Santiago López-Cariboni: "Conditional Compensation: From Industrialization Strategies to the Domestic Politics of Trade Liberalization."
Abstract: This paper answers the question of why compensation to openness takes place in some developing countries and not in others. I argue that political leaders in less developed countries (LDCs) compensate actors in the imports-competing sector when there is a lack of reallocation opportunities after trade liberalization. The argument traces the consequences of different industrialization strategies adopted since the postwar period. Emphasis in imports-substitution industrialization (ISI) increases the power of inward-oriented labor and capital and reduces the reallocation opportunities toward the exporting competing sector. Once the liberalization of external commerce takes place, the lack of horizontal mobility exacerbates and pro-trade reform politicians have incentives to compensate powerful ISI groups. On the contrary, increased openness in export-orientated countries are normally followed by external surpluses and experience higher levels of horizontal mobility toward the exporting sector. Hence, politicians are less willing to compensate economic dislocations due to trade openness. Empirical analysis of 131 LDCs from 1963 to 2009 supports the theoretical predictions .