Labor versus capital in trade-policy: The role of ideology and inequality Pushan Dutt a,1 , Devashish Mitra b,c, * a INSEAD, 1 Ayer Rajah Avenue, Singapore 138676, Singapore b Department of Economics, The Maxwell School of Citizenship & Public Affairs, Syracuse University, Eggers Hall, Syracuse, NY 13244, USA c NBER, 1050 Massachusetts Avenue, Cambridge, MA 02138, USA Received 24 October 2003; received in revised form 10 October 2004; accepted 31 May 2005 Abstract Trade policy depends on the extent to which the government wants to redistribute income as well as on a country’s overall factor endowments and their distribution. While the government’s desire to redistribute income itself is dependent on asset distribution, it is to a large extent also driven by the partisan nature of the government, i.e., whether it is pro-labor or pro-capital. Using cross-country data on factor endowments, inequality and government orientation, we find that, conditional on inequality, left-wing (pro-labor) governments will adopt more protectionist trade policies in capital-rich countries, but adopt more pro-trade policies in labor-rich economies than right-wing (pro-capital) ones. Also, holding government orientation constant, higher inequality is associated with higher protection in capital-abundant countries while it is associated with lower protection in labor-abundant countries. These results are consistent with the simultaneous presence of both inequality as well as ideology as determinants of protection within a two-factor, two-sector Heckscher–Ohlin framework. Overall, various statistical tests support an umbrella model (that combines both the ideology and inequality models) over each of the individual models. D 2005 Elsevier B.V. All rights reserved. Keywords: Protection; Openness; Ideology; Inequality; Median voter JEL classification: F10; F11; F13 0022-1996/$ - see front matter D 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.jinteco.2005.05.011 * Corresponding author. Tel.: +1 315 443 6143; fax: +1 315 443 3717. E-mail addresses: Pushan.Dutt@insead.edu (P. Dutt), dmitra@maxwell.syr.edu (D. Mitra). 1 Tel.: +65 6799 5388. Journal of International Economics 69 (2006) 310 – 320 www.elsevier.com/locate/econbase