Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215345 
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 12949
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This paper provides a rationale for the revival of protectionism, based on the rise of the educated class. In a trade model with heterogeneous workers and entrepreneurs, globalization generates aggregate gains but has distributional effects, which can be attenuated through taxation. By playing a two-stage political game, citizens decide on trade openness and the extent of redistribution. In this setting, trade liberalization is politically viable as long as the losers from trade are compensated through the redistributive mechanism. When skilled workers account for a large share of the population, however, there may be limited political support for redistribution, and those who are left behind by globalization – namely unskilled workers and importing-sector entrepreneurs – can form a coalition to impose protectionist measures. We then build a dynamic version of the model, where human capital accumulation is driven by public education. Our analysis suggests that globalization – by favoring the ascent of the educated class and thus eroding the political support for redistribution – may ultimately breed its own decline.
Subjects: 
trade
redistribution
political economy
human capital accumulation
JEL: 
D72
F68
I24
J24
O40
Document Type: 
Working Paper

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