Abstract

We characterize trade policies that result from political competition when assessments of well-being include both material and psychosocial components. The material component reflects, as usual, satisfaction from consumption. Borrowing from social identity theory, we take the psychosocial component as combining the pride and self-esteem an individual draws from the status of groups with which she identifies and a dissonance cost she bears from identifying with those that are different from herself. In this framework, changes in social identification patterns that may result, for example, from increased income inequality or heightened racial and ethnic tensions, lead to pronounced changes in trade policy. We analyze the nature of these policy changes.

Keywords

Social identity; Political economy; Tariff formation; Protectionism; Populism

Gene Grossman is the Jacob Viner Professor of International Economics in the Department of Economics, the Woodrow Wilson School of Public and International Affairs at Princeton University and a member on the International Academic Advisory Council of the Institute of New Structural Economics (INSE) at Peking University. Professor Grossman received his B.A. from Yale University and his Ph.D. in Economics from the Massachusetts Institute of Technology, and joined the Princeton faculty in 1980. He has served as Director of Princeton’s International Economics Section since 1999 and completed his second term as Chair of Princeton's economics department in 2014. Professor Grossman has received numerous professional honors and awards, including the Onassis Prize in International Trade and the Bernard Harms Prize. He is a Fellow of the Econometric Society and the American Academy of Arts and Sciences, a Life Member of the Council on Foreign Relations, and holds Honorary Doctorates from the University of St. Gallen and the University of Minho. Professor Grossman has written extensively on international trade. He is well known for his work on the relationship between trade and growth, and in particular for his book with Elhanan Helpman entitled Innovation and Growth in the Global Economy.