chapter  21
16 Pages

The Political Economy of Trading States: Factor Specificity, Collective Action Problems, and Domestic Political Institutions

ByJAMES E. ALT, MICHAEL GILLIGAN

The fundamental problem that international trade poses for states is this. Trade typically offers cheaper goods, with more choice for consumers and the greatest economic output for society as a whole. But at the same time, it is also very disruptive to individuals’ lives, tying their incomes to the vagaries of international markets. In so doing, trade affects the distribution of wealth within the domestic economy, raising questions of who gets relatively more or less, and what they can do about it politically. Trade also has important effects, naturally, on aggregate domestic economic welfare and on the distributions of wealth and power among national societies. Anyone theorizing about “trading states” (states of trading societies) should consider the state’s problem of how to weigh the aggregate, external effects against the internal, distributional effects-and indeed against the costs or disturbances that those internal redistributions may bring.