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

Pushan Dutt and Devashish Mitra ()

Chapter 6 in The Political Economy of Trade Policy:Theory, Evidence and Applications, 2016, pp 109-119 from World Scientific Publishing Co. Pte. Ltd.

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.

Keywords: Political Economy; Protection; Trade Policy; Tariffs; Subsidies; Reciprocal Trade Liberalization; Unilateral Trade Liberalization; Unilateralism; Reciprocity; Lobbying; Median Voter Models (search for similar items in EconPapers)
Date: 2016
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Journal Article: Labor versus capital in trade-policy: The role of ideology and inequality (2006)
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