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Instrumental Variables and Causal Mechanisms: Unpacking the Effect of Trade on Workers and Voters

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  • Gold, Robert
  • Dippel, Christian
  • Heblich, Stephan
  • Pinto, Rodrigo

Abstract

We identify how German voters responded to the labor market turmoil caused by increasing trade with low-wage manufacturing countries. We first establish that import competition increased voters’ support for only extreme (right) parties. We then decompose this populist ‘total effect’ of trade on voting into a ‘mediated effect’ running through labor market adjustments and an independent ‘direct effect’. Our Causal Mediation Analysis reveals that direct and indirect effect work in opposite directions.

Suggested Citation

  • Gold, Robert & Dippel, Christian & Heblich, Stephan & Pinto, Rodrigo, 2017. "Instrumental Variables and Causal Mechanisms: Unpacking the Effect of Trade on Workers and Voters," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168152, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc17:168152
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    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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