Trading Up

Envy, Altruism, and the International Distribution of Trade Protection

Xiaobo Lü, Kenneth Scheve & Matthew Slaughter
NBER Working Paper, January 2010

Abstract: One important puzzle in international political economy is why lower-earning and less-skilled intensive industries tend to receive relatively high levels of trade protection. This pattern of protection holds even in low-income countries in which less-skilled labor is likely to be the relatively abundant factor of production and therefore would be expected in many standard political-economy frameworks to receive relatively low, not high, levels of protection. We propose and model one possible explanation: that individual aversion to inequality — both envy and altruism — lead to systematic differences in support for trade protection across industries, with sectors employing lower-earning workers more intensively being relatively preferred recipients for trade protection. We conduct original survey experiments in China and the United States and provide strong evidence that individual policy opinions about sector-specific trade protection depend on the earnings of workers in the sector. We also present structural estimates of the influence of envy and altruism on sector-specific trade policy preferences. Our estimates indicate that both envy and altruism influence support for trade protection in the United States and that altruism influences policy opinions in China.
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Estimates of the Trade and Welfare Effects of NAFTA

Lorenzo Caliendo & Fernando Parro
University of Chicago Working Paper, November 2009

Abstract: In this paper we build into a Ricardian model the role of trade in intermediate inputs, sectoral linkages and differing productivity levels across sectors. The model can be used for both ex-ante and ex-post trade policy evaluation. We also propose a new method to estimate sectoral trade elasticities. Estimation requires only trade and tariff data and does not require the assumption of bilaterally symmetric trade costs. With the model and estimates of sectoral trade elasticities for the year 1993, we evaluate the trade effects of the North American Free Trade Agreement (NAFTA). We do so by incorporating into the model the change in tariffs from 1993 to 2005 to calculate the implied changes in exports and imports. We compare these calculated changes to their observed counterparts and find that the model matches the observed outcomes well. We find that as a consequence of the tariff reductions, real wages increased in all NAFTA countries. Mexico had the largest gains, while Canada and the United States gained relatively more from trade liberalization with the rest of the world than from trade liberalization within NAFTA over the sample period.


(Nod to Kevin L)