Local protectionism: From the point of view of social welfare

Zuo Cibo

Abstract

I analyze the reason of the local protectionism from the point of view of fiscal decentralization, economical overtaking strategy, and promotions of government officials. We calculate the social welfare effects of these local protectionism by using “Harberger Triangle”. Generally speaking, the local protectionism benefits the local public finance or local firms by exploiting the consumer’s surplus. In case of subsidy, the local protectionism fights for the competitiveness of local business by sacrificing the social efficiency. So the local protectionism restricts the efficiency of the resource allocation, distorts the incentive mechanism and hinders the development of our economy. Based on these analysis, I propose policy suggestions to remove the local protectionism as well as develop the socialist market economy.