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Labor versus capital in trade-policy: The role of ideology and inequality

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  • Dutt, Pushan
  • Mitra, Devashish

Abstract

Trade policy depends on the extent to which the government wants to redistribute income as well as on a country's overall factor endowments and their distribution. While the government's desire to redistribute income itself is dependent on asset distribution, it is to a large extent also driven by the partisan nature of the government, i.e., whether it is pro-labor or pro-capital. Using cross-country data on factor endowments, inequality and government orientation, we find that, conditional on inequality, left-wing (pro-labor) governments will adopt more protectionist trade policies in capital-rich countries, but adopt more pro-trade policies in labor-rich economies than right-wing (pro-capital) ones. Also, holding government orientation constant, higher inequality is associated with higher protection in capital-abundant countries while it is associated with lower protection in labor-abundant countries. These results are consistent with the simultaneous presence of both inequality as well as ideology as determinants of protection within a two-factor, two-sector Heckscher–Ohlin framework. Overall, various statistical tests support an umbrella model (that combines both the ideology and inequality models) over each of the individual models.
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  • Dutt, Pushan & Mitra, Devashish, 2006. "Labor versus capital in trade-policy: The role of ideology and inequality," Journal of International Economics, Elsevier, vol. 69(2), pages 310-320, July.
    • Handle: RePEc:eee:inecon:v:69:y:2006:i:2:p:310-320
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    3. Pushan Dutt & Devashish Mitra, 2016. "Political Ideology And Endogenous Trade Policy: An Empirical Investigation," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 5, pages 95-108, World Scientific Publishing Co. Pte. Ltd..
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    5. Pushan Dutt & Devashish Mitra, 2016. "Endogenous trade policy through majority voting: an empirical investigation," World Scientific Book Chapters, in: The Political Economy of Trade Policy Theory, Evidence and Applications, chapter 4, pages 67-93, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Subhayu Bandyopadhyay & Suryadipta Roy, 2011. "Political economy determinants of non-agricultural trade policy," Review, Federal Reserve Bank of St. Louis, vol. 93(Mar), pages 89-104.
    2. Christian E. Weller, 2011. "Could international labour rights play a role in US trade?," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 35(1), pages 39-57.
    3. Cooray, Arusha & Tamazian, Artur & Vadlamannati, Krishna Chaitanya, 2014. "What drives FDI policy liberalization? An empirical investigation," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 179-189.
    4. Dreher, Axel & Minasyan, Anna & Nunnenkamp, Peter, 2015. "Government ideology in donor and recipient countries: Does ideological proximity matter for the effectiveness of aid?," European Economic Review, Elsevier, vol. 79(C), pages 80-92.
    5. Gawande, Kishore & Hoekman, Bernard, 2009. "Why Governments Tax or Subsidize Trade: Evidence from Agriculture," Agricultural Distortions Working Paper Series 50300, World Bank.
    6. Sijeong Lim & Brian Burgoon, 2017. "Globalization and Support for Unemployment Spending in Asia," Working Papers hal-01670983, HAL.
    7. Florian Haelg & Niklas Potrafke & Jan-Egbert Sturm, 2022. "The determinants of social expenditures in OECD countries," Public Choice, Springer, vol. 193(3), pages 233-261, December.
    8. Egger, Peter & Larch, Mario & Pfaffermayr, Michael & Walde, Janette, 2008. "The EU's attitude towards Eastern Enlargement in space," Journal of Comparative Economics, Elsevier, vol. 36(1), pages 142-156, March.
    9. Lodewijk Smets & Stephen Knack & Nadia Molenaers, 2013. "Political ideology, quality at entry and the success of economic reform programs," The Review of International Organizations, Springer, vol. 8(4), pages 447-476, December.
    10. Dutt, Pushan & Mitra, Devashish, 2009. "Explaining Agricultural Distortion Patterns : The Roles of Ideology, Inequality, Lobbying and Public Finance," Agricultural Distortions Working Paper Series 50299, World Bank.
    11. Margarita Katsimi & Thomas Moutos, 2010. "Inequality and the Relative Reliance on Tariffs," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 121-137, February.

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    JEL classification:

    • F0 - International Economics - - General
    • F6 - International Economics - - Economic Impacts of Globalization

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