Government Spending and Perceptions of Globalization: Public vs. Firms in MENA

• In Event: Labor and Firms in the Global Economy

Abstract

How do government spending programs affect attitudes towards globalization? The formation of individual preferences toward economic openness has been the topic of extensive research in political science and economics, identifying both economic (e.g., skill-level, occupation, industry of employment) and non-economic (e.g., political ideology, nationalism, gender construction) sources of such preferences. Recent IPE and international business literature has also made significant headway toward defining the sources of firm preferences toward economic liberalization; such preferences appear to be connected to the firms’ degree of integration in global value chains, the firms’ location in the global supply chain, or the degree of product differentiation in the firm’s industry. The literatures on both individual and firm preferences have clearly enriched (and, in some cases, contradicted) the Hecksher-Ohlin / Ricardo-Viner frameworks of the early work on the topic. However, despite the wide strides toward a better understanding of societal attitudes toward globalization, the role and ability of the government to influence these attitudes remains largely unexplored, although the government has a clear interest in and the ability to shape public attitudes. This question is particularly interesting in the contemporary context, as government spending and the globalization backlash go hand in hand with the rise of populism across emerging, transitioning, and developed countries alike.

Debunking the relationship between social spending and perceptions of globalization weds two distinct but related strands of literature. First, we build on those theories that consider individual/firm attitudes to be direct reflections of the distributional effects of trade, FDI, or labor migration, while also incorporating insights about individual and firm characteristics. Second, our explanation incorporates insights from the work on welfare state responses to globalization. Openness limits the ability of governments to control macro dynamics (e.g., unemployment, capital formation) and micro-level decisions (e.g., goods production, pricing), thus making welfare/incentive spending into the most important policy tool for counteracting economic shocks. By compensating those hurt by global economic shocks, government spending alleviates risks in countries exposed to the volatility of international markets. We argue the government can influence citizens through social programs that reduce their economic insecurity and, as a result, affect their outlook on globalization. The government can also affect firm attitudes toward globalization through business incentive programs (e.g., tax breaks for specific products, innovation grants) that increase the competitiveness of domestic firms threatened by economic globalization. In particular, government policies can influence (1) firm-level capabilities as well as (2) industry structure to increase the overall productivity of both an industry and an individual firm. At the same time, government spending might curb the enthusiasm of would-be winners from globalization, since they are the ones who ultimately, albeit indirectly, compensate the losers. Furthermore, the effects of government actions on attitudes are mediated by individual and firm characteristics. Throughout, we recognize the multidimensionality of globalization: for individual attitudes, we consider three aspects of economic openness—trade, foreign direct investment, and consumption; for firm attitudes, we incorporate insights from recent work that outlines several dimensions of liberalization, including investment protection, reduction of tariff and non-tariff barriers, and use of dispute settlement mechanisms.

Our empirical approach relies on survey experiments to test the hypotheses about the effect of government spending on individual and firm attitudes toward globalization. We implement, in parallel, a public opinion survey and an elite survey of businesses in Turkey and Tunisia, each incorporating a conjoint experiment. The public survey samples are nationally representative and include 1200 responses in Turkey and 1000 responses in Tunisia. The elite survey includes 500 responses, representative of the business, in each country. We supplement the experimental data with elite interviews conducted in the two countries between June 2018 and July 2019, and with public opinion focus groups in Turkey. In addition to allowing us to identify the various factors and mechanisms that contribute to the formation of preferences toward globalization, our methodology also permits the comparison of elite and public attitudes on the issue of economic openness, as well as some conclusions regarding the most effective use of government resources for the purposes of influencing attitudes toward globalization.

Authors

• Andreea Stefania Mihalache-O'Keef, Roanoke College

• Ekrem Karakoc, SUNY, Binghamton University