Rent-Seeking, Trade Policy and Economic Welfare

The objective of this paper is to assess the impacts that rent-seeking arising from government intervention in international trade has on welfare. More specifically, the focus is on how the granting of special import re- gimes promotes rent-seeking practices, which have negative effects on welfare. We present two concepts of nominal protection: legal tariffs and the actual import tariffs. In addition, we construct three measures of welfare: from the legal tariff; from the actual import tariffs; and from the actual import tariffs when rent-seeking is present. Finally, we compare the various measures of protection in terms of their impact on welfare. The results show that trade policies based on exceptions - such as those establishing the special im- port regimes - tends to decrease welfare.