Political Globalization Midterm II

The Factor model Predicts...

Owners of capital will prefer liberal trade policies in developed countries.

According to the Stolper-Samuelson Theorem, in a labor-abundant country...

Labor benefits from free trade in all sectors, including import-competing sectors.

Factor Proportions Theory

HECKSCHER-OHLIN trade theory stating that countries produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply

What is the role of education in explaining trade preferences?Scheve and Slaughter

Educational attainment is another commonly used measure of skills. For both measures, by the HO model U.S. less-skilled workers are more likely to benefit from trade restrictions on com1parative-disadvantage sectors and thus are more likely to support new trade barriers.

The Sector Model assumes that...

Factors are not easily moved from one industry to another.

What is fair trade, according to Ehrlich? How do considerations about fair trade affect people's preferences toward free trade/protectionism? In what ways are fair traders different from traditional protectionists?

Fairtrade: expressing concerns about the effects of trade on the environment or labor standards and wanting to take action to ameliorate those effects. Fair trade affecting peoples preferences: Respondents with higher incomes and education levels are more likely to be fair traders and less likely to be protectionists of either flavor, although the education variable is insignificant for economic protectionists. In addition, as expected, conservatives are more likely to choose one of the protectionist orientations, although this is only significant for economic protectionists. Women are also more likely to be general protectionists but less likely to be economic protectionists than fair traders, continuing the inconsistent results on gender. Fair traders different from protectionists: demographically: tend

According to Cowen and Tabarrok (in the video, "Does Fair Trade Help?"), who reaps the gains from fair trade? Which countries tend to benefit from fair trade practices? Also, which individuals or groups benefit from the extra income generated by the higher prices of fair trade products, like fair trade coffee?

Gains from Fairtrade: upholding workers standards of living in poorer nations Which countries benefiting from fair trade: wealthier producers, in countries with a relative amount of trust, reasonable institutions, and minimal corruption, and high per capita income. Which individuals benefit from extra income generated: the retailers distributing the product

Refer to the examples that we discussed in class (for instance, trade between the United States and China or between India and the United States). Who gains and who loses from trade within each country, according to the factor proportions model? And according to the specific factors model?

Gains from free trade: US- capital intensive China- labor-intensive Loses from free trade: US- labor-intensive China-capital intensive -The US has a comparative advantage in aircraft and not textiles because the US is abundantly endowed with advanced tech and capital and not poorly endowed.

The Heckscher-Ohlin/Stolper-Samuelson and the Ricardo-Viner models are abstract theories of trade. Scheve and Slaughter 2001 and Mayda and Rodrik 2005 try to test these theories empirically using data from the United States and from other countries around the world .Which theory(ies) do they find stronger empirical support for? When testing the predictions of the Heckscher-Ohlin/factor proportion model, how do these authors measure an individual's factor endowment in their analysis?

Heckscher ohlin These authors measure an individuals factor endowment by supposing that countries with higher values of GDP per capital are also better endowed with skilled labor (mayda/rodrik), education, income and home ownership along with asset values (scheve and slaughter). individual level

How is the Ricardo-Viner (or specific factors) model different from the Heckscher-Ohlin model? Which critical assumption distinguishes both theories?

Heckscher-Ohlin : Countries export what they can most efficiently and plentifully produce. This model is used to evaluate trade and, more specifically, the equilibrium of trade between two countries that have varying specialties and natural resources. The model places emphasis on the exportation of goods requiring factors of production that a country has in abundance and the importation of goods that a nation cannot produce as efficiently. A country exports the good (will have a comparative advantage in the good)that uses its relatively more abundant factor relatively more intensively. The factor endowments or Heckscher-Ohlin framework posits that these preferences are affected primarily by a person's skills+ In a country such as the United States, highly skilled individuals will benefit economically from open trade and therefore should prefer the expansion of foreign commerce, while less skilled individuals should oppose it+Endowment differences predict the pattern of trade (HO Theorem) The Ricardo-Viner theorem: More commonly known as the specific-factor model. It retains all the assumptions of the standard HOS model except that one factor, usually capital, is assumed to be sector-specific (at least in the short run) while labour is assumed to be perfectly mobile between the sectors. however, assumes that factors are specific to their industries, and that capital might not be mobile. This theorem states that where capital is mobile across industries, the Stolper-Samuelson conclusion holds true. Where capital is immobile, industries are divided with respect to free trade.

What is the role of education in explaining trade preferences? Mayda and Rodrik

Individuals with higher levels of human capital (proxied by educational attainment or occupational categories) oppose trade restrictions, but only in countries that are well endowed with human capital.

Who are the winners and losers from trade according to the Stolper-Samuelson theorem?

Losers from Globalization: Include owners of scarce factors, as well as those in contracting industries, if they cannot easily change their location, skills, or industry of employment. Globalization: Increases average real incomes in all countries, but within countries the gains are shared unequally and some may lose.

Many theories and studies focus on individuals' material interests (i.e., the effect of trade on income and employment), but some have advanced arguments about the non-material sources of trade attitudes. What are some of the non-material factors/variables we have read about? For example, what kind of explanatory factors do Ehrlich and Mansfield and Mutz highlight?

Non-material factors/variables: 'Out group anxiety' and 'Perceptions of trade on nation as a whole.' Findings show trade preference increase with educational attainment. Ethnocentricism and isolationism, impacted by education though not directly correlated.

The Factor Model assumes that...

People's economic interests are determined by their factor ownership.

Based on the Stolper-Samuelson theorem (or factor proportion model) and according to Rogowski, who will favor and who will oppose free trade? Why? What coalitions will form for and against free trade in different countries?

Promote: owners of factors the given society holds abundantly relative to the rest of the world, and producers who use the abundant factors intensively. Oppose: owners of factors in which that society is poorly endowed, relative to the rest of the world, as well as producers who use the scarce factors intensively will oppose free trade Coalitions:Domestic political cleavages form; Exogenus changes in the risk or costs of countries external trade will stimulate conflict between owners of locally scarce and locally abundant factors.

The model that argues that trade politics are driven by competition between two industries is...

The Sector Model.

Specific Factors Model

RICARDO VINER MODEL Assumes that an economy produces two goods using two factors of production, capital and labor, in a perfectly competitive market. One of the two factors of production, typically capital, is assumed to be specific to a particular industry. That is, it is completely immobile. The second factor, labor, is assumed to be freely and costlessly mobile between the two industries. Because capital is immobile, one could assume that the capital in the two industries are different, or differentiated, and thus are not substitutable in production. Under this interpretation, it makes sense to imagine that there are really three factors of production: labor, specific capital in industry one, and specific capital in industry two.

What is the role of education in explaining trade preferences? Hainmueller and Hiscox

Recent studies of public attitudes toward trade have converged on one central finding: support for trade restrictions is highest among respondents with the lowest levels of education This has been interpreted as strong support for the Stolper-Samuelson theorem, the classic economic treatment of the income effects of trade that predicts that trade openness benefits those owning factors of production with which their economy is relatively well endowed those with skills in the advanced economies while hurting others low-skilled workers

Mansfield and Mutz offer an alternative explanation for people's views about free trade According to them, what is the central factor/variable explaining people's attitudes toward trade?

Sociotropic thinking; Less by material self-interest than by perceptions of how the U.S. economy as a whole is affected by trade. "Besides out-group anxiety, we find that opinions on trade are driven by perceptions of trade's impact on the nation as a whole." "To the extent that education promotes cosmopolitanism and reduces out-group anxiety, its effects should be in the same direction in a wide variety of countries."

The model that argues that trade politics are driven by competition and labor is...

The Factor model.

Who will favor and who will oppose free trade according to the specific factors model? Why?

The specific factors or Ricardo-Viner framework posits that people who work in import-competing industries should oppose open trade because the foreign competition is likely to degrade their income and threaten their jobs, whereas those who are employed in export-oriented industries should support it+

Stolper-Samuelson Theorem

The theory that protection benefits the scarce factor of production. This view flows from the Heckscher-Ohlin approach: if a country imports goods that make intensive use of its scarce factor, then limiting imports will help that factor. So in a labor-scarce country, labor benefits from protection and loses from trade liberalization.

Do Mansfield and Mutz agree with Scheve and Slaughter, and with Mayda and Rodrik, on how the effect of education on trade preferences should be interpreted? What is the difference between their views on the effect of education, if any?

They both agree that higher levels of education postively associate with trade liberalization however mayda and rodrik believe education and skill are very strongly correlated with support for free trade in specific countries that are well endowed with human capital, while poorer countries have weak or negative correlations. Scheve and slaughter do not take into consideration in group and outgroup factors and the influcenes of education with regard to xenophobia. Lower skill, measured by education or average occupation earnings, is strongly correlated with support for new trade barriers.

Trade affects people in many ways depending on their role as workers, capitalists, consumers, members of a community, etc. How does trade affect consumer interests? Which consumers benefit the most from trade, according to Baker? Why? Why is free trade so popular in Latin America, according to the author?

Trade affecting consumer Interests: Trade policy preference theory typically posits that the primary determinants of mass beliefs about foreign trade policy are retrospective economic evaluations and characteristics associated with individuals' earning power. Who benefits from trade: the middle class should perceive the most visible benefits from trade liberalization. Latin American upper class also spends a larger share of its income on nontradables, namely, on services such as education and health. Therefore, the share of traded, durable goods and clothing in one's con- sumption budget is at its peak among the middle class. Why is free trade popular in LA: citizens recognize and appreciate the lower price, increased variety, and higher quality of goods that have come in the wake of trade liberalization.

Guisinger-Do Voters Hold Politicians Accountable?

Trade policy lacks salience. Voters do not rate trade as an important issue. The majority of voters are unaware of their politicians' positions on trade. Other political cues do not lead voters to naively support or punish politicians who share or differ from those voters' views on trade.

The Factor and Sector Models both argue that...

Trade policy preferences are determined by the income consequences of trade.

The Sector Model predicts...

Trade politics are driven by competition between industries.

Mayda and Rodrick (2005); Why are some people more protectionist than others? What model supports their findings?

We find that pro-trade preferences are significantly and robustly correlated with an individual's level of human capital, in the manner predicted by the factor endowments model. (H/O Support).Preferences over trade are also correlated with the trade exposure of the sector in which an individual is employed: individuals in non-traded sectors tend to be the most pro-trade, while individuals in sectors with a revealed comparative disadvantage are the most protectionist. (R/V Support?)Third, an individual's relative economic status has a very strong positive association with pro-trade attitudes.Finally, non-economic determinants, in the form of values, identities, and attachments, play an important role in explaining the variation in preferences over trade. High degrees of neighborhood attachment and nationalism/patriotism are associated with protectionist tendencies.

According to Guisinger, why is that? Why is it that knowing the public's preferences toward free trade or protection does not necessarily help us predict which trade policies will be enacted?

Why individual preferences alone are not enough: Trade policy salience to be relatively low in terms of stated importance, in voters' knowledge of their representatives' policy positions , and in its effect on voters' propensity to vote for the incumbent +The low salience of trade policy, particularly among highly affected groups, calls into question voter-driven models of trade policy Why public preferences don't help us predict trade policy: In democratic countries, voting is typically assumed to be an unproblematic mechanism for aggregating preferences, but such an assumption may be misleading when the salience of trade policy is low or diverse throughout the electorate

According to the Ricardo-Viner model, in a labor abundant country..

Workers only benefit from trade if they are employed in comparative-advantage sectors.

Based on the factor proportions model, should we expect the effect of education to be different in different countries? How should we expect the effect to vary across countries? Does the evidence presented by Mayda and Rodrik confirm this expectation?

Yes they should.

What is the role of education in explaining trade preferences?Mansfield and Mutz

educational attainment and support for open trade are directly related, which is often interpreted as support for the Heckscher-Ohlin model However, further analysis reveals that education's effects are less representative of skill than of individuals' anxieties about involvement with out-groups in their own country and beyond Well-educated people are different from their less-educated counterparts in numerous ways, including levels of tolerance for out-groups such as foreigners, risk preferences, levels of dogmatism, and preferences for immediate versus delayed gratification