This study presents a model of an empirical political economy in order to examine whether or not interest groups are able to influence the formation of public policies in a democratic regime. Using data on Taiwan’s manufacturing industry from 1986, 1992 and 1997, and a two-stage Tobit model, this study argues that, in stark contrast to the position of 1986, the trade protection regimes of 1992 and 1997 were significantly influenced by common interest groups. State special interest groups, represented by public enterprises, still enjoy their status in forming trade policies. Tariff and non-tariff barriers became complementary policy tools effectively reinforcing trade protection in 1992 and 1997. Taiwan’s trade policy-making has arguably now been transferred from an authoritarian regime to a democratic regime. This study further indicates that in Taiwan, the Grossman and Helpman (1994) presumption is supported by the formation of tariffs, rather than the establishment of import restrictions. The empirical results can be attributed to the fact that non-tariff barriers are less transparent than tariffs in terms of protection costs and that they are able to protect firms from import competition in a timelier manner.
