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Adding Another Level: Individual Responses to Globalization and Government Welfare Policies

Lena Maria Schaffer and Gabriele Spilker

Papers from World Trade Institute

Abstract: For the last decade, numerous scholarly works have centered on the question of whether states increase their spending on welfare to cushion their citizens from losses arising from globalization -- the compensation hypothesis. However, research has so far overwhelmingly focused either on the macro or the micro level of the proposed relationship. In this paper we go one step further by explicitly accounting for the combination of responses of individual citizens and country-specific characteristics in a hierarchical model framework. We first analyze whether individuals living in countries that face relatively more pressure from globalization do indeed show a more negative attitude towards increased internationalization. In a second step, we then shed light on the question of whether countries with more extensive welfare policies are successful in shielding their citizenry from the winds of globalization. In contrast to theoretical expectations, our results do not lend support to the conjecture that increasing globalization causes concern to individuals in European countries. However, as predicted by standard trade theory, those individuals who are winning from trade do indeed perceive globalization as something positive especially if they live in very open countries. As far as the nexus between welfare policies and individual contentment is concerned, our results suggest that if nation states compensate their citizens they become indeed more likely to see globalization in a positive light.

Date: 2013-05-13
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