Working Paper: NBER ID: w25348
Authors: Gene M. Grossman; Elhanan Helpman
Abstract: We characterize trade policies that result from political competition when assessments of well-being include both material and psychosocial components. The material component reflects, as usual, satisfaction from consumption. Borrowing from social identity theory, we take the psychosocial component as combining the pride and self-esteem an individual draws from the status of groups with which she identifies and a dissonance cost she bears from identifying with those that are different from herself. In this framework, changes in social identification patterns that may result, for example, from increased income inequality or heightened racial and ethnic tensions, lead to pronounced changes in trade policy. We analyze the nature of these policy changes.
Keywords: identity politics; trade policy; social identity; populism; political economy
JEL Codes: D72; D91; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in social identification (Z13) | increased protectionist sentiments (F52) |
| changes in social identification (Z13) | changes in trade policy (F13) |
| increased protectionist sentiments (F52) | changes in trade policy (F13) |
| shift from broad national identity to narrow class identity (F52) | increased protectionist sentiments (F52) |
| shift from broad national identity to narrow class identity (F52) | changes in trade policy (F13) |
| psychological costs associated with identifying with different socioeconomic groups (Z13) | increased protectionist sentiments (F52) |
| psychological costs associated with identifying with different socioeconomic groups (Z13) | changes in trade policy (F13) |
| narrowing self-identification (J15) | favoring policies that protect economic interests (P16) |