Trade induced changes in productivity and globalization backlash

 This work builds on the established literature on the China Trade Shock that occurred in the first decade of XXI century. Many studies have already shown that the sudden increase in import competition has caused employment losses and reduced wages in most affected sectors (Autor et al., 2013; Dauth et al., 2014) partly because less efficient firms were forced to exit the market. However, other empirical studies found that it caused a strong increase in technology upgrading (R&D intensity, patenting, IT intensity and TFP) within firms, and an employment shift towards more productive and technologically advanced firms (Bloom et al. , 2016) , thus, increasing aggregate productivity. Other authors have shown how the increase in import competition have caused an increase in political polarization (Autor et al. , 2016) or the success of economic nationalism and of radical-right parties (Colantone et al. , 2016, 2017) The aim of this thesis is to connect these two insights. The goal is to study to what extent changes in productivity distribution constitute a channel through which increases in import competition could affect political preferences. The idea is to look at the evolution of productivity and wage distribution within manufacturing sectors affected by import shock from China in the early 00’s and how this affected the political outcomes in the regions more exposed to the side effects of those changes. The idea is that the increasing global competition induced a productivity divergence within each sector, affecting regions’ productive fabrics differently according to their initial productivity level. These patterns accelerated further during the crisis inducing also a divergence in voting behavior. The regions that had low initial levels of productivity at the beginning of the trade shock had a higher exposure to the negative effects of the increase in competition, suffering greater zombification, exit of the firms and a decreasing or stagnating productivity that held down wages. The “losers” turned, then, against the “mainstream parties” and were more sensitive to “anti-establishment” rhetoric. Using firm-level financial account data from Orbis dataset, it is possible to estimate national level productivity distribution within each manufacturing industry, both for labor productivity and Total Factor Productivity. Then, it is possible to use Chinese imports to US as instrumental variables to study the effects of the Chinese import shock on productivity and wage distributions.