Protection for Sale with Consumer Externalities: an Application to Non Tariff Measures

In this paper, we investigate the effect of lobbying and consumers’ externality on the pattern of protection through non-tariff barriers to trade (NTMs) across US manufacturing sectors. We first extend the Grossman and Helpman (1994) model, “Protection for Sale”, incorporating consumer externality. Externality is intended, in our framework, as the concern of a government for consumers’ safety and the environment, which should result in icreased protection through standards and technical measures. We test our model using a novel database on 2014 stock of NTMs. We measure political organization of industries through lobbying expenditures data, and we identify sectors where government cares the most about consumers’ well-being using media sources. Our results suggest that both pressure from interest groups and concerns about safety and environmental issues lead to an increase in the pattern of protection across US manufacturing sectors.