An Empirical Analysis of Trade-Related Redistribution and the Political Viability of Free Trade

55 Pages Posted: 12 Apr 2014

See all articles by James Lake

James Lake

Southern Methodist University (SMU) - Department of Economics

Daniel L. Millimet

Southern Methodist University (SMU) - Department of Economics; IZA Institute of Labor Economics

Abstract

Even if free trade creates net welfare gains for a country as a whole, the associated distributional implications can undermine the political viability of free trade. We show that trade-related redistribution increases the political viability of free trade in the US. We do so by assessing the causal effect of expected redistribution associated with the US Trade Adjustment Assistance program on US Congressional voting behavior on eleven Free Trade Agreements (FTAs) between 2003 and 2011. We find that a one standard deviation increase in redistribution leads to more than a 3% point increase in the probability of voting in favor of an FTA for the median representative. In addition, a one standard deviation decrease in redistribution across the entire US would have precluded passage of two of the eleven FTAs in our sample.

Keywords: free trade agreements, trade adjustment assistance, political economy, redistribution

JEL Classification: F13, H50, J65

Suggested Citation

Lake, James and Millimet, Daniel L., An Empirical Analysis of Trade-Related Redistribution and the Political Viability of Free Trade. IZA Discussion Paper No. 8086, Available at SSRN: https://ssrn.com/abstract=2424185 or http://dx.doi.org/10.2139/ssrn.2424185

James Lake

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States

Daniel L. Millimet

Southern Methodist University (SMU) - Department of Economics ( email )

Box 750496
Dallas, TX 75275
United States
214-768-3269 (Phone)
214-768-1821 (Fax)

HOME PAGE: http:\\www.smu.edu\~millimet

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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