Government Spending and Public Support for Trade in the OECD: An Empirical Test of the Embedded Liberalism Thesis

Abstract

According to the embedded liberalism thesis, governments committed to free trade provide insurance and other transfers to compensate those who lose economically from expanded trade. The goal of this spending is to maintain public support for trade liberalization. We provide a micro-level test of the critical assumption behind the embedded liberalism thesis that government programs designed to protect individuals harmed by imports reduce opposition to free trade. Our micro results have important implications for the macro relationship between trade and government spending, which we also test. We find empirical support for the embedded liberalism thesis in both our micro- and macro-level analyses.Earlier versions of this article were presented at the Midwest Political Science Association's 2002 Meeting and at the University of Illinois during summer 2003. We thank the respective panel and seminar participants for their feedback. In addition, we want to acknowledge valuable comments from William Bernhard, Rebecca Blank, Kerwin Charles, Alan Deardorff, John DiNardo, John Freeman, Brian Gaines, Jim Granato, Nathan Jensen, William Keech, Layna Mosley, Robert Pahre, Ken Scheve, Marina Whitman, two anonymous reviewers, and Lisa Martin. They, of course, are not responsible for any errors.