Economic Geography and the Politics of Redistribution in Developing Countries

This project analzes two questions. First, why do some governments compensate losers for the adverse effects of trade, while others reward winners, often exacerbating distributive conflict and inequality? A standard view in the literature is that trade leads to greater demand and supply of social policy. But this explanation cannot account for the striking policy differences across countries for given levels of trade exposure. I argue that economic geography and electoral institutions condition the effect of trade exposure on compensation. Trade leads to greater compensation when losers are geographically concentrated and politicians have incentives to target specific constituencies. Relative to geographically dispersed trade losers, concentrated losers constitute attractive targets for politicians elected in small electoral districts. This conditional theory contrasts with views positing a generalized relationship between trade and welfare spending. Second, what explains the striking variation in the adoption of non-contributory cash transfers around the developing world? Using panel data for 64 developing democracies, we find that left governments are likely to adopt such programs when the informal sector is large and rigid labour markets threaten protected insiders with exclusion, but not otherwise. Using cross-sectional survey data for Latin America, we find evidence for the demand-side mechanism that insiders support transfers when labour markets are rigid. In a related project, the project explores the micro-foundations of this argument and draw on unique survey data from Argentina to analyse how differences in labour market status shape individual support for non-contributory transfers and active labour market policies.