Firms and Tariff Regime Change: Explaining the Demand for Protection

Abstract

Although it is commonly argued that there is a connection between tariff levels and business conditions, this hypothesis has not been subjected to systematic empirical analysis or given any theoretical basis. The author presents two complementary theories of the movement of tariff levels in response to changing business conditions. Both explain tariff changes in terms of the changing political demands of business firms, and both rely on the business cycle to drive these changing demands. One theory is a conventional argument about changing opportunities for entry and exit; the other treats firms as satisficers. The theories yield similar predictions. Preliminary empirical analysis, while consistent with both, does not differentiate between them.