Local Economic and Political Effects of Trade Deals: Evidence from NAFTA

Joint with Jiwon Choi, Ebonya Washington and Gavin Wright

We show that counties whose 1990 employment depended on industries vulnerable to Mexican import competition via the 1994 North American Free Trade Agreement (NAFTA) suffer large employment losses (relative to the bottom quartile of counties, counties in the top quartile of NAFTA exposure see 5-8 log-point declines in employment by 2000). Despite large employment losses, we can reject even modest population declines. Trade-adjustment-aid relief rises, but covers a tiny share of the job losses we document, and Disability Insurance in fact displays a much larger response. Exposed counties (many in the upper South) begin the period more Democratic in terms of votes in House elections, but as NAFTA is debated in 1992-1994 they shift in the Republican direction and by 2000 vote majority-Republican in House elections. We show with a variety of microdata, including 1992-1994 respondent-level panel data, that opposition to free trade predicts shifts towards Republican party identification.