Identity Politics and Trade Policy
We characterize trade policies that result from political competition when assessments of well-being include both material and psychosocial components. The material component reflects, as usual, satisfaction from consumption. Borrowing from social identity theory, we take the psychosocial component as combining the pride and self-esteem an individual draws from the status of groups with which she identifies and a dissonance cost she bears from identifying with those that are different from herself. In this framework, changes in social identification patterns that may result, for example, from increased income inequality or heightened racial and ethnic tensions, lead to pronounced changes in trade policy. We analyze the nature of these policy changes.
We are grateful to Alberto Alesina, Ben Enke, Matt Grant, Oleg Itskhoki, Rachel Kranton, Steve Redding, Dani Rodrik, Ken Shepsle, Andrei Shleifer, Jaume Ventura, and Yoram Weiss for helpful discussions and to Evgenii Fadeev for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.