Democracy , Globalization and the Skill-Bias in Trade Policy in Developing Countries

TitleDemocracy , Globalization and the Skill-Bias in Trade Policy in Developing Countries
Publication TypeJournal Article
Year of Publication2009
AuthorsMilner H, Mukherjee B
JournalPrinceton.Edu
Pagination1–47
ISSN1556-5068
AbstractExisting research suggests that democracy fosters economic globalization by promoting trade liberalization in the developing world. We argue that democracy in developing countries generates a “skill bias” in trade protection where democratic incumbents have incentives to increase tariffs on high skilled goods but reduce trade barriers on low skilled goods. Our model analyzes how electoral competition and interest group politics in the Heckscher-Ohlin economy of a democratic developing country affects trade protection on low and high skilled goods. It predicts that electoral competition induces the government to reduce trade barriers for low skilled goods to appeal to the abundant factor, namely the low skilled median voter, who optimally prefers a reduction in tariffs for low skilled goods. Yet electoral politics also engenders lobbying pressure and campaign contributions from the scarce factor in the polity –the owners of skill-intensive industries (the interest group)—who prefers more trade protection for high skilled goods. The government rationally responds to these contributions by protecting skill-intensive industries from import competition. Empirical tests conducted on a disaggregated industry-level dataset of trade protection supports our theoretical predictions.
URLhttp://www.princeton.edu/ hmilner/working papers/MilnerMukherjee_SkillBiasDemocracy.pdf
DOI10.2139/ssrn.2182080