According to the embedded liberalism thesis, governments committed to
free trade provide insurance and other transfers to compensate those who
lose economically from expanded trade. The goal of this spending is to
maintain public support for trade liberalization. We provide a micro-level
test of the critical assumption behind the embedded liberalism thesis that
government programs designed to protect individuals harmed by imports
reduce opposition to free trade. Our micro results have important
implications for the macro relationship between trade and government
spending, which we also test. We find empirical support for the embedded
liberalism thesis in both our micro- and macro-level analyses.
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