Ismael Sanz Ferrán Martínez i Coma Federico Steinberg Does social spending increase support for free trade in advanced countries? Ismael Sanz Ferrán Martínez i Coma Federico Steinberg

Outline Motivation Literature review Econometric analysis and results Conclusions and further research

Motivation Backlash against globalizatio in rich countries  is globalization sustainable? Combine two related bodies of literature: Determinants of individual trade policy preferences Political economy underpinnings of economic openness Explore if high social spending explains support for free trade, controllling for a number of relevant variables.

Literature review Preferences towards free trade: Theory: H-O versus Ricardo-Viner (role of interest/skills over ideas and institutions) Empirical tests: Mixed results. More support for H-O (Sheve and Slaughter (2001),Mayda and Rodrik 2005 Compensation Hypothesis /embedded liberalism Theory: Rodrik (1998), Ruggie (1982) Empirical tests: Hays, Ehrlich and Peinhardt (2005), Scheve and Slaughter (2006); Mayda, O'Rourke and Sinnott (2007)

Country Support for free trade Social Security expenditure (% GDP): average for 2000-03 Pension expenditure (% GDP): average for 2000-01 Unemployment expenditure (% GDP): Australia 2.25 17.66 5.03 0.98 Austria 2.44 25.64 10.63 0.75 Canada 2.64 17.14 4.77 Czech Republic 2.66 20.72 6.77 0.26 Denmark 3.30 26.65 8.29 2.99 Finland 3.00 21.77 7.78 2.05 France 2.61 27.92 10.62 1.63 Germany 2.83 27.06 11.56 1.23 Hungary 2.22 21.47 7.89 0.42 Ireland 2.56 14.87 2.65 Japan 2.86 17.04 7.03 0.50 South Korea 2.60 5.39 1.31 0.12 New Zealand 2.47 18.49 4.86 1.26 Norway 23.77 6.65 0.43 Poland 2.23 22.38 8.30 0.89 Portugal 2.46 21.69 7.70 0.91 Slovakia 2.15 17.78 6.70 0.69 Spain 2.49 20.27 8.38 1.33 Sweden 3.12 29.94 9.22 1.14 Switzerland 3.05 19.18 11.61 United Kingdom 2.40 19.89 8.17 0.29 United States 2.35 15.49 5.23 0.27 Simple mean 2.58 20.56 7.33 0.92

Correlation between support for free trade and Social Security expenditure, OECD, 2000-03

Econometric analysis Data International Social Survey Programme questionnaire on national identity, which surveys from 33 countries

Econometric results

Econometric results

Correlation between support for free trade by country (factoring in individual characteristics and social expenditure), OECD, 2000-03

Conclusion The compensation hypothesis argues that: Popular support for globalization hinges on maintaining the Welfare State because We find support for this hypothesis in OECD countries (desegregating the WS in Social spending, pension spending, unemployment) We also find new results on the determinants of trade policy preferences in line with H-O