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An Empirical Analysis of Trade-Related Redistribution and the Political Viability of Free Trade

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  • Lake, James

    (Southern Methodist University)

  • Millimet, Daniel L.

    (Southern Methodist University)

Abstract

Even if free trade creates net welfare gains for a country as a whole, the associated distributional implications can undermine the political viability of free trade. We show that trade-related redistribution increases the political viability of free trade in the US. We do so by assessing the causal effect of expected redistribution associated with the US Trade Adjustment Assistance program on US Congressional voting behavior on eleven Free Trade Agreements (FTAs) between 2003 and 2011. We find that a one standard deviation increase in redistribution leads to more than a 3% point increase in the probability of voting in favor of an FTA for the median representative. In addition, a one standard deviation decrease in redistribution across the entire US would have precluded passage of two of the eleven FTAs in our sample.

Suggested Citation

  • Lake, James & Millimet, Daniel L., 2014. "An Empirical Analysis of Trade-Related Redistribution and the Political Viability of Free Trade," IZA Discussion Papers 8086, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8086
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    6. Cole, Matthew T. & Lake, James & Zissimos, Ben, 2021. "Contesting an international trade agreement," Journal of International Economics, Elsevier, vol. 128(C).
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    8. Daryna Grechyna, 2021. "Trade openness and political distortions," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 644-663, November.
    9. Jakob Engel & Deeksha Kokas & Gladys Lopez-Acevedo & Maryla Maliszewska, 2021. "The Distributional Impacts of Trade," World Bank Publications - Books, The World Bank Group, number 35552, December.
    10. Jain, Sanjay & Majumdar, Sumon, 2016. "State capacity, redistributive compensation and the political economy of economic policy reform," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 462-473.
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    More about this item

    Keywords

    political economy; trade adjustment assistance; free trade agreements; redistribution;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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