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

Author

Listed:
  • James Lake

    (Southern Methodist University)

  • Daniel L. Millimet

    (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 -- as presently constituted -- modestly 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 expected redistribution leads to an average increase in the probability of voting in favor of an FTA of 1.8 percentage points. Although this is a modest impact on average, we find significant heterogeneities; in particular, the effect is larger when a representative's constituents are more at risk or the representative faces greater re-election risk.

Suggested Citation

  • James Lake & Daniel L. Millimet, 2015. "An Empirical Analysis of Trade-Related Redistribution and the Political Viability of Free Trade," Departmental Working Papers 1507, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:1507
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    3. Sanjay Jain, 2017. "Worker retraining and transfer payments: The political economy of social protection," WIDER Working Paper Series 044, World Institute for Development Economic Research (UNU-WIDER).
    4. Raymond Robertson, 2018. "Effects of regulating international trade on firms and workers," IZA World of Labor, Institute of Labor Economics (IZA), pages 439-439, June.
    5. Giovanni Facchini & Tommaso Frattini & Cora Signorotto, 2013. "Mind What Your Voters Read: Media Exposure and International Economic Policy Making," Development Working Papers 358, Centro Studi Luca d'Agliano, University of Milano.
    6. Cole, Matthew T. & Lake, James & Zissimos, Ben, 2021. "Contesting an international trade agreement," Journal of International Economics, Elsevier, vol. 128(C).
    7. Sean D. Ehrlich & Christopher Gahagan, 2023. "The Multisided Threat to Free Trade: Protectionism and Fair Trade During Increasing Populism," Politics and Governance, Cogitatio Press, vol. 11(1), pages 223-236.
    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.
    11. James Lake & Jun Nie, 2022. "The 2020 US Presidential Election and Trump's Trade War," CESifo Working Paper Series 9669, CESifo.
    12. Lake, James, 2015. "Revisiting the link between PAC contributions and lobbying expenditures," European Journal of Political Economy, Elsevier, vol. 37(C), pages 86-101.
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    More about this item

    Keywords

    Free Trade Agreements; Trade Adjustment Assistance; Political Economy; 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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