Working Paper: NBER ID: w15700
Authors: Xiaobo L. Scheve; Kenneth F. Scheve; Matthew J. Slaughter
Abstract: One important puzzle in international political economy is why lower-earning and less-skilled intensive industries tend to receive relatively high levels of trade protection. This pattern of protection holds even in low-income countries in which less-skilled labor is likely to be the relatively abundant factor of production and therefore would be expected in many standard political-economy frameworks to receive relatively low, not high, levels of protection. We propose and model one possible explanation: that individual aversion to inequality--both envy and altruism--lead to systematic differences in support for trade protection across industries, with sectors employing lower-earning workers more intensively being relatively preferred recipients for trade protection. We conduct original survey experiments in China and the United States and provide strong evidence that individual policy opinions about sector-specific trade protection depend on the earnings of workers in the sector. We also present structural estimates of the influence of envy and altruism on sector-specific trade policy preferences. Our estimates indicate that both envy and altruism influence support for trade protection in the United States and that altruism influences policy opinions in China.
Keywords: trade protection; inequity aversion; altruism; envy
JEL Codes: D63; D64; F13; F59
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing altruism (gap between income and sector's average income) (D64) | support for trade protection (F13) |
| increasing envy (D63) | lower support for trade protection (F13) |
| lower average incomes (J31) | broader support for trade protection (F13) |
| inequity aversion (D63) | systematic differences in support for trade protection (F13) |