title: The Politics of Globalization
Creators: name: Kreuter, Helena
Publisher: name: IMT Alti Studi Lucca
Year: 2019

description: Over the past three decades, trade with low-wage countries - in first
 place China - has grown dramatically. Economic theory has long
 recognized that trade liberalization, though enlarging the overall
 economic pie, also produces strong redistributive effects: while it
 increases aggregate productivity and benefits consumers through lower
 prices and a wider range of available goods, at the same time it is also
 associated with substantial adjustment costs in the labour market. As the
 gains are diffuse but the costs concentrated, the lack of appropriate
 compensatory mechanisms is likely to drive a backlash against the
 ongoing economic transformations.
 The present dissertation aims at providing further understanding on the
 consequences of trade globalization for developed countries.
 Specifically, our focus is on the political dimension of the phenomenon.
 Indeed, ballot boxes represent a litmus test of economic changes with
 profound social effects and policymakers are called upon to offer
 adequate responses to the citizens’ requests.
 In chapter 2, we study empirically the role of low-wage import
 competition from China in shaping electoral outcomes in Italy over the
 period from 1992 to 2013. Given the unequal growth of Chinese exports
 across sectors, we compare the voting pattern at the national
 parliamentary elections in about 8,000 municipalities differently
 exposed to the trade shock according to their ex-ante industry
 specialization. The model is estimated in first differences and Italian
 imports from China are instrumented by Chinese exports to other highincome countries.
 We find that China’s trade liberalization has favoured the spread of
 populism in Italy. This result is robust to a large number of sensitivity
 checks as well as to concurrent shocks that may have contributed to spur
 a populist reaction in the Italian electorate - immigration, the
 introduction of the Euro and fiscal austerity. Moreover, we show that
 import competition from China has triggered also other forms of protest
 vote, namely invalid ballot papers and abstentionism. In line with the predictions of economic theory, the channels at work turn out to be
 labour market adjustments.
 If trade globalization is a key determinant behind the recent wave of
 protest vote across the Western World, how can policymakers meet the
 challenges associated with it? This dissertation assesses the desirability
 of three distinct economic policies, one intervening directly on the labour
 market and the other two acting, respectively, at the trade and fiscal
 level.
 In chapter 3, we present a novel approach to analyse the employment
 growth effects of the introduction of a national minimum wage (€8.50
 per hour of work) in Germany on January 1st 2015. Thanks to our access
 to household survey data and proprietary firm-level data, we compare
 firms in heavily affected sectors to similar firms in de facto unaffected
 sectors. Industry vulnerability is determined according to the share of
 eligible workers with pre-treatment hourly wage below €8.50 -
 computed separately for East and West Germany. Treated units are
 linked to control units matching on past employment and forward
 looking credit ratings.
 We detect only very small negative employment effects in East Germany
 (0.05 percent of overall employment, 22000 jobs lost), mainly
 concentrated among small firms. The lack of a significant occupational
 impact still holds when we use different thresholds for treatment
 assignment or alternative minimum wage bite measures. To explain our
 finding, we provide evidence that, in West Germany, the minimum
 wage introduction has also induced positive effects on turnover and a
 deterioration of credit ratings, while, among treated firms in East
 Germany, turnover remains stable and credit ratings actually improve.
 Thus, ex-ante fears for dramatic job losses seem not justified and
 minimum wage policy may actually help to mitigate inequality in major
 industrial economies.
 In chapter 4, we develop a simple theoretical framework that allows us
 to investigate the macroeconomic consequences of sector-specific tariffs
 on imported intermediates in the presence of input-output linkages
 among industries. Our model features a large open economy with multiple perfectly competitive sectors and exogenous market power.
 Each industry specializes in the production of a distinct good according
 to a nested Cobb-Douglas-CES technology; its output sales (net of
 national imports of the same good) meet final demand by a
 representative household with Cobb-Douglas preferences and
 intermediate input demand by other sectors. Under wasteful
 government spending, we establish that a positive sectoral input tariff
 shock entails a loss in aggregate value added, by lowering output not
 only of the protected industry’s immediate customers but also of its
 customers’ customers and so on.
 Assuming next that a given share of each industry’s total output is sold
 on foreign markets, our model can also be used to evaluate the
 macroeconomic implications of the introduction of border-adjustments
 into sector-homogeneous corporate profit taxation. We show that a shift
 to a destination-based regime induces a change in aggregate value added
 that results from the net effect of border-adjustments’ two key
 components, the impossibility to deduct the costs of imported inputs
 from the corporate income tax base but the ability to exclude export sales
 from it. For low sectoral export shares, the network propagation
 triggered by the implicit import tax is more powerful than that triggered
 by the implicit export subsidy, leading to a contraction of overall
 economic activity.
 Thus, in today’s highly vertically integrated advanced economies, the
 unilateral adoption of both import tariffs on intermediates and borderadjusted corporate taxes may turn out to be counterproductive for the
 imposing country even before retaliation is considered.