The Effects of Endogenous Protection on the Economic Landscape

Abstract

The author studies the impact of political economy variables on the spatial distribution of industry. The political game between a single lobby and a partial opportunistic incumbent may alter the economic landscape of a small economy. The trade policy endogenously determined becomes the channel to understand how the players’ behaviour impacts on the long run spatial distribution of industry. When the rest of the world is a free trader and the spending share of an economy is relatively small, the marginal change in the trade policy has a relevant impact on the industry share. Amazingly, if a small economy is characterised by a government that is not very much concerned about general welfare and there is a lobby of few capital owners that play actively, the possible outcome will be a relocation of industry that favours such an economy. Capital owners might make capital flow to look for protection. Political variables may act as a dispersion force.