Chapter-4: Society Center approach §

1. What is a society centered approach to trade?

A Society Centered Approach: government’s trade policy objectives are shaped by politicians’ response to interest groups’ demands.

2. What is the factor model?

Factors of production is moved by the competition between capitalists and workers.

There are two policies that determine the winner and losers:

Winners Liberalized Trade Policy $\left\{\begin{array}{c}\text{Developed Countries: Capitalists}\\ \text{Developing Countries: Workers}\end{array}\right\}$

Losers Protectionist Trade Policy $\left\{\begin{array}{c}\text{Developed Countries: Workers}\\ \text{Developing Countries: Capitalists}\end{array}\right\}$

3. What is the sector model?

is Competition between export-oriented and import-competing sectors or industries

Winners laborer and capitalist employed in export-oriented industries

Losers laborer and capitalists employed in import-competing sectors

4. What are the two electoral systems?

Majoritarian §

First-Past-the Post: elected by a majority vote.

Proportional Representation §

gain seats in proportion to the fraction of vote casted for them

5. Why in developing countries labor prefer liberal trade policies while owners of capital prefer protectionist trade policies?

• Workers want free trade as it brings in competitions, higher labors, cheaper products
• Capitalists want closed economy because they could be monopoly, deciding the price and wage

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Key Terms

• Factor mobility: refers to the ease with which labor and capital can move from one industry to another.
• Collective Action Problem: because consumer have an incentives to free-ride, no one contribute their money, time, no one lobby. Even though, they share the common goals but because no one contribute and wait for other. Therefore, it lead the action to be failed.
• Factor Model: is competition over trade policy is a conflict over the distribution of national income between labor (worker) and business (capital).
• Factor-Price Equalization (or the Stolper-Samuelson Theorem): the return of one country will fall and the return of another country will rise until the return to capital in two countries is the same.
• Export-Oriented Sector: the labor and capital employed in capital-intensive and high-technology industries such as computers, pharmaceuticals, and biotechnology, gain form trade.
• Import-Competing Sector: the labor and capital employed in industries that rely intensively on society scare factor and labor-intensive sectors such as apparel and footwear, lose from trade.
• Majoritarian: electoral systems combine single single member districts and first-past-the-post elections.
• Proportional Representative: electoral systems employ multi-member districts to distribute legislative representation in the proportion to the share of popular vote each party attracts.
• Reciprocal Trade Agreement Act: congress delegates to the president the authority to reduce tariff in exchange for equivalent concession from foreign government. Moreover, it transformed the large and heterogeneous group favoring liberalization into small group of export-oriented industries that could more easily organize to pursue common goals.
• Sector Model: is the trade politics are driven by competition between industries.
• Specific Factors: to the sector in which they are currently employed. (Example: Capital currently employed in apparel production cannot easily move to the computer industry)
• Veto Player: is a political actor whose agreement is necessary in order to enact policy.