to endogeneity, either through reverse causation or correlation with omitted variables. Thus, we report the IV results and, to test if endogeneity is present, we calculate the Hausman statistic. The probability values to reject the null of consistency of the OLS estimates range from 0.04 to 0.79 across different speci fi cations.<sup>52</sup> Given that overall the tests were inconclusive and we wanted to maintain comparability across different speci fi cations, we have focused on the IV estimates, which may be inefficient but consistent over all regressions. However, we also calculated the OLS counterpart to each speci fi cation and found that the results were qualitatively similar to the IV estimates. Table 5 provides the summary statistics from the OLS estimation that con fi rm the main prediction of the model as well as one of the two auxiliary predictions.<sup>53</sup>

# 4.6 Political Economy Determinants

There is little systematic evidence on the political economy determinants of the EU’s trade policy. In this section we provide an empirical model of the political economy weights that allows us to identify some of their important determinants in the EU. In doing so we can also analyze the validity of our assumptions that these weights were constant over the last two trade rounds and over industries.

Our theoretical model features a general objective function that allows different weights to be placed on the value of the endowment for different products. The interpretation for this becomes clearer if instead of an endowment economy we think of these goods as being produced by a single factor with which each individual is endowed. Then our formulation simply corresponds to allowing an additional weight ωi−1 on producer surplus relative to consumer surplus. An objective function of this form can be obtained from a model where lobbying is given micro-foundations, such as in Grossman and Helpman (1994), provided that the ownership of the speci fi c factors is concentrated.<sup>54</sup> In GrossmanHelpman each industry has the same relative weight in the government’s objective function provided that it is organized into a lobby. In our sample it is reasonable to assume that all industries are organized because the available industry data we use to identify this weight is aggregated. Moreover, in the Grossman-Helpman setting, the extra weight ω −1 has a structural interpretation: the marginal rate of substitution between social welfare and contributions in the politician’s objective. Therefore, the estimates of the coefficient on the variable ∆x, which represents the extra weight ω − 1, are

> 52 More speci fi cally, we calculate the Durbin-Wu-Hausman statistic. They are reported in Table 2 in the row labeled “Endogeneity p-val”. The value of 0.04 applies to the equivalent of speci fi cation (4) from table 2 when the initial tariffs are added as a regressor.

> 53 More speci fi cally we estimate Cragg’s “heteroskedastic OLS”, which is more efficient than OLS in the presence of heteroskedasticity of unknown form because it uses the orthogonality conditions of the excluded instruments. The excluded instruments are the same we use for the IV estimates.

> 54 Please see Staiger (1995).

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