Trade Openness, Political Competition, and Mass Protests in LDCs

• In Event: Local Effects of Trade and Foreign Investment Entry

Abstract

This paper investigates how one of the central drivers of globalization, trade openness, relates to the outbreak of mass protests by looking at the cross-national evidence in less-developed countries. The received wisdom suggests a negative relationship between trade openness and domestic instability among countries with the comparative advantage in labor. Linking the distributional implications of the firm-level trade model with theories of domestic conflict, this paper argues that, in less developed countries, geographically concentrated trading firms in Special Economic Zones force workers from the domestic firms to mobilize for policy changes. Yet, the positive association between trade openness and mass protest is mitigated in countries with a higher level of political competition. This paper tests the relationship between trade openness, political competition, and mass protests in a series of empirical models, including an instrumental variable two-stage least squares setting. The results indicate that trade openness is associated with a higher probability of mass protests in less developed countries, but more saliently in closed regimes. These findings highlight the joint role of globalization and institutional competitiveness in dealing with trade-induced protesting activities.

Author

• Li Zheng, The University of Houston