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

Pushan Dutt, Devashish Mitra

Research output: Contribution to journalArticle

12 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)310-320
Number of pages11
JournalJournal of International Economics
Volume69
Issue number2
DOIs
StatePublished - Jul 1 2006

Keywords

  • Ideology
  • Inequality
  • Median voter
  • Openness
  • Protection

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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