Why is Trade Reform so Unpopular? On Status Quo Bias in Policy Reforms
Despite the well-known gains from trade, trade liberalization is
politically one of the most contentious actions that a government can take. We
propose and formalize a new argument, having to do with uncertainty, which is
complementary to the usual explanations for why that is the case; many
individuals will simply not know how they will fare under trade reform, and
this can reduce support for a reform which would have been otherwise popular,
even in the absence of risk aversion. We show that reforms that would have
received adequate popular support ex post (i.e., which once enacted will last)
may fail to carry the day ex ante, because of uncertainty regarding the
distribution of gains and losses. Moreover, the role of uncertainty in
determining the outcomes is not symmetric, since reforms that are initially
rejected will continue to be so in the future while reforms that are initially
accepted may find themselves reversed over time. We discuss empirical
illustrations drawn from the experiences of South Korea, Chile and Turkey to
provide support for the argument.
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