Democracy and Protection: Estimating the Moderating Effect of Factor Endowments

• In Event: The Political Economy of Trade Revisited

Abstract

For decades, scholars have viewed the politics of trade though the factor based model of international trade, but empirical results have been inconsistent. The distributional consequences of trade depend on whether an economy is relatively abundant in labor or capital, but empirical tests frequently assume that all developing countries are labor abundant, while all developed economies are capital abundant. The fact that this is not true may be behind some of the instability in empirical results in this literature. We reanalyze the important work of Milner and Kubota (2005) on the effect of democratization on trade policy in developing countries. We argue that since the factor based model predicts that trade will benefit workers when labor is the abundant factor, we expect democratization to lead to a reduction in protectionism only when labor is the abundant factor. Using a direct measure of factor endowments, its interactive effect with democracy, and random effects modeling, our analysis shows that the effect of democracy on protectionism is indeed conditional on country-specific factor endowments. Specifically, protectionism is unaffected by the level of democracy when labor abundance is low. In contrast, democracy is associated with reduced protectionism when labor abundance is high. Our results are robust with respect to the use of fixed or random effects and are not driven by a few extreme cases.

Authors

• Yoo Sun Jung, Texas A&M University

• William Roberts Clark, Texas A&M University