Democracy and Trade Policy: the Role of Interest Groups

Kyounghee Lee
JEL codes: 
KIEP Working Paper 10-03

As democracy develops and matures, the number of interest groups attempting to voice their interests with respect to trade policies tends to increase, and sometimes governments collide with them in the process of enacting restraints. This paper aims to investigate empirically the role of interest groups in Korea’s trade policy, utilizing the Grossman and Helpman (1994). Contrary to prevailing wisdom, the results of our empirical investigation suggest that a greater level of participation by diverse interest groups actually promotes trade liberalization, as different groups offset each other’s demands in the act of obtaining government protection. The findings imply that “openness and pluralism” with respect to interest groups is necessary if better strategies for trade liberalization are to be developed.