International trade and its distributional consequences have been portrayed both as causes of greater political stability as well as a disruptive forces fueling widespread discontent and social unrest. At the heart of this controversy is the question of who wins and loses from international trad e and how people react to these distributional changes. Especially in the context of developing and emerging countries we know little about individual level effects of trade openness. Adding to that, it is scarcely taken into account how people perceive of these objective distributional consequences. When are individuals satisfied or frustrated with their welfare development and how, if so, do they react to these changes?
The project aims to contribute to these pending issues by clearly identifying winners and losers based onnew new trade theory. I argue, based on new trade models, that objective economic consequences are unevenly distributed depending on a combination of individual skill-level and exposure to international competition. These distributive consequences drive wedges within formerly cohesive, same-skilled groups.
Building on these distributional effects I specify how individuals subjectively assess their welfare and set out the conditions that induce economic grievances. The mechanism at the heart of the breeding process of grievances is the evaluation of economic welfare based on comparison to similar others. As within-group wage disparity increases, a rising number of individuals are systematically frustrated with the result of their welfare evaluation. Thus, trade can also influence the satisfaction of non-exposed individuals by impacting the income of relevant comparison units. In general, economic grievances induce political discontent, as blame for this adverse economic situation is attributed to the outside. Individuals consequently oppose economic policies, distrust economic institutions and take part in protest activities.
The project encompasses a paper testing the individual welfare predictions of new new trade theory and the link to subjective perceptions of well-being with South African panel data. Furthermore, it aims to test the importance of comparison to others with similar abilities and the translation of grievances into political discontent with a survey experiment.