Distributional Consequences of International Trade Exposure

• In Event: Flows of Aid, Trade, and Finance

Abstract

According to comparative advantage theory, open international trade is Pareto optimal, where no alternative increases the collective welfare of society. Yet, large segments of the public in advanced industrial democracies are opposed to free trade and support trade restrictions to protect domestic jobs. This disconnect between economic theory and public opinion has been cited as evidence of rational ignorance and to justify treating the average voter as unsophisticated. This paper challenges this perspective by developing a dynamic, computational model of the effects of international trade that differentiates among workers in terms of the costs that they would face to change jobs as a result of the economic dislocation caused by temporal changes in import competition and export opportunities. In general, low-skill workers with industry-specific job skills will face the highest costs from changing jobs due to international trade. To the extent that lower skill workers hold more traditional values and those values are geographically grounded, they will face higher cultural costs as well as having less wealth to incur the financial costs of relocation and retraining to take advantage of job opportunities in export-competitive industries. The computational model applies the system dynamics method, which has been rarely used in Political Science. The structure of the system dynamics model adapts the classic circular flow model used by economists to explain the circulation of income through the economy. The primary contribution of this model is to differentiate among producers and households in terms of their reliance on low versus high human capital.

Authors

• Harvey Palmer, University at Buffalo

• Sara Metcalf, University at Buffalo