Openness, Uncertainty, and Social Spending: Implications for the Globalization— Welfare State Debate

We extend the literature on openness and spending in developing countries arguing that the effect of increasing openness depends on both regime type and the level of openness. Democracies respond to increases in openness by increasing spending while dictatorships respond by decreasing spending. However, the degree to which countries pursue the strategy of choice depends on the level of openness. In autarkic countries, an increase in import competition has more severe consequences for perceptions of job insecurity and dislocation. In response, government management of openness will be more vigorous under these conditions regardless of whether the leader increases or decreases spending. Economic selection mechanisms at work will produce an outcome wherein, at higher levels of openness, further import liberalization has smaller effects on perceptions of job insecurity and dislocation. Hence, both the demand and the supply of government management of openness will be lower.