Trade policy in West Germany

Trade policy in West Germany

Book reviews 599 empirical evidence is ambivalent, and theoretical predictions depend heavily on the behavioural assumptions made. We could therefo...

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599

empirical evidence is ambivalent, and theoretical predictions depend heavily on the behavioural assumptions made. We could therefore conclude that theoretical progress has turned Industrial Organization into a more fascinating subject, but has also led to a wide spectrum of hypotheses that are not easily testable. This book gives an appealing and rich assessment of ‘the state of the arts’ and will prove valuable to both readers acquainted with the field, as to relative newcomers whose appetites will be wet to delve deeper into the questions posed by Industrial Organization.

University

Frank D. Weiss et al. (eds), Trade 217, J.C.B. Mohr (Paul Siebeck), 345428-3.

Maria Brouwer of Amsterdam

Policy in West Germany. Kieler Studien Tubingen, 1988, 173 pages: ISBN-3-16-

Obviously, the book deals with one common topic: trade policy. And in addition it focuses exclusively on one country, i.e., West Germany. Nevertheless, differing aspects are considered and alternative approaches are applied. The study combines the results of various research projects. Altogether five authors were involved and contributed to the present publication: besides Frank D. Weiss also Bernhard Heitger, Karl Heinz Jiittemeier, Grant Kirkpatrick and Gernot Klepper. The book is composed by eight parts: Part I gives an useful overview of the arguments, as do the summary and the conclusions given in Part VIII. A systematic quantification of trade policy measures in West Germany in the mid 1970s and the mid 1980s is undertaken in Part II. Calculations are made for quantitative restrictions and their implicit tariffs, for nominal tariffs and nominal subsidies. The effective rate of assistance is calculated, i.e., the sum of effective implicit and explicit tariff protection and effective subsidization. No overall measures are given. However, the figures for single industries are shown and it turns out that the variation of the effective rates of assistance increased over the decade analysed. Only some distinctive industries have been the beneficiaries of protection. These sectors are: agriculture and food processing; coal mining; the steel industry; shipbuilding; textiles and clothing. In addition to these old, declining industries also a new (i.e. the aerospace) industry has been exceptionally promoted though decreasingly over the decade. The subsidization policy is analysed in detail in Part III. Various categories of subsidies are related to policy intentions and policy institutions. In the following chapters these informations and the data collected are used

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to confront them with hypotheses about the causes and consequences of trade policy. First, it is asked for the causes of protection measures, using a political economy approach to trade policy (Part IV). According to the authors (p. 3) ‘West Germany is a particularly well furnished laboratory for examining the relevance of these ideas, because an influential, almost institutionalized set of distinctive interest groups is in place’. Trade policy is explained by the interaction of a small, distinctive, and stable set of interest groups with a limited number of stable and distinctive German, European and international institutions. A statistical test of interest group influence on effective total protection (across industries and between 1978 and 1985) is undertaken. It turns out that the industries are able to alter the protective structure in their favour if they are large in number (employees) or if they have access to government in the form of their own ministries. However, demand for protection by industries is only one part of the story. Industries influence is constrained by governmental supply, and state interventions are responsive to political, institutional and technological changes. This is shown by analysing variations in protection over time by adopting a historical perspective on German trade policy in Part V. The consequences of trade policy measures are highlighted in Part VI and VII. First, the role of trade policy in codetermining the interindustry pattern of specialization and competitiveness is analysed. On the one hand the factor proportions theory based on comparative advantage and on the other hand strategic trade theory focusing on economies of scale, and hence, on imperfectly competitive markets are considered. Predictions about the firm size and other industry characteristics in the presence of policy measures are made and confronted with the facts for West Germany. Secondly, the effects of trade liberalization on employment and income are simulated under alternative labour market institutions. As expected, the simulations (within a general equilibrium model) result in a change in income and employment in response to complete liberalization being greatest when wages are assumed to be completely flexible. In total, the book comprises useful information and data about protection of industries and their interaction with government (ministries). Moreover, the historical outline of trade policy in Prussia, the German Customs Union (‘Zollverein’) and the discussion of German trade policy in the last 100 years is of special interest. However, the large scale of issues addressed and the details on facts and figures involve some costs in theory coming off rather badly and testable hypotheses being derived hardly. In their outlook the authors themselves point to the need for a better integration of new political economy with new industrial policy considerations. In addition, they acknowledge that the supply of protection is still relatively poorly understood. For sure, the systematisation of facts and data is a useful task. But taking the view that a process-orientated analysis is more adequate and

Book reviews

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fruitful than an end-oriented examination, particularly when analysing trade policy and protectionism, the reviewer herself would stress to pay more attention to the process of interaction in the political market of protectionism than to measuring data which the actors try to hide exactly due to political reasons. Hannelore Week-Hannemann University of Konstanz