The Compensation Hypothesis Revisited and Reversed

This note describes how research on the link between economic openness and government size has changed over time. Early interpretations suggested that countries develop welfare states to compensate for volatility caused by economic openness (the compensation hypothesis). Recent findings have cast doubts on this interpretation. For example, more open economies are on average not more volatile, and economic openness does not unambiguously increase the social security demands from voters. Some recent studies suggest that economic openness is particularly beneficial for countries with high taxes and high‐income equality. A re‐interpretation of the compensation hypothesis is thus possible: Through trade, the citizens in large welfare states enjoy some of the benefits associated with cheap labour and high wage dispersion despite their domestic economy being characterized by high real wages, high taxes and a compressed wage distribution.
It's open access!

What the reviewers said about the initial submission:
presents a new and interesting perspective on the cross-country relationship between trade openness and government size and structure
conceptually unpersuasive [R2. Always R2...]

Here, CNN conveys two important messages about Sweden:

Here, CNN conveys two important messages about Sweden:
  1. Sweden differs from other OCED countries not by taxing the firms and the rich higher, but by taxing low-income earners and the middle-class higher.
  2. Most low and middle income earners still think the level of taxation is acceptable when accounting for what the welfare state provides.

Pethokoukis on Sanders and scandinavia at

James Pethokoukis blogs at
Let’s stop pretending that Bernie Sanders wants to duplicate Scandinavia
He writes:
Bernie Sanders supporters are quick to make clear that their guy doesn’t want to turn America into Cuba or Venezuela or the old Soviet Union. By "democratic socialism," the US senator from Vermont means Scandinavia, more or less. And what’s wrong with that? The Nordic nations are pretty nice. Even President Trump has conceded that Norway produces a quality immigrant.
His point is that the scandinavian countries are in many aspects more capitalist and have higher economic freedom than the US, citing my text in the Milken Review.

On globalization and populism in Europe and Fukuyama's commonplace judgment

Here is a summary of a new working paper that I just published with Anders Gustafsson.
We start by citing Francic Fukuyama:
I concur with the commonplace judgment that the rise of populism has been triggered by globalization and the consequent massive increase in inequality in many rich countries
We believe that Fukuyama is right in his description of the "commonplace judgment", and there are some papers that seemingly support that view, such as the Importing Political Polarization paper by Autor et al. These papers typically identify clear causal effects, such as rising trade with China leading to lower employment in US manufacturing and that districts exposed to larger increases in import penetration elected politically more extreme political candidates.
It is, however, a big step to jump from these partial effects to the conclusion that populism has been triggered by globalization. Trade with China may have had more beneficial consequences elsewhere in the US economy, and economic globalization is more than just trade with China. Similar points have also been made by Paul Krugman in a comment on the Autor papers.
One might also worry that papers that identify interesting effects of economc globalization are more likely to be published, while papers with imprecicely estimated zero-effects might not even be completed and/or submitted.
Our working paper checks if there is a pattern across countries such that populist parties have grown more in countries where globalization has increased more. We do so using the KOF globalization index and the compilation of election results for populist parties in Europe produced by Swedish thinktank Timbro. The compilation covers 33 European countries (included when they become politically free) during the period 1980-2018).
As it turns out, the commonplace judgement alluded to by Fukuyama is not visible to the eye when comparing increases in populist parties' voteshares and increases in globalization over different time periods:
A nice feature of Timbro's compilation is the separation of populist parties into right-wing and left-wing populism. Dividing data into 4-year intervals and running regressions using KOF:s measure of economic globalization de facto (that combines trade in goods, services and trade partner diversity with financial globalization) and right-wing populist vote shares with country and time fixed effects reveals no significant correlation between the two. does in fact reveal a significant positive correlation between the two. The reason is, however, that EU-countries have more economic globalization and also more right-wing populism. Once EU-membership is controlled for, there is no positive association between economic globalization and right-wing populism.

Here is what the fixed effect panel regression with right-wing populist voteshares as dependent variable looks like:
[EDIT March 2020: Oops, time-FE was not included in column 1 - fixed now]

In the working paper, we show results also for left-wing populist parties (typically smaller in more globalized countries), random effects instead of country fixed effects (almost identical results) and other types of globalization. The main result is always that once EU-membership is controlled for, more globalized countries if anything have slightly smaller populist parties.
Note also that income inequality (measured using the Gini-coefficient for disposable income taken from Swiid) is typically negatively associated with populism.
Needless to say, these are only correlation. But even if Fukuyama is right that income inequality somehow causes populism, it seems that countries with more inequality for other reasons still end up with less populism on average.
Finally, the fact that EU-membership is associated with about 7 percentage points bigger right-wing populist parties is pretty interesting. It suggests that the European Union does not fully succeed in promoting its official goals (among which we find tolerance, inclusion, justice, non-discrimination as well as social and territorial cohesion and solidarity). The EU-effect is very much in line with a pattern recently noted by Dani Rodrik, that right-wing populists in Europe portray the EU and the elites in Brussels as their enemy, not free trade.

Kevin Vallier and reconciled

From Kevin Vallier's new blog reconciled:
Today I’m launching a blog to talk about issues surrounding reconciliation, particularly how people with diverse perspectives, tempted to live at odds with one another, can cooperate nonetheless
This project seems very promising, and Kevin will share his thoughts on various papers that deal with social trust, starting with the well-cited Bjørnskov 2007 paper "Determinants of generalized trust: A cross-country comparison".

Workshop announcement: "Social Trust: Measurement, Causes, and Consequences"

Call for papers
"Social Trust: Measurement, Causes, and Consequences"
Elite Hotel Savoy in Malmö, Sweden
June 15-16, 2020
Generously supported by the Arne Ryde Foundation
Like no other part of social capital, social trust has the capacity to facilitate collaboration between strangers, making it a powerful solution to collective action problems. However, even though social trust is correlated with a multitude of normatively desirable outcomes such as economic growth, good public health, better working democracies and generous welfare states, we know surprisingly little about the factors that promote trust. We also have a very limited understanding about how and why exactly trust and the good things in life are correlated. This workshop will bring together scholars dealing with social trust and its measurement, causes and consequences.
A broad mix of paper submissions from a variety of disciplines (e.g. economics, political science, geography, sociology) is encouraged, including a multitude of methods and theoretical perspectives. We particularly welcome paper contributions that employ an experimental perspective, an instrumental variable design, and/or longitudinal data and methods.
Malmö is Sweden’s third largest city, located in the very south of the country. The city is conveniently situated a 20-minutes train ride from Copenhagen International Airport, and also easily accessible with either car or ferry.
The organizing team consists of Sandra Donnally (Department of Economics, Lund University), Andreas Bergh (Department of Economics, Lund University) and Jan Mewes (Department of Sociology, Lund University).
The workshop is generously supported by the Arne Ryde Foundation. Accommodation (including breakfast) and a conference dinner will be provided free of charge. We kindly ask participants to make and pay their own travel arrangements.
Please send your paper proposals, including an informative title plus an abstract of 300–500 words, to Sandra Donnally (sandra.donally _at_ Deadline for proposals is September 15, 2019. Notifications of acceptance will be sent out in early November 2019.

Dealing with media as a researcher

Today, I gave a talk on how one as a researcher should deal with media. I turned it into a 10 point list - here we go:
  1. Do interesting research.
  2. Have a blog. Write about your research, comment on common misunderstandings and stuff you find interesting. Link to your blog from your university page. (Here is an excellent example)
    When journalists search for information, they will see that you are the explaing kind, and they will see what your topics are.
  3. Write summaries of your research (on your blog or elsewhere).
    At IFN, working paper summaries in Swedish are mandated (example). I hate writing them, but having written them is wonderful.
  4. Occasionally reply when others get it wrong (here's an excellent example).
    Yes, you should bother. It is a virtue, and it is part of your job-description.

  5. When journalists call or email, answer, reply or get back to them.
    Be prepared to explain stuff about research questions, uncertainty, normative vs descriptive, causation vs causality. Yes, you should bother. It is a virtue, and it is part of your job-description.
  6. If you don't know or are not sure: Give pointers to other researchers who know more, when you know these exist. Or ask for time to check the literature for 15 minutes and then get back to the journalist.
    You are much more productive in searching and validating research. Journalists who are not willing to give you 15 minutes to find a serious answer, are not serious.
  7. Ask to check the text and how your are quoted before publications (again, if they won't let you, they are not serious) OR just accept that you will sometimes be misrepresented and let it go (easier later in your career)
  8. If it is radio/TV, remember that time flies and you will only be able to cover half of the most basic stuff. At best.
  9. If you are misrepresented, or if your position was too nuanced to be newsworthy, see 2.
  10. Remember that there is no reason to add a tenth point to your list just because 10 is a nice and even number. Content is what matters.