Files
Abstract
A central result in the theoretical literature on strategic trade is the ërent-shifting
hypothesisí, the idea that governmentís 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.