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Nationalism and international trade: theory and evidence

Lan, Xiaohuan and Li, Ben (2011): Nationalism and international trade: theory and evidence.

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Nationalism is important in shaping the politics of every country throughout the world, but the economic rationale underlying nationalism remains unclear. This paper provides a framework for analyzing nationalistic sentiments, including asserted supremacy of national interests, xenophobia, state sovereignty, and militarization. The level of nationalistic sentiments varies by the relative importance of the domestic market to local economies. Autarkies display the most nationalism, and nationalistic sentiments are weaker (stronger) where the local economy relies more on exports (domestic sales). Our paper next tests this theory using a unique dataset collected across 218 Chinese cities. Using within-country variations in nationalistic sentiments, we are able to identify their association with trade in a context with the same set of history, ethnicity, ideology, and geopolitics. We find a negative association between nationalistic sentiments and dependence on exports, with a wide range of city characteristics such as demographics, protectionist attitudes, and business climate held constant. In contrast, we find no equivalent association between other ideologies and dependence on exports.

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