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Article
An Empirical Test of the Rent-Shifting Hypothesis: The Case of State Trading Enterprises
Journal of International Economics
  • Stephen F. Hamilton, University of Central Florida
  • Kyle W. Stiegert, University of Wisconsin - Madison
Publication Date
10-1-2002
Abstract

A central result in the theoretical literature on strategic trade is the ‘rent-shifting hypothesis’, the idea that government’s can employ trade policy as a precommitment device to transfer profit from foreign to domestic firms. To our knowledge, however, the rent-shifting hypothesis remains untested empirically. This paper constructs a theory-based empirical test of rent-shifting behavior that relies on observations of government precommitment variables employed through State Trading Enterprises (STEs). The analysis applies data on the delayed producer payment structure of the Canadian Wheat Board (CWB) and examines its merits as a rent-shifting mechanism in the international durum market. The model fails to reject the hypothesis that the CWB utilizes a pre-commitment mechanism in the international durum market and several nonparametric tests confirm that the observed transfer payments set by the CWB are consistent with rent-shifting behavior in the 1972–95 pre-WTO period.

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Citation Information
Stephen F. Hamilton and Kyle W. Stiegert. "An Empirical Test of the Rent-Shifting Hypothesis: The Case of State Trading Enterprises" Journal of International Economics Vol. 58 Iss. 1 (2002) p. 135 - 157
Available at: http://works.bepress.com/shamilto/13/