Trade Exposure and the Polarization of Government Spending in the American States

Abstract

Studies of economic globalization and government spending often view the United States as an outlier case. Surprisingly, ours is the first empirical study to take advantage of the variation in U.S. states’ exposure to global markets, ideological orientations of the governments, and the relative size of the public sector, to assess the role of trade exposure on government spending in the American states. Using state-level data from the past three decades, we use error correction models (ECMs) to test three competing globalization theories. We find that the effect of trade exposure on government spending varies across states. Our results suggest that when conservatives control state governments, high levels of trade exposure negatively relate to changes in public expenditures such as welfare and infrastructure. With liberal governments in power, trade exposure does not accelerate state spending growth in welfare and infrastructure, which diverges from the pattern found in European social democracies.