Trade liberalization and the welfare state: The geography of subnational political ties in Brazil
Evidence on whether trade liberalization expands or contracts the welfare state in developing democracies is mixed. In this paper, I first address the methodological challenges in the literature by causally estimating the effects of trade openness using a quasi-natural experiment in Brazil. The results confirm the "compensation hypothesis:" trade integration induces welfare compensation. I argue that the differential impact of trade across \textit{subnational} regions can help explain the contradictory findings in the literature. In additional, subnational political and economic geography mediates the effect of trade openness on social policy. I argue that geographically concentrated economic identities (i.e., trade-affected) reflect labor market risk, while concentrated political identities (i.e., voters of the same constituency) enable collective action. In jurisdictions with such economic or political concentration, trade’s positive effect on welfare is magnified. The results spotlight how patterns in the subnational distribution of voters can explain the contradictory effects of trade on "compensation."
Geography of Subnational Political Ties in Brazil, 1994