Trade policy preferences and factor abundance

Abstract

This paper provides a theoretical and empirical analysis of public opinion towards free trade, investigating cleavages both between and within countries. We study the distributional effects of trade policy in a neoclassical Heckscher-Ohlin economy with not just two, but many input factors in production. We demonstrate that the factor price changes induced by trade policy are negatively associated with the factor content of free trade (and therefore factor abundance). Using large-scale international survey data, we test whether these predicted distributional effects are reflected in the trade policy preferences of workers with different labor market skills. In order to isolate the effects of factor abundance from other skill-related confounding factors, we employ a within-skill-group estimator that exploits the cross-country variation in factor abundance. In line with theory, the data show that individuals whose skills are in more abundant domestic supply have significantly more positive attitudes towards trade.