Political Implications of Trade Liberalization: Evidence from India (with Sebastian Jävervall and Roza Khoban)

Abstract: In recent decades, many developing countries have integrated into the global economy through trade reforms. However, the gains from trade liberalization have been unevenly distributed among various economic and social groups. This paper examines how adverse economic shocks, induced by trade liberalization, influenced voting behavior and political representation among marginalized groups in India. By utilizing exogenous variation in regional exposure to tariff reductions from India’s 1990s trade liberalization and constructing a novel dataset that links politicians to social communities, we establish causal estimates of the economic and political effects of trade reforms. Our findings reveal that trade liberalization led to a relative decline in consumption and earnings growth for marginalized workers. In response, these groups increased their political engagement, resulting in higher vote shares and representation for marginalized politicians, while non-marginalized politicians experienced a corresponding decline. We show that these political effects were most pronounced in districts with a significant marginalized population share, suggesting a political backlash from marginalized groups. Furthermore, we provide evidence that a redistributive policy mitigated these political changes, thereby supporting the economic grievances hypothesis.