Trade and protectionist backlash: The redistributive role of democracy

This paper combines theory and evidence to study how democratic institutions mitigate the political effects of trade shocks through redistribution. I develop a model that embeds a factor-proportions framework into a political economy setting where political power may be unevenly distributed. Voters choose between pro-trade and protectionist parties based on expected after-tax income, with redistribution determined by the strength of democracy. In the model, trade integration with lower-skilled countries reduces the pre-tax income of less-skilled workers but can raise their after-tax income when redistribution is effective. Strong democracies redistribute trade gains and dampen protectionist backlash, while weak democracies fail to do so, increasing support for protectionism. I test these predictions using a new panel of 581 parliamentary elections in 55 democracies from 1950–2020, leveraging variation in trade costs from air transportation innovations. Consistent with the model, protectionist voting is generally higher in weak democracies and lower in strong ones. Decomposing the democracy index shows that equal access to power and redistribution across groups explain the result, which is robust to measures of redistribution to the bottom 50% and post-tax inequality.