Department of Economics and Business Economics

Trade Policy Preferences and the Factor Content of Trade

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  • wp15_12

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This paper provides a theoretical and empirical analysis of public opinion towards free trade, investigating cleavages both between and within countries. We study the distributional effects of trade policy in a neoclassical economy with not just two, but many input factors in production. We demonstrate that the factor price changes induced by trade policy are negatively correlated with the factor content of free trade (and therefore factor abundance). Using large-scale international survey data, we test whether these predicted distributional effects are reflected in the trade policy preferences of workers with different labor market skills. In order to isolate the effects of factor abundance from other skill-related confounding factors, we employ a within-skill-group estimator that exploits the cross-country variation in the factor content of free trade. In line with theory, the data show that individuals whose skills are in more abundant domestic supply (i.e. those with a higher factor content of free trade) are significantly more likely to be pro-trade.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages44
Publication statusPublished - 18 May 2015
SeriesEconomics Working Papers
Number2015-12

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