Economic geography and demand for compensation under trade: the case of Argentinian regions

• In Event: Labor market and changes in the economic structure

Abstract

This paper evaluates the effects of economic geography on demand for compensatory spending after trade liberalization. A large but inconclusive literature in comparative and international political economy explores the relationship between trade openness and welfare spending or trade-induced compensation. This literature overlooks the possibility that the impact of trade on demand for compensation is shaped by economic geography. Drawing on the role of economic geography in shaping individual risk, I argue that regional specialization of industry and regional competitiveness interact to determine demand for compensation. Related to diversified losers, regionally specialized losers demand comparatively greater compensation. In turn, compared to diversified winners, regionally specialized, winning interests demand lesser compensation. I test the empirical implications of the model using quantitative and qualitative data for Argentine regions over the period 1989-1995. I find that demand for compensation is highest among losing interests in specialized regions. I complement this analysis with qualitative data to clarify the influence of regional features on the preferences of individuals.

Author

• Irene Menendez, University of Oxford