Industry comparative advantage and support for redistribution: A cross-country cross-industry analysis of the political economy of trade

Abstract

A fundamental insight of various trade theories is that trade does not have a universally negative effect on different business activities in different countries. Rather, trade’s impact varies concomitantly with the specific country and activity considered. This empirical note expands prior work linking trade to redistribution preferences by using sectoral comparative advantage to incorporate the notion that trade may hurt the prospects of a specific group in one country (e.g. workers in a highly tradeable or offshorable industry) but will simultaneously benefit this same group in another country. We expect that individuals in industries with a weaker (stronger) comparative advantage suffer (benefit) more from trade and are therefore more (less) in favour of redistribution. Empirical results confirm this expected effect of comparative advantage on redistribution preferences. We conclude that considering countries’ comparative (dis)advantage in certain activities provides a deeper and more general understanding of the political consequences of trade.