Trade liberalization and the welfare state: how subnational geographies shape compensation

Abstract How globalization reshapes the welfare state in developing democracies remains contested, and evidence on whether trade liberalization expands or contracts social spending is mixed. Using a quasi-natural experiment in Brazil, I first find support for the “compensation hypothesis:” trade integration generates welfare compensation. I then argue that trade’s differential impact across subnational regions helps explain the mixed evidence. Subnational political and economic geographies mediate trade’s effect on social policy. In particular, I argue that the geographic concentration of political identities facilitates collective action. I find that geographically concentrated constituencies exhibit higher voter turnout and more participatory councils advocating for labor rights and welfare. Trade’s positive welfare effect is magnified where political or economic identities are geographically concentrated. The findings spotlight how subnational geography shapes globalization’s redistributive consequences.