expect that economic size will be directly related to the incidence of NTBs.
We measure a state’s relative economic size in two ways : the ratio of its imports to total global
imports and the ratio of its gross domestic product (GDP) to total global GDP. The first variable has
been used repeatedly as a measure of economic size. The second is also important because states with
relatively large GDPs are likely to possess greater market power and to be better able to forgo commerce
than are states with relatively small GDPs.
Although it is clear that these two measures of relative size should be highly correlated, analyzing
both allows us to determine whether our empirical results are sensitive to the measure that is used.
Moreover, analyzing both measures of size is important because the ratio of national imports to
global imports is closely related to the measure of trade dependence used by Ronald Rogowski; and
his analysis implies that any observed effect on NTBs of those domestic institutions on which we
focus here (and that are discussed below) might be due to the effects of trade dependence on both
domestic institutions and NTBs. Further, including national GDP as a percentage of global GDP is
important because Wendy Takacs links the level of national product to macroeconomic cycles that
give rise to demands for protection. Contrary to the hypothesis discussed above, however, she finds
that national product is inversely related to escape clause investigations and (to a lesser degree) to
positive findings by the U.S. International Trade Commission in such cases. Including both measures
of size allows us to examine each of these issues.
Domestic institutions
From a statist viewpoint, NTBs should be most prevalent in large states characterized by high degrees
of institutional insulation and autonomy, since these conditions provide policymakers with an
economic incentive to impose NTBs and vest them with the capacity to advance those interests.
Our analysis of institutions draws heavily on an important study by Rogowski. He argues that
“insulation from regional and sectoral pressure in a democracy ... is most easily achieved with large
electoral districts. ... [This argument is] easily defended, in part because institutional theorists have
almost universally accepted it..., but more because it is almost self-evident. When automakers or
dairy farmers entirely dominate twenty small constituencies and are a powerful minority in fifty
more, their voice will be heard in a nation’s councils. When they constitute but one or two percent of
an enormous district’s electorate, representatives may defy them more freely."

Rogowski maintains that the autonomy of public officials in democratic states is bolstered
by both large constituencies and the existence of a list-system PR regime.

Rogowski therefore relies on the (natural logarithm) number of parliamentary constituencies in the
most powerful legislative body (or, in those cases where the most powerful body is not obvious, the
chamber with the most members) of each democratic state as a measure of institutional insulation
and autonomy. It is expected that insulation and autonomy will be inverse functions of the number
of constituencies in any democracy. All other things being equal, a larger number of constituencies
reduces the size of the average constituency in each state. The smaller is this average size, the more
homogeneous is each district, the fewer is the number of special interests that are likely to exist per
constituency, and the greater will be the political influence of each pressure group in that district.
As a result, small electoral districts encourage patronage and pork-barrel politics. Since legislators
representing small districts are likely to be beholden to a few influential pressure groups, they are
likely to attempt to provide those groups with benefits, including trade policies that reflect their
preferences. Yet in polities composed of many small constituencies, no single legislator has the capacity
to provide these benefits. As Barry Weingast and William Marshall argue, “This, in combination
with the diversity of interests they represent, generates a gain from exchange and cooperation among
legislators.” The logrolling to which this situation gives rise is likely to yield trade policy that covers

112 LOVELY PROFESSIONAL UNIVERSITY