Agricultural comparative advantage explains US legislators’ support for trade agreements

In a new paper at the Journal of Politics, “Agricultural Comparative Advantage and Legislators’ Support for Trade Agreements”, Francesco Amodio, Leonardo Baccini, Giorgio Chiovelli, and Michele Di Maio find evidence that comparative advantage in agriculture predicts how legislators vote on the ratification of preferential trade agreements in Congress.

Implementing trade liberalization is often a controversial policy in advanced economies. The United States is no exception. The Democratic Party has been always wary about forming preferential trade agreements especially with developing countries (the defunct North America Free Trade Agreement, for instance), whereas the Republican Party has embraced protectionist stances during Trump’s presidency (dropping from the Trans-Pacific Partnership, for instance). Previous research has shown that losers from globalization in general, and trade liberalization in particular, are the main opponents of pieces of legislation enhancing trade openness.

In our paper, we focus on the winners rather than on the losers to explain the decision of the US Congress to ratify preferential trade agreements, which have been the main source of trade liberalization since the 1990s. More specifically, we make use of one of the oldest theories in economics: comparative advantage. The insights of this theory are simple and intuitive: trade liberalization produces gains or losses depending on the relative efficiency of each country in producing different goods. While the theory is simple, identifying the causal effect of comparative advantage on policy preferences held by politicians is not.

To overcome key identification issues, we focus on agricultural products. In particular, we rely on data on the suitability of the soil to produce different crops to build a new, exogenous measure of comparative advantage in agriculture. We rely on estimates of potential crop yields from the Food and Agriculture Organizations (FAO) Global Agro-Ecological Zones (GAEZ) database. These measures are based on local soil and weather characteristics and they are independent of actual yields from cultivated crops and their determinants, including policy-driven ones. Importantly, this measure of crop suitability allows us to capture the maximum attainable yields for each crop in a given district, providing an ideal source of exogenous variation in agricultural productivity.

Armed with this exogenous measure of comparative advantage, we explore its effect on US legislators voting for the ratification of 12 preferential trade agreements between 1993 and 2011. Our study delivers three main findings. First, we find that comparative advantage in agriculture has a strong positive effect on legislators voting in favor of preferential trade agreements. Second, we show that legislators in districts with high comparative advantages in agriculture are more likely to mention that preferential trade agreements are good for farmers in House floor debates preceding the vote on the bills. Third, using survey data on individual attitudes on free trade, we find that respondents living in areas with a comparative advantage in agriculture are more likely to support trade liberalization than respondents living in areas with a comparative disadvantage in agriculture.

Our main contributions are three-fold. First, our findings indicate that the theory of comparative advantage is alive and well despite being more than two centuries old. To the best of our knowledge, ours is the first study to show that comparative advantage in agriculture has a causal effect on legislators’ support for free trade. Second, and related to the previous point, we contribute to a large but empirically controversial literature arguing that economic considerations matter in explaining politicians’ behaviour. In particular, we find evidence of support for trade in those areas in which gains from trade are sizable. Third, against conventional wisdom, our results indicate that rural America is pivotal in supporting trade liberalization. Districts with a strong comparative advantage in agriculture push their legislators to vote in favor of preferential trade agreements for a simple reason: these are the districts that win from international trade.