Democracy and Trade Policy in Developing Countries: Particularism and Domestic Politics with a Case Study of India

Abstract

What explains the variation in trade policy among democracies in developing countries? Why have some liberalized trade more than others? We analyze the impact of political particularism – defined as the degree of party discipline and the incentives for politicians to cultivate a personal vote – on trade protection. We present theoretical results from a model of particularism and its effects on tariffs; we present quantitative evidence to test the model; and then we develop a case study of India to illuminate it. Our model analyzes how an increase in particularism (that is, a shift from a party-centered to a more candidate-centered system) interacts with the degree of inter-industry occupational mobility of labor and the asset-specificity of industries to influence trade policies in developing democracies. Our model suggests that an increase in particularism induces leaders from the ruling and opposition parties to shift trade policy in equilibrium to the median voter’s optimal preference, who in a developing society is a worker; and this means a reduction in trade barriers when labor mobility is high. Our data strongly support this conclusion. Our case study of India shows how the dynamics of a party-centered system operate to maintain higher trade barriers.

Keywords: trade policy, liberalization, international trade, particularism, protectionism, India, labor mobility, median voter