Copenhagen Economics InstituteShort Course

March 5-7 2007

Globalization in the Very Long Run

March 7

Political Economy: Protection and Immigration

Part 1. The political economy of protection

MotivationWhat determines tariff policy? It can’t be conventional economics, since every mainstream

economist since Smith (1776) agrees that free trade is a good thing for national income.

Yet, the politics of free trade have been surrounded by controversy ever since Alexander Hamilton tried forcing his protectionist policies on a new United States congress after 1789, and since Robert Peel ruined his political career forcing free on the British Parliament in 1846.

Political leaders have never been solely, or even largely, interested in maximizing national income, let alone maximizing world income. Their main goal has always been to get a larger slice of the pie for their supporters.

Protection and free trade have always been for sale in the political market place (Grossman and Helpman 1994), but having said so doesn’t make the question -- what determines tariff policy? – much easier to answer.

A word of warning

Europeans, please note! The belief that pre-1914 trade policies were liberal is

a Big Myth created by scholarly obsession

with western Europe. Blame your Euro-

centric Teachers!

Road Map

1. Four big world tariff facts

2. Do immense tariffs always mean globalization backlash?

3. Endogenous tariffs in the world economy 1870-1938

4. Endogenous tariffs even earlier: Zollverein 1818-34; US after 1789; Latin America after 1823

Four big tariff facts

First: Inflations and deflations played a powerful role at key points in the past. Import duties were typically specific until modern times, quoted as pesos per bale, dollars per yard, or yen per ton. Under a regime of specific duties, abrupt changes in price levels changed import values in the denominator, but not the legislated duty in the numerator, thus producing big percentage point changes in equivalent ad valorem tariff rates.

Second: The well-known surge to world protection in the interwar is almost matched by a less well known protectionist drift worldwide between 1865 and about 1900. And what looks like a modest pre-World War I anti-globalization backlash – led by a European retreat from the liberal pro-global trade positions in mid-century -- is far more dramatic when the world averages are disaggregated. Indeed, there is a very pronounced rise in tariffs across Latin America, across the non-Latin European offshoots and across the European periphery. This steep rise up to the 1890s in the periphery’s tariff rates far exceeds that of the European core, a notable fact given that almost nothing has been written on this anti-global tariff trend in the periphery.

Third: There was enormous variance in levels of protection between regions. The richer new world European offshoots had levels of protection almost three times that of the European core around 1900. To take a second example, in 1925 the European periphery had tariffs about two and a half times higher than those in the European part of the industrial core. To take a third example, in 1885 the poor but independent parts of Latin America had tariffs almost five times higher than those in the poor and dependent parts of Asia, while the poor but independent parts of Asia had tariff rates about the same as the poor but dependent parts of Asia.

Fourth: There was great variance within regions. In 1905, tariffs in Uruguay were two and a half times those in Canada, while tariffs in Brazil and Colombia were ten times those in China and India. The same high-low range appeared within the industrial core (US five times the UK) and the European periphery (Russia six times Austria-Hungary). From 1919 to 1938, the tariff variance between countries was about the same as tariff variance over time, but from 1865 to 1914, the tariff variance between countries was more than twice that of the tariff variance over time. Thus, explaining differences in tariff policy between countries may be even more challenging then explaining tariff policy changes over time.

Addendum

In the new economic order (Lewis), labor-abundant and land-scarce Europe exported manufactures and imported primary products. The periphery did the opposite. Thus, European tariffs were mainly imposed on import-competing primary products (and higher than their average) while periphery tariffs were mainly imposed on import-competing manufactures (and higher than their average).

In others words, future work needs to look at the structure of protection.

Restrictive trade policy in the First Global Century

The 35-country sample (85% of 1914 world population, 95% of 1914 world GDP)

6 Core industrial leaders: AH, Fr, Ger, It, UK, USA8 European Periphery: Den, Grc, Nor, Port, Serb, Sp, Swe, Rus8 Latin American Periphery: Arg, Brz, Col, Ch, Cuba, Mex,

Per, Ur10 Asia-MidEast: Bur, Cey, Egy, Ind, Indo, Jap, Phil, Siam,

Turk3 English-speaking European Offshoots: Aus, Can, NZ

Figure 1: Unweighted World Average Own Tariff, 35 Countries, %

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Figure 2 Unweighted Average of Regional Tariffs Before World War II

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Endogenous Tariffs in Table 1

Right-hand side variables (all but dummies in logs):

• Export Share: X/GDP, a measure of a country’s export boom or slump. Revenue tales;

A Note on Tariffs for Revenue

R = tpMwhere R is revenue, t is the average ad valorem tariff rate, p is the average import price and M is import volume.

Totally differentiating with respect to t, and assuming that the typical19th century country in the periphery was a price taker for manufacturing imports, yields

dR/dt = pM + (tp)dM/dt. The revenue-maximizing tariff rate, t*, is found by setting

dR/dt = 0 in which case

t* = -1/(1 + e) where e is the price elasticity of demand for imports. Irwin (1998) estimates e to have been about -2.6 for the US between 1869 and 1913, so assuming e = -3 can’t be too far off the mark. In which case, the revenue-maximizing tariff in the periphery would have been very high indeed, about 50 percent.

Suppose some government in the periphery had in mind some target revenue share in GDP

R/Y = r and could not rely on foreign capital inflows to balance the current account (so pM = X), then

r = tpM/Y = tX/Y If foreign exchange earnings from imports (and thus imports) were booming (an event which could be caused by a terms of trade boom, denoted here by a fall in the relative import price, p, or by a supply-side expansion of export quantities, X), then the target revenue share could have been achieved at lower tariff rate, t. Moral? The bigger the export boom, the higher the export share, the bigger the import share, and the lower the necessary tariff rate.

Endogenous Tariffs in Table 1

Right-hand side variables used (all but dummies in logs):

Export Share: X/GDP, a measure of a country’s exportboom or slump. Revenue tales;GDP/capita, and Schooling, the latter the primary schoolenrollment rate. Skill endowment proxies. Stolper-Samuelson stuff;Population. Easier for local firms to find spatial niches inbigger domestic markets. Alternatively, big and densepopulations imply efficient internal tax administration andless need for tariff revenue. Balkanization matters;Lagged Partner Tariffs. Weighted average of the tariffrates in trading countries’ markets, the weight being tradevolumes. Strategic tariff stuff;Effective Distance. Distance from each country to the USor the UK, adjusted by seaborne freight rates specific tothat route. Transport-tariff trade-off;Railway Mileage. Railway mileage added in the country.More transport-tariff trade-off;Urbanization: Percent of population in cities and townsgreater than 20,000. More Stolper-Samuelson stuff;

Federal. Dummy variable = 1if a federal system, = 0 ifcentralized. Lacking other tax instruments, federalgovernments need more tariff revenue;Colony: Dummy = 1. For 1870-1938, includes Burma,Ceylon, India, Indonesia, the Philippines. Also, Cuba(1870-1901), Egypt (1882-1938) and Serbia (1870-1920).Inflation and inflation-squared. Rates in home markets.The much-touted specific duty effect;Lagged Px/Pm: Country’s terms of trade as observed inworld markets. De-industrialization fears versus revenueneeds. Note: now confirmed with more complete data.Capital inflows: Country’s absorption of British capitalexports. Easing short term liquidity constraint and tariffrevenue needs. Caution: only pre-1914 data.Gold Standard: Dummy = 1 when on gold standard orpegged to a core currency. Losing control over the realexchange rate (an alternative means of protection). Note:assessed elsewhere. Note: exploring availability of othertax instruments.

Table 1. Tariff Rate Determinants the World Around 1870-1938

Dependent variable: ln Own TariffSpecification TS, country dummies CS, year dummies

Years 1870-1938 1870-1938 1870-1938 1870-1938 1870-1938 1870-1938 1870-1938 1870-1938 1870-1938 1870-1938Revenue Motiveln Export Share -0.0285 -0.0832 -0.0609 -0.0463 -0.0924 -0.0397 -0.0645 -0.0601 -0.0539 -0.0753

(-1.36) (-3.02) (-2.30) (-2.07) (-3.32) (-1.37) (-1.67) (-1.60) (-1.80) (-2.02)Strategic Tariff Motiveln Partner 0.2490 0.2507 0.2992 0.2246 0.2526 -0.0440 -0.0983 -0.0338 -0.0648 -0.0953Tariffs (9.06) (6.64) (8.45) (7.54) (6.67) (-1.22) (-1.82) (-0.60) (-1.76) (-1.73)Stolper-Samuelson Scarce Factor Compensation Motiveln Terms of 0.0798 0.1219 0.1037 0.1371Trade Index (2.22) (2.68) (2.55) (2.66)ln GDP per -0.1412 -0.2227 -0.1745 -0.1810 -0.2260 -0.1025 -0.1445 -0.1228 -0.1439 -0.1435capita (-2.40) (-2.86) (-2.28) (-2.95) (-2.90) (-1.48) (-1.44) (-1.24) (-2.00) (-1.45)ln Schooling 0.1640 -0.0560 -0.0573 0.1719 -0.0416 0.0672 -0.3046 -0.2993 0.0548 -0.3053

(4.02) (-0.82) (-0.84) (4.30) (-0.61) (1.49) (-2.96) (-3.01) (1.22) (-2.99)ln Effective -0.0735 -0.1072 -0.1267 -0.0584 -0.1086 -0.0169 -0.0644 -0.0514 -0.0309 -0.0616Distance (-4.86) (-4.95) (-5.97) (-3.76) (-5.02) (-0.74) (-1.53) (-1.28) (-1.29) (-1.48)ln Railway 0.0354 0.0639 0.0579 0.0347 0.0590 0.0055 0.0212 0.0190 0.0042 0.0219Mileage (3.38) (2.25) (1.98) (3.41) (2.08) (0.80) (0.93) (0.84) (0.56) (0.94)ln Urbanization 0.0478 0.0198 0.0013 0.0462 0.0235 0.0242 -0.0890 -0.0989 0.0211 -0.0787

(2.13) (0.30) (0.02) (2.10) (0.36) (0.99) (-1.58) (-1.66) (0.79) (-1.41)Controlsln Population -0.1084 -0.1716 -0.1441 -0.1172 -0.1721 -0.1224 -0.0433 -0.0545 -0.1302 -0.0504

(-2.50) (-3.35) (-2.81) (-2.58) (-3.38) (-2.85) (-0.84) (-1.12) (-3.00) (-1.00)Federal 0.0100 0.0524 0.0585 0.0071 0.0509

(0.35) (1.45) (1.55) (0.25) (1.35)Colony -0.0033 -0.1649 -0.2797 -0.0695 -0.1515

(-0.05) (-0.83) (-1.58) (-1.50) (-0.79)Inflation -0.0004 -0.0005 -0.0004 -0.0003

(-1.45) (-1.46) (-0.90) (-0.69)Inflation Squared 0.0000 0.0000 0.0000 0.0000

(2.45) (1.77) (0.44) (0.52)

Constant 2.7797 5.8022 5.4237 2.6333 5.1674(4.75) (7.80) (7.45) (4.28) (6.68)

N 2,138 1,169 1,300 1,951 1,169 2,067 1,116 1,238 1,889 1,116R-squared 0.224 0.271 0.25 0.251 0.266 0.144 0.203 0.195 0.149 0.211

Endogenous Tariffs Even Earlier

United States 1789-1830:Hamilton’s famous 1791 Report on infantindustry was irrelevant. Trade policy wasabout revenue and strategic tariffs.

Zollverein 1818-1834:List and Schmoller’s rhetoric on infantindustry and British-induced de-industrialization fears was irrelevant. Thecustoms union was all about revenue.

Latin America 1823-1867In place of a colonial customs union, theygot independence, balkanization andbloodshed. Tariffs were all about revenue.High tariffs + balkanization + bloodshed =five “ lost decades.”

Tariff rates rise in the US

Figure 3 Average Tariff Rates in the United States 1790-1836

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Average Net Tariff on Dutiable Imports

Was it all about List’s infant industry or was it about revenues?

Custom Administration Kuehne's AreaCosts/Customs Revenues Ratio (meilen)

Zollverein (1836) 0.147 0.130 9569Prussia (1818) 0.175 0.200 5104Bavaria (1826) 0.250 0.240 1337Wurttemberg (n.d.) 0.430 0.470 354Kurhessen (n.d.) 1.000 1.130 166Hessen-Darmstadt (n.d.) 1.000 1.060 153

Size and Administration Efficiency: The Zollverein 1818-1836

Table 2

Figure 4 Fiscal Scale Economies in the Zollverein

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Area in English Square Miles

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Six Morals

Stolper-Samuelson mattered, butit was never a key player Infant industry and ISI ideaswere never important before the1890s, but they were three or fourdecades before the 1930s De-industrialization fear was amajor factor determining tariffpolicy in the periphery long beforethe 1930s, joining grain-invasionfear in the industrial core

Revenue need was always amajor explanation for high tariffs inthe periphery Where geography was conquered,high tariffs compensated the losers Strategic efforts to improve theterms of trade were always at workpushing up tariffs. Those forceswere only resolved after WWII

Want to Learn More?You can down load papers at Williamson’s web site

www.economics.harvard.edu/~jwilliam/“Closed Jaguar, Open Dragon: Comparing Tariffs in Latin America andAsia before World War II,” NBER Working Paper 9401 (December2002). With Michael Clemens.“Always Protectionist? Latin American Tariffs from Independence toGreat Depression,” Journal of Latin American Studies vol. 36, part 2(May 2004), pp. 205-32. With J. Coatsworth.“Why Did the Tariff-Growth Correlation Reverse After 1950?” Journalof Economic Growth vol. 9, no. 1 (March 2004), pp. 5-46. With M.Clemens.“Globalization in Latin America Before 1940,” in V. Bulmer-Thomas, J.Coatsworth and R. Cortés Conde (eds.), The Cambridge EconomicHistory of Latin America: Volume II: The Long Twentieth Century(Cambridge: Cambridge University Press, 2006). With Luis Bértola. “Explaining World Tariffs 1870-1938: Stolper-Samuelson, StrategicTariffs and State Revenues,” in R. Findlay, R. Henriksson, H. Lindgrenand M. Lundahl (eds.), Eli F. Heckscher, International Trade, andEconomic History (Cambridge, Mass.: MIT Press, 2006).

End of Advertisement

Part 2. The political economy of immigration

Actually, I think there’s a better way to pursue this. Namely, ask

“Why Have Trade and Immigration Policies Always Differed in Labor-Scarce Economies?”

a question Tim Hatton and I asked recently in The

New Comparative Economic History (Cambridge,

Mass.: MIT Press, forthcoming 2007).

The Policy Paradox

• A century ago, trade policies were restrictive and immigration policies were liberal.

• Today, trade policies are liberal while immigration policies are restrictive.

• So, why have policies towards trade and immigration always differed in labor-scarce economies?

The simple HS-SS 2x2x2 model

• As Robert Mundell (1957) pointed out 50 years ago, in the labor-scarce economy open immigration and free trade policies both lower wages, while restricted immigration and protection both raise wages. Thus, open immigration will offset the distributional impact of protection, and free trade will offset the impact of immigration restriction.

What accounts for the Paradox?

Better theory could make the Paradox evaporate: After all, the predictions of HO-SS factor endowment model might be overturned by modifying it with specific factors, increasing returns or Ricardian differences in productivity.

Better political economy could make the Paradox evaporate: After all, factor income distribution isn’t the only determinant of policy.

We favor better political economy.

Road Map

• The evolution of immigration restriction (less to more) and trade restriction (more to less) over two centuries.

• Declining immigrant positive selectivity, declining immigrant ‘quality’ and rising immigrant restriction.

• The fiscal implications of the rise of the welfare state for trade and immigration policy.

• The role of suffrage in changing the median voter.• Forming public opinion and public policy.• The bottom line.

Refrain: World trade policy was restrictive in the First Global Century

Figure 1Average Tariff, 35 countries 1870-1998

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Refrain: Trade policy was very restrictive in labor-scarce countries during the First Global Century

Figure 2Unweighted Average of Average Tariffs Before World War 2

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Euro Periph Core Asia

Liberal trade policy in the Second Global Century

• Since 1950, labor-scarce countries have gone open.

• The fact that the Third World stayed closed for so long (especially Latin America and eastern Europe) is irrelevant given our focus on trade policy in labor-scarce countries.

Open immigration policy in labor-scarce economies in the First Global Century

• Index of policy stance for 5 major immigration countries: Australia, Argentina, Brazil, Canada and US (Timmer and Williamson 1998).

• Index = -5 for tough quotas (including exclusion of those from poor countries), 0 for neutrality and +5 for generous subsidies.

Figure 3 New World Immigration Policy Index 1860-1913

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Rising immigration restriction in the Second Global Century

• Quotas of the interwar period continued (after temporary guestworker experiments)

• But labor-scarce countries ‘leveled the playing field’ by removing racist restrictions on poor Third World immigrant source countries

• The fact that OECD immigration has soared is not inconsistent with restriction. After all, the immigration would have been 5, 10 or 20 times higher without it.

• Thus, the Paradox: liberal trade policy and restrictive immigration policy coexist today, in the second global century; and liberal immigration policy and restrictive trade policy coexisted in the first global century.

• Why? Is the HO-SS model irrelevant, or is the political economy of policy formation much more complex?

The long run decline in immigrant positive selectivity and ‘quality,’ and the rise in

immigration restriction

• In the early 1800s, European overseas emigration was a trickle and it was very positively selected.

• They came from the relatively developed northwest where an early industrial revolution had raised living standards.

• They came from the middle and upper parts of the income and wealth distribution.

• Even if the labor-scarce host countries only wanted immigrants like themselves, they did not have to use discriminatory policy to get that result. Long distances, high transportation costs and source country poverty kept out the poor from backward east and southeast Europe.

As you have seen, US native-born

‘quality’ rose 1870-1930 Quality Proxies for the US Population 1870-1930

____________________________________________ Enrollment Attendance % 17 Year olds Illiteracy

Rates Per 100 Rates per Graduating Rate Population Student High School

_________________________________________________________________________

1870 48.4 78.4 2.0 20.0 1880 57.8 81.1 2.5 17.0 1890 54.3 86.3 3.5 13.3 1900 50.5 99.0 6.3 10.7 1910 59.2 113.0 8.6 7.7 1920 64.3 121.2 16.3 6.0 1930 69.9 151.7 28.8 4.3

__________________________________________________________________________

… while the ‘quality’ of US immigrants fell.

The Occupations of US Immigrants

Occupation 1820-

1831 1832-1846

1847-1854

1855-1864

1865-1873

1873-1880

1881-1893

1894-1898

Skilled 61 40 24 36 31 30 24 30 Farmers 23 33 33 23 18 18 14 12 Unskilled 16 26 43 41 51 48 60 55 Miscellaneous -- -- -- 0 1 5 3 3 Percent male 70 62 59 58 62 63 61 57

… more on the fall of immigrant ‘quality’ as their numbers rose.

Table 2 GDP Per Capita Ratio: Average Source Country/Destination Country

Country 1860s 1870s 1880s 1890s 1900s US 95.4 92.3 73.3 64.0 49.5 Canada 154.8 183.1 159.4 136.7 107.0 Argentina 114.2 110.2 89.8 68.4 54.6 Country 1950s 1960s 1970s 1980s 1990s US 49.1 40.8 29.8 24.0 22.4 Canada 64.5 60.0 40.8 33.7 30.8 Australia 73.4 75.4 64.5 55.5 49.0 Germany 95.6 70.1 61.1 51.1 44.7 UK -- -- 75.3 83.1 86.2

… and the long run relative quality decline continues. Relative wage and relative education: immigrants vs native-born US 1960-1990.

1960 1970 1980 1990

Percentage earnings differential relative to the native-born

All Immigrants

Earnings unadjusted 4.1 0.1 9.7 16.3

Earnings adjusted 1.3 1.7 7.1 10.0

Recent immigrants

Wage unadjusted 13.9 18.8 32.8 38.0

Wage adjusted 16.2 19.8 24.1 26.9

Percentage point difference in educational attainment relative to native-born

All immigrants

Education > 16 years 3.5 2.4 0.0

Education < 12 years 3.2 14.3 22.1

Recent immigrants

Education > 16 years 12.9 7.5 4.9

Education < 12 years 5.6 13.1 20.4

… and falling immigrant labor quality has left its mark on rising immigrant poverty rates.

Poverty rates (%)

US 1959Foreign-born 14.2

Native-born 20.9

US 1999

Foreign-born 17.4 (up 3.1)

Native-born 11.8 (down 9.1)

Summary of the road trip so far

• Immigrant restriction since 1895 has been driven in large part by the long run decline in potential immigrant quality and their rising numbers.

• The long run decline in immigrant quality would have been far greater without the rise of restrictions.

• Immigration policy is much tougher now simply because there are vastly more potential immigrants from poor countries to keep out.

Changing fiscal implications of trade over two centuries.

• Alexander Hamilton thought “the tariff was more important as a tool of fiscal policy than as an instrument for promoting manufactures.”

• Customs duties were a major source of central government revenue in the 19th century, especially in labor-scarce and land-abundant overseas countries where low population and taxpayer density made other forms of taxation inefficient.

• Tariff revenues are unimportant in labor-scarce countries today.

To repeat: tariffs were an important source of revenue then, but not now

Customs duties/total tax revenues:Latin America 1820-1890 66%US 1850s 90Australia 1850s 90Ave. 7 labor-scarce 1890s 58vs. UK and France 1890s <20

vs. OECD 1970s 4

Immigration, the rise of the welfare state and fiscal burdens.

• Immigration had little fiscal impact in the first global century before the rise of the welfare state. The fiscal impact rose in the second global century with the decline in immigrant quality and the rise of the welfare state.

• Thus, tariffs brought fiscal benefits and immigrants brought no fiscal costs before 1914. The opposite is true today.

The rise of the welfare state (implying rising net fiscal effects of immigrants).

Figure 4 Welfare State Spending 1880-1980

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US Canada France

Germany UK Sweden

Who gets the goodies?

Welfare Dependency and Personal Characteristics in the EU 1994-6 (differences between immigrants and EU nationals)

Country Percentage point difference between immigrants and EU nationals in receipt of

Difference in characteristics between immigrants and EU nationals

Unemp. Benefit

Family Benefit

Pensions Low educated

High educated

Age (years)

No. of children

Germany 1.6 -- -- 21.2 5.5 8.6 0.54

Denmark 24.5 5.3 17.9 14.7 0.6 7.8 0.47

Netherlands 7.0 7.9 14.9 22.7 5.3 7.7 0.65

Belgium 6.7 1.1 6.1 10.6 14.1 2.5 0.12

France 4.9 16.7 12.8 22.5 7.2 3.6 1.10

UK 0.6 0.6 23.4 15.4 21.2 8.7 0.85

Austria 8.9 8.1 18.0 7.8 12.2 10.6 0.35

Finland 31.7 0.2 12.7 12.3 17.5 7.4 0.04

Suffrage and the changing median voter.

Two questions matter, not just one:

[1] Who stood to gain, and who stood to lose from trade and immigration policy?

[2] Who had the vote?

It could be argued that US (male, white) workers

dictated policy in all 19th c labor-scarce countries

since they had the vote, and other countries competing

for trade and immigrants had to follow suit.

Figure 5Percent of Adults Voting: New World, 1850-1940

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Figure 6Percent of Adults Voting: Europe, 1850-1940

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Bringing the summary of the road trip up to date

Three factors conditioned trade and immigration

policies in overseas labor-scarce economies in

the first global century:

[1] revenue needs for development and war;

[2] sending country poverty constraints that kept immigration moderate and selective for most of the period;

[3] often-limited political franchise.

What about public opinion and policy today?

Two questions:

[1] Is public opinion more negative towards immigration than trade? If not, why are trade policies more liberal?

[2] What are the individual and country characteristics that determine public

opinions?

The International Social Survey Programme

• Interviewer’s question: Would you like to see immigration increased a lot (1), a little (2), stay the same (3), reduced a little (4), reduced a lot (5)?

• Same question asked of imports.• ISSP conducted in 24 countries in 1995, of which 14

are labor-scarce OECD.• O’Rourke and Sinnott (2001, 2006), Mayda (2004),

Mayda and Rodrik (2005) and O’Rourke (2006) use country fixed effects; Hatton and Williamson (2007) use explicit country characteristics.

Anti-global attitudes in the 1990s

Attitudes Toward Immigration and Trade, 1995/6 Country Anti-

Immigration opinion

Anti-Imports opinion

Correlation coefficient

No of observations

Australia 3.768 3.999 0.271 2318 Austria 3.808 3.907 0.267 923 Canada 3.311 3.292 0.284 1310 Germany 4.270 3.283 0.370 1630 Great Britain 4.060 3.772 0.325 955 Ireland 3.073 3.664 0.178 919 Italy 4.148 3.599 0.243 1020 Japan 3.373 2.939 0.219 1000 Netherlands 3.822 2.930 0.272 1864 New Zealand 3.737 3.401 0.310 950 Norway 3.845 3.146 0.240 1333 Spain 3.385 3.889 0.180 1014 Sweden 3.970 3.254 0.253 1132 USA 3.880 3.765 0.249 1090 All countries 3.770 3.480 0.237 17458 Note: Based on data from the 1995 ISSP module on national identity. Figures are average attitudes on a five point scale where respondents were asked whether immigrants or imports should be increased a lot (1), increased a little (2), kept the same (3), reduced a little (4), or reduced a lot (5).

Note! Anti-immigrant opinion = 3.77 and anti-import opinion = 3.48. How do we reconcile their similarity with the fact that trade policy is liberal and immigration policy is restrictive?

NegativePublic Opinion

Immigration

Imports

Immigration or Imports

Determinants of anti-global attitudes

Explanatory Variable

(1) Anti-Immigration Opinion

(2) Anti-Imports Opinion

Individual-level variables ‘Patriotism’ 0.055 (1.81) 0.201 (7.39) ‘Chauvinism’ 0.374 (8.23) 0.397 (13.7) Foreign-born -0.035 (0.32) -0.130 (1.99) 2nd Generation Immigrant -0.283 (6.21) 0.085 (2.11) Female 0.035 (1.13) 0.304 (11.3) Age/100 0.009 (0.07) -0.001 (1.08) Married 0.038 (1.77) 0.029 (1.40) Highly Educated -0.219 (7.13) -0.280 (7.32) Employed -0.008 (0.51) -0.032 (1.07) Country-level variables Log GDP Per Capita 0.692 (2.58) -0.294 (0.57)

Inequality 1.850 (2.26) 4.043 (2.23) Log Population 0.077 (1.51) -0.072 (0.64) Welfare Expenditure /GDP 0.047 (7.26) Share of Popn Foreign 0.044 (3.13) Imports/GDP 0.006 (0.28) OECD Trade/GDP -0.009 (0.93) R2 0.207 0.219 No of obs 14820 14820

… and the trend in policy reflected the rise in anti-immigrant opinion 1960s-2001

Government Immigration Policies, 1976-2001 (Percent of governments aiming to restrict immigration more)

Year 1976 1986 1996 2001 All Countries 7 20 40 40 More Developed Countries 18 38 60 44 Less Developed Countries 3 15 34 39

Source: United Nations (2002), p. 18.

Based on Heckscher-Ohlin and Stolper-Samuelson thinking, we have a policy paradox for labor-scarce

economics then and now:

• A century ago, restricted trade and unrestricted immigration.

• Now, restricted immigration and unrestricted trade.• The immigration policy fundamentals at work:

As the cost of migration fell and the ability of poor workers to finance the move rose, the number of immigrants soared and their quality fell. With the rise in both, restrictive policy emerged.

Today, anti-immigration opinion is driven by:

● the scale of immigration, which represents a labor market threat;

● the size of the welfare state combined with low immigrant quality, which represents the welfare burden;

● and the universal franchise, which assures that these concerns are reflected in policy.

Why isn’t anti-immigrant opinion even more negative?

● it would be without the restriction!

● and the median voter today is far less threatened by labor market competition than a century ago since the ‘quality’ gap between native-born and immigrant has gotten much bigger over time.

What about trade policy and opinion?

● the revenue motive was central a century ago, but irrelevant today;● the median voter faces a far smaller threat from low-skill labor embodied in imports from poor countries;● and there is a greater balance between losers and winners from trade since trade is far more intra-industry today than it was a century ago. It’s also easier for the losers to out-migrate from declining sectors today.

Why do richer countries, cet. par., have more anti-

immigrant opinion but not more anti-import feeling?

• For the median voter, the threat is the fiscal implications of the welfare state.

• This threat is far greater today than a century ago because of the combination of the rise of the welfare state and the release of the poverty trap which held back the pool of potential poor and less skilled immigrants (compared with the native-born).

• These underlying fundamentals will not diminish over the next half century.

The end of the Copenhagen short course.

Many thanks!