Globalization and Welfare Spending: How Geography and Electoral Institutions Condition Compensation

What explains variation in the relationship between globalization and public spending on compensation across countries? This article argues that the effect of trade exposure on compensation depends on economic geography and electoral institutions. It predicts that trade leads to greater compensation when trade losers are concentrated geographically and politicians have incentives to target specific constituencies. Policy proves least responsive where electoral districts are large and losers are concentrated. Moreover, in systems with small electoral districts, trade increases compensation when losers are concentrated relative to where they are dispersed. In systems with large electoral districts, trade increases compensation only when losers are dispersed. I evaluate these claims by using a panel of 14 developed democracies and a new measure of concentration. The results provide robust support for the argument. The implication is that there is no generalized relationship between globalization and spending. Rather, the welfare effects of globalization are shaped by fundamental considerations of political economy, such as geography and electoral institutions.