Trade Globalization, Politics, and the Choice of Policies and Institutions: Three Varieties of Institutional Divergence

Abstract

Much recent research in political economy has focused on how globalization might affect the politics of institutional and policy choice. Research examining whether globalization will contribute to convergence of national institutional arrangements or policies is the preeminent example. In this paper, we use an extension of basic trade theory that reveals the links between trade globalization, politics, and institutional/policy choice (except trade policy) to examine the impact of trade globalization on three varieties of institutional divergence. In the analysis, we place particular emphasis on examining institutional divergence caused by political coalitional politics. We focus our analysis on the role of trade globalization, one aspect of globalization, and argue that each aspect of globalization needs to be investigated individually. Our analysis challenges the general assumption of those examining globalization that globalization can be expected to exert a common pressure for convergence. Our conclusion is that trade globalization should not be expected to create a general, common pressure for institutional/policy change, and because it does not generate a general, common pressure for institutional change, it does not contribute to institutional convergence. To the contrary, trade globalization can be expected to broadly reinforce institutional/policy diversity. Thus, the impact of trade globalization is exactly opposite that generally assumed in the literature.

Keywords: Trade Integration, Globalization, Comparative Advantage, Coalition Politics, Policy Convergence, Institutional Convergence