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School Research Seminar

Deconstructing Protection: Local Bureaucrats' Career Concern versus the Corrupt Incentive

This paper provides a novel micro foundation for the formation and maintenance of regional protectionism, with a simple econometric test to support the theoretical predictions. In a two-stage model, the local bureaucrat sequentially maximizes her payoff by making deals with a local or domestic firm. The initial deal allows its entry in the first stage while the following-up deal offers protection against the threat of outsiders in the second stage by setting an entry barrier. We show that when the local bureaucrat has concerns about local citizens' well-being because of career considerations, there exists a perfect Bayesian equilibrium where only highly competitive local firms can afford both deals, which results in protection. Protection can be observed with positive probability as long as the bureaucrat does not fully represent local citizens' interests. Moreover, the political connection is stubborn when the level of the entry barrier is high. The econometric test illustrates the model's explanatory power in trade liberalization.

Seminar Room 2-2,
Level 2, Manasseh Meyer,
Lee Kuan Yew School of Public Policy,
National University of Singapore
Thu 17 January 2019
12:15 PM - 01:30 PM

Xu Xiaoshu

Xu Xiaoshu

Associate Professor, Department of Economics, Antai College of Economics and Management, Shanghai Jiao Tong University

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Alfred Wu Muluan

Alfred Wu Muluan

Associate Professor, LKYSPP