How Electoral Institutions Change the Influence of World Trade Integration on Trade Policies

Abstract

World integration levels influence opportunity costs of maintaining restrictive national trade policies. In an integrated world, restrictive trade policies are more costly than in a context of low overall levels of world market integration. We argue that policy makers can be expected to react to these varying incentives to liberalize the trade regimes of their countries, yet do so not in a uniform fashion across countries. Rather, the responsiveness to changes in levels of world trade integration is conditional upon the electoral system the country in question employs. This is due to the fact that opportunity cost considerations increase in importance with a) the degree to which policy makers are isolated from the influence of protectionist interest groups; and b) the credibility with which losers of integration can be promised compensation. Both aspects weigh more strongly in countries that employ proportional representation as opposed to majority voting. We test this hypothesis using a model of conditional trade policy diffusion where world levels of integration are treated as diffusion influence that is interacted with a measure of the proportionality of a country’s electoral system. Empirical results support the hypothesis. Moreover, it is shown that it is district magnitude as a measure of proportionality rather than the higher number of parties associated with more proportional voting rules that drives the results.