The idea that economic policy is determined not by a benign government acting in isolation but rather by continual interactions between politicians and organized special interest groups is by now well understood and accepted. In formal studies of this phenomenon, economists and political scientists have mostly emphasized the link between domestic lobbies and the government. Recent events, however, have shifted the focus in popular perception (as well as in the consequent policy discussions related to campaign finance reform) to foreign lobbies and to the extent of their involvement in the political process, the presumption being that this interaction has a deleterious effect on the home economy.
In a trade policy context, however, it is easily seen that bending policy in a direction that would suit foreigners may not in fact be harmful: If the policy outcome absent any lobbying by foreigners is characterized by welfare-reducing (or sub-optimal) trade barriers, lobbying by foreigners for reductions in such barriers may move policy in a direction that improves home and US consumer welfare. But, is it so? Do foreign lobbies have impact on US trade policy? If so, is this welfare improving? These are the questions that this project investigates theoretically and empirically.
The empirical study we conduct, of studying foreign lobbying activity and its impact -- in the context of a rigorously specified economic model - is the first of its kind. A substantial component of the research effort involves the collection of data on foreign lobbying activity which are available from U.S. Government's annual Foreign Agents Registration Act (FARA) reports. Our econometric analysis yields estimates of the impact of foreign lobbying on trade policy and thus provide indications of the welfare impact of the presence of foreign lobbies.
