Politics, Institutions, and Production Networks

Project Information

PINPOINT

Grant agreement ID: 101041658

DOI

10.3030/101041658

EC signature date 23 March 2022

Start date 1 September 2022

End date 31 August 2027

Funded under

• European Research Council (ERC)

Total cost

€ 1 476 023,00

EU contribution

€ 1 476 023,00

Coordinated by

LUDWIG-MAXIMILIANS-UNIVERSITAET MUENCHEN
Germany

Periodic Reporting for period 1 - PINPOINT (Politics, Institutions, and Production Networks)

Reporting period: 2022-09-01 to 2025-02-28

Summary of the context and overall objectives of the project

What are the politics around economic globalization, and how do institutions shape globalization? Current frameworks for understanding the politics over economic globalization emphasize a fragmentation of politics: political conflict breaks down to individual firms and citizens, because the gains from trade are concentrated on large, globally engaged, and politically active firms. Departing from this view, PINPOINT develops a framework built on the linkages between firms created by domestic production networks. These are an important aspect of contemporary economies, but they are largely absent from our understanding of the politics around economic globalization. The linkages created by production networks imply a much broader impact of economic globalization, because many domestic firms interact with international markets indirectly as suppliers and as customers of globally engaged firms. Moreover, these linkages vary in quantity and quality across firms, industries, and countries. PINPOINT places economic exchange between firms front and center in an account of the behavior of governments, firms, and citizens in the context of international markets, and of the role of institutions in such an account.

The project has three core objectives. First, it seeks to understand whether policy-makers are more responsive to firms embedded in production networks, explaining policy outcomes. Second, it seeks to understand whether production networks shape the behavior of firms, explaining firm behavior in politics and markets. Third, it seeks to understand whether production networks matter for citizens, explaining citizen attitudes and election outcomes. The overall goal is to seek a better understanding of the political coalitions and the institutional features underpinning economic globalization.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

The project develops four work packages, one of which focuses on data collection and linkage. This work package accounts for the bulk of the work in this interim report. The project team has (1) created measures of production networks across firms, including time-varying measures; (2) linked these to geographic units, such as counties in the US, and to firms, both in the US and the European Union; (3) constructed measures for attributes of production networks. The project team has spent a significant amount of time on linkages between data sets, linking geographic data to industry-, firm-, or occupation-level data; and linking firm-level data to firm- and industry-level data and policy outcomes. Moreover, the project team has compiled and linked several other data sets, including petitions for trade policy changes; early GATT trade negotiations; and trade-related statements by US legislators.

Aside from data collection and linkage, data analysis, additional research (for example, case studies), and writing up and disseminating results have been the main activity during this reporting period. The project has resulted in numerous working papers and conference presentations, and papers at various stages in the review process. This research produced to date speaks to all three objectives of the project. For example, the project team has compiled evidence that firms embedded in production networks are more likely to obtain favorable government policy. To achieve this, the project team linked a specific policy outcome to firms, and matched these firms with the newly developed measure of embeddedness in production networks. The rich, time-varying nature of these data also allowed the project time to explore different strategies for the research design.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The project has produced several innovative results to date that move beyond the state-of-the-art. Two specific points illustrate these contributions. First, existing work on trade politics largely focuses on firms in isolation and shows how attributes of individual firms or industries - such as size or geographic location - shape politics. In particular, the largest firms are often perceived as particularly politically powerful. Results from this project offer a new explanation of why some firms are politically more powerful than others, a key question in the social sciences. These results are based on newly developed measures that capture economic ties between firms in the domestic economy, including measures that indicate substantial differences in how these ties develop over time. Firms with more ties in the domestic economy appear to receive more favorable policies by their government. Additionally, the project draws on novel data to show that firms embedded in production networks portray their political claims differently, emphasizing their links to other firms in the economy as a political tool. Ongoing work further explores how these ties matter to different degrees, depending on the institutional context in a country.

Second, the project offers a new explanation for the globalization backlash in the United States and Western Europe. The literature largely links this globalization backlash to China's entry into the World Trade Organization and changes in trade policies. In contrast, this project identifies changes in the global institutional environment – the strengthening of democratic institutions and property rights institutions – around the world as an unexpected source of the globalization backlash: it undermines the advantages that firms in Western democracies have enjoyed through stronger institutions at home. This part of the project also offers thus far untapped connections across different strands of literature.