Factor Proportions and Political Rights

This paper tests the implication of the Stolper-Samuelson theorem that capital-poor individuals prefer more trade openness in poor (capital-scarce) countries and less trade in rich (labor-scarce) countries, by using a broad panel of countries and new exogenous determinants of trade openness. According to the seminal work in Mayer (1984), capital-poor individuals prefer more trade openness in poor (capital-scarce) countries and less trade openness in rich (labor-scarce) countries. We use the level of political rights as a proxy for the relative capital-labor endowment of the median voter so that an increase in political rights should have asymmetric effects in poor and rich countries: an increase in political rights should lead to more openness in capital poor countries and less openness in capital rich countries. Our results show that, while both income per capita and political rights are positively associated with import intensity, their interaction has a negative and very robust negative association with openness. Increases in political rights lead to sizeable decreases in import intensity after a given income per capita threshold has been surpassed. Our results are robust to the inclusion of structural, geography and cultural determinants of openness, different estimation methods and different proxies for country endowments