Envy, Altruism, and the International Distribution of Trade Protection

Transcription

1 Envy, Altruism, and the International Distribution of Trade Protection Xiaobo Lü Yale University Kenneth Scheve Yale University Matthew Slaughter Tuck School of Business at Dartmouth, NBER

2 Research Questions Do social preferences interdependent utilities which have been documented to be important in explaining behavior across a widevariety of laboratory experiments e.g. dictator game, ultimatum game, gift exchange game, etc. influence economic policy opinions? Do social preferences influence opinions about trade policy and do such preferences shed light on policy outcomes not well explained in existing models?

3 A trade-policy puzzle? We present some descriptive evidence in the paper that industries that employ lower-earning, less-skilled workers more intensively get more protection and that this relationship does not seem to vary by national factor endowments. Some political economy models predict greater government support in expanding sectors (e.g. Grossman and Helpman 1994). Many political economy models predict greater government support in declining sectors (e.g. Baldwin and Robert-Nicoud 2007, Grossman and Helpman 1996, Krueger 1990). None of these approaches explain why most countries support lower paying, lessskill intensive sectors more.

4 The Argument Individual attitudes about 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 preferred recipients for trade protection. These preferences, which we expect to see across countries with very different factor endowments, influence the observed sectoral distribution of trade protection around the world. Our argument is related to literature suggesting the possibility that governments use trade policy to combat inequality (Gawande and Krishna (2003), Baldwin (1985), Ball (1967), Constantopoulos (1974) and Corden (1974).

5 Summary of Model of Preferences for Sector-Specific Trade Protection Adopt standard economic environment such as in Grossman & Helpman (1994) but add inequality aversion in individual utility functions (Fehr & Schmidt 1999, QJE) yielding utility function of individual in sector i: Tariff in sector j increases income of worker with sector-specific skills/capital in sector j If individual in sector i has a lower income, then envy will decrease their support of tariff for sector j If individual in sector i has a higher income, then altruism will increase their support of tariff for sector j

6 Envy & Altruism in Trade Opinions Do voters exhibit envy and altruism in their trade preferences? Survey experiments in U.S. and China that randomly assign respondents to consider trade protection for industries with different wage levels. Use data from experiments to identify separately the envy (α) and altruism (β) parameters in our model.

7 Envy & Altruism in Trade Opinions U.S. Experiment There is an industry in the United States in which the average worker makes X [$18k, $40k, & $80k] dollars per year. Some people favor establishing new trade barriers such as import taxes and quotas because trade barriers would increase wages of workers in this industry. Others oppose new trade barriers because they would raise prices that consumers pay and hurt other industries. Do you favor or oppose these new trade barriers? IF FAVOR: Do you strongly favor or only somewhat favor new trade barriers for this industry? IF OPPOSE: Do you strongly oppose or only somewhat oppose new trade barriers for this industry? Nearly identical experiment in China.

8 Envy & Altruism in Trade Opinions

9 Envy & Altruism in Trade Opinions

10 Envy & Altruism in Trade Opinions Estimation strategy for α and β: Insert additive error term to indirect utility function in model and assume it is normally distributed. Omit terms that do not vary across individuals (e.g. per capita tariff revenue). Indirect utility then a function of own income, envy, altruism, and error term. Let Y * be the difference between utility with new trade barriers and without. This yields a probit model:

11 Envy & Altruism in Trade Opinions China Experiment

12 Envy & Altruism in Trade Opinions US Experiment

13 Conclusion Low-earning, low-skilled sectors seem to be more heavily protected around the world One possible explanation is that individuals exhibit inequality aversion envy and altruism Paper provides a methodology for identifying the influence of envy and altruism in economic policy preferences and provides evidence of envy and altruism in trade-policy preferences in both the U.S. and China The effect is more evident when the inefficiency of trade policy is made more salient. Fact of social preferences in economic policy preferences may be important for understanding politics of economic policymaking

14 Industry Trade Protection and Wages: United States Comparative disadvantage sectors i.e. losers from trade liberalization get more protection. Lots of theories why and lots of empirical evidence. USA Tariffs 2000 Import-Weighted Applied Tariffs Normalized Average Sectoral Wage

15 Industry Trade Protection and Wages: China Do comparative disadvantage sectors get more protection? China Tariffs 2000 Import-Weighted Applied Tariffs Normalized Average Sectoral Wage

16 Industry Trade Protection and Wages Around the World Do industries that employ lower-earning, less-skilled workers more intensively get more protection? Does this relationship vary with national factor endowments? For 3-digit ISIC, rev. 2 manufacturing data, for each country, calculate Spearman s rank correlation coefficient between trade-weighted tariff and average wages in the sector. Plot this statistic against per capita GDP.

17 Industry Trade Protection and Wages Around the World Sectors that use lower-earning, less-skilled workers more intensively get more protection regardless of relative endowments Spearman Rank Corr Weighted Tariff & Avg Wage Correlation of Protection and Wages By Endowment QAT MLT LKA LVA LTU OMN INDMAR IDN KEN BGR ZAF KGZ PAN RUS CYP AUS ETH NPL PRT ESP ITA GBR URY MYS DEU NLD CRI IRL AUT BOL FIN SEN JPN SWE USA COL FRA AZE EGY IRN MEX NOR CAN GDP per capita

18 Envy & Altruism and Inefficient Trade Policies: US Experiment

19 Industry Trade Protection and Skill Intensity: United States Comparative disadvantage sectors get more protection USA Tariffs 2000 Import-Weighted Applied Tariffs Tobacco products Footwear Struct, non-refractory clay; ceramic products Knitted and crocheted fabrics and articles Wearing apparel, Luggage, except handbags, fur apparel etc. Textile fibre preparation Dairy products Made-up textile articles, except apparel Processing/preserving of meat Pottery, china and earthenware Glass and glass products Man-made fibres Processing/preserving Cocoa, Lighting chocolate equipment of and fruit sugar and & vegetables confectionery electric lamps Basic chemicals, except fertilizers Carpets and rugs Musical instruments Other textiles n.e.c. Cordage, rope, twine and netting Cutlery, hand tools and general hardware Sports Cutting, Soft drinks; mineral waters Macaroni, noodles Other Plastic goods Bearings, gears, gearing & driving elements Tanning and & food shaping products similar dressing products & finishing Steam products of leather n.e.c. of generators, stone except central heating Refined petroleum products Other manufacturing n.e.c. Accumulators, primary cells Machine and batteries tools Pesticides and other agro-chemical products Rubber tyres and tubes Starches and starch products Other wood products Watches and Other clocks Service fabricated activities metal Optical products related instruments to n.e.c. printing Paints, & varnishes, photographic printing equipment ink and mastics Plastics in primary forms; synthetic rubber Domestic Prepared appliances animal Grain feeds n.e.c. Basic iron and steel Other rubber products Pumps, mill products compressors, taps Other and chemical valves products n.e.c. Electric motors, generators Electricity and transformers distribution & control apparatus Motor vehicles Building/repairing Jewellery and of related pleasure/sport, articles Processing/preserving Bakery of fish Veneer sheets, TV plywood, particle board, etc. Pharmaceuticals, medicinal chemicals, etc. Wooden containers products Structural Machinery and boats Motorcycles radio metal Corrugated products Insulated receivers for Other textile, paper wire and electrical and paperboard Other Printing Vegetable articles of and paper animal Soap, Ovens, apparel Food/beverage/tobacco and associated Other general Sugar and cleaning Sawmilling Builders' and planing carpentry of wood and joinery oils paperboard purpose Basic cable furnaces and equipment and Distilling, fats & precious leather goods Weapons cosmetic machinery and furnace and Industrial n.e.c. Other Parts/accessories preparations non-ferrous and processing burners special Engines ammunition purpose metals control machinery turbines for machinery automobiles equipment (not Measuring/testing/navigating for transport equipment) appliances.etc. Automobile bodies, trailers & semi-trailers Railway/tramway locomotives & rolling stock Games Furniture and toys Agricultural Articles Tanks, and of Wines concrete, reservoirs forestry Other Lifting machinery cement Building and Refractory non-metallic and containers Machinery Medical, handling plaster repairing ceramic mineral surgical of rectifying equipment for metal Electronic mining of products and ships Fertilizers & & blending orthopaedic Cement, construction valves, n.e.c. and of tubes, lime nitrogen spirits equipment Malt and etc. Pulp, Machinery plaster liquors compounds Office, paper and accounting and for malt metallurgy paperboard and Aircraft computing and TV/radio spacecraft machinery transmitters; line comm. apparatus Normalized Average Sectoral Wage

20 Industry Trade Protection and Skill Intensity: China Comparative disadvantage sectors get more protection? Grain mill products China Tariffs 2000 Import-Weighted Applied Tariffs Sugar Distilling, Wines rectifying & blending of spirits Other Vegetable transport and animal equipment oils and n.e.c. fats Soft drinks; mineral waters Motor vehicles Tobacco products Struct, non-refractory Other food clay; products ceramic Motorcycles products n.e.c. Automobile bodies, trailers & semi-trailers Malt liquors and malt Dressing & dyeing of fur; Games Wearing processing and apparel, toys of furexcept fur apparel Starches Processing/preserving Made-up Macaroni, and starch Textile textile Cordage, Cutting, products fibre articles, of rope, fruit preparation shaping Knitted except & Other Bakery twine vegetables Footwear noodles & and manufacturing apparel finishing Bicycles products crocheted netting & similar of and stone invalid fabrics products n.e.c. carriages Luggage, handbags, etc. and articles Corrugated Furniture Rubber paper tyres Parts/accessories and tubes paperboard for automobiles Other textiles n.e.c. Domestic appliances n.e.c. Musical instruments Dairy Watches products and Soap, cleaning & cosmetic preparations Pottery, Builders' china carpentry and earthenware Wooden and joinery containers Other clocks general purpose machinery TV and radio receivers and associated goods Processing/preserving Structural Plastic metal Insulated of products products Ovens, furnaces and fish Veneer sheets, Pumps, Glass furnace and plywood, compressors, burners Accumulators, wire and primary cable cells and particle Cocoa, board, etc. chocolate Service and sugar activities Plastics batteries Lighting glass products confectionery related in to primary printing forms; synthetic rubber Other Other wood Processing/preserving products Paints, chemical Man-made varnishes, products printing n.e.c. fibres Articles of concrete, taps and cement valves plaster ink and mastics Other rubber of meat products Other Machinery Other fabricated tools special equipment Sports goods for metallurgy purpose and products Lifting machinery electric lamps and n.e.c. handling equipment Other electrical equipment n.e.c. Refractory Agricultural Other Machinery ceramic Food/beverage/tobacco and products Pulp, paper Tanning non-metallic forestry Bearings, Cutlery, mining machinery Basic and and gears, paperboard dressing mineral chemicals, hand & construction processing machinery Electric motors, generators and transformers Printing gearing tools products Machinery Industrial of leather except and Measuring/testing/navigating & driving general n.e.c. for textile, apparel and leather Electricity Optical process fertilizers Pesticides and other agro-chemical products Pharmaceuticals, elements hardware distribution instruments control & equipment control & Engines & turbines (not Basic for iron medicinal appliances.etc. photographic apparatus equipment TV/radio transmitters; line comm. apparatus and steel chemicals, Office, etc. accounting and computing machinery Medical, Cement, lime and plaster Basic transport Electronic precious surgical equipment) valves, and orthopaedic non-ferrous tubes, etc. equipment metals Refined petroleum products Prepared animal feeds Processing of Building nuclear fuel and repairing of ships Sawmilling Fertilizers Coke and planing and oven nitrogen products of wood compounds Steam generators, except central Railway/tramway heating locomotives & rolling stock Aircraft and spacecraft Normalized Average Sectoral Wage

21 Envy & Altruism in Trade Opinions China Experiment There is an industry in China in which the average worker makes X [ 1k, 2k, & 4k] Yuan per month. To increase the wages of workers in this industry, some people want the government to limit imports of foreign products in this industry. Others oppose these limits because such limits would raise prices that consumers pay and hurt other industries. Do you favor or oppose limiting the import of foreign products in this industry? IF FAVOR: Do you strongly favor or only somewhat favor limiting the import of foreign products in this industry? IF OPPOSE: Do you strongly oppose or only somewhat oppose limiting the import of foreign products in this industry?