Why is Trade Reform So Popular in Latin America?: A Consumption-Based Theory of Trade Policy Preferences

Abstract

Despite wavy national economies and a perception among observers that economic globalization is growing increasingly unpopular, aggregate support for free trade remains quite high across Latin America. This finding is robust to the wording of survey questions and has been quite resilient through time, even in the face of economic stagnation. Current theories of trade preferences, including the widely applied Heckscher-Ohlin model, do not explain this trend. Instead, the author proposes a theory of trade preferences based not on what citizens produce but on what they consume. Statistical analyses of different surveys, including one conducted in fourteen Latin American countries, demonstrate that a consumption-based approach best accounts for trade preferences across individuals and countries. Moreover, the theory provides an explanation for the overall popularity of free trade in Latin America: citizens recognize and appreciate the lower price, increased variety, and higher quality of goods that have come in the wake of trade liberalization.