Low-wage import competition and populist backlash: The case of Italy

This paper empirically studies the role of trade globalization in shifting the electoral base towards populism. We proxy trade shock with swiftly rising import competition from China and compare the voting pattern at the parliamentary national elections from 1992 to 2013 in about 8,000 Italian municipalities differently exposed to the trade shock. We instrument import competition with Chinese export flows to other high-income countries and estimate the model in first differences. Our results indicate that trade globalization increases support for populist parties, besides fostering a tendency to cast invalid votes or even abstain from voting. To rationalize these findings, we offer evidence that import competition worsens labor market conditions - higher unemployment, lower income and durable consumption - and increases inequality. Finally, we point out that public expenditure plays a role in mitigating the political consequences of the trade shock, arguably because it alleviates economic distress.