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Does Compensating the Losers Increase Support for Trade? An Experimental Test of the Embedded Liberalism Thesis

Sean D. Ehrlich, Eddie Hearn
DOI: http://dx.doi.org/10.1111/fpa.12001 149-164 First published online: 1 April 2014

Abstract

The political economy of trade literature argues that compensating those who lose from trade is an important component of maintaining public support for free trade, a linkage known as the compensation hypothesis or embedded liberalism thesis. Previous research has found support for many elements of the causal chain underlying embedded liberalism; however, there has been little research on the most crucial element of the causal chain, namely that compensation policies lead to increased support for trade. This article provides a direct test of the compensation hypothesis using a survey-based experiment conducted in the United States that exposes half of the respondents to knowledge of compensation programs and then asks for their opinion on trade policy. The article explores whether knowledge of compensation increases support for trade as well as who is influenced by this knowledge and, thus, provides a crucial test of the embedded liberalism thesis.

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