ABSTRACT
Comparative static results clearly indicate that, even in this simple model of a political economy, an unambiguous prediction of the direction of responses of the bargained tariff rate to exogenous shocks may not be possible if the point of minimum expectation also responds to the shocks. Factual information, which includes the elasticities of factor substitution in the two sectors and various quantities and value shares at the observed state of equilibrium, is required to calibrate the basic sub-model. Given an ‘observed’ equilibrium of the political economy, the figures under corresponding simulated autarky indicate the state of economy in equilibrium if country adopts autarkic trade policy and yields the worst outcome to the exporting sector. Protection by itself can be a source of surplus generation in the import competing sector which, attracted by the higher rents under protection, can be reinvested within the sector thereby further increasing the stock of the specific-factor in import competing sector.
