DP13367 Identity Politics and Trade Policy

Author(s): Gene M. Grossman, Elhanan Helpman
Publication Date: December 2018
Date Revised: December 2018
Keyword(s): political economy, populism, protectionism, social identity, tariff formation
JEL(s): D78, F13
Programme Areas: Public Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13367

We characterize trade policies that result from political competition when assessments of well-being include both material and psychosocial components. The material component reflects, as usual, satisfaction from consumption. Borrowing from social identity theory, we take the psychosocial component as combining the pride and self-esteem an individual draws from the status of groups with which she identifies and a dissonance cost she bears from identifying with those that are different from herself. In this framework, changes in social identification patterns that may result, for example, from increased income inequality or heightened racial and ethnic tensions, lead to pronounced changes in trade policy. We analyze the nature of these policy changes.