Development, Trade, and Social Insurance1

Abstract

Developing countries vary dramatically in the amount they spend on social insurance. We establish a theoretical framework linking autarkic post–World War II economic development strategies with the emergence of insurance-based social policies. We argue that a government's choice of development strategy is conditioned by the size of the domestic market, relative abundance of labor, and land inequality in the context of a closed international trading system. The development strategy in turn shapes the fiscal priority governments place on social insurance. Contrary to the compensation hypothesis prominent in studies of the rich democracies, protectionist countries emphasize social insurance. Empirical analysis finds support for our argument. The results suggest that economic policies in the 1950s, 1960s, and 1970s had important implications for the emergence and current contours of social policy in the developing world. These differences in priorities swamp recent within-country changes.