Election outcomes spanning from the mid-2010s to the early 2020s within the European Union and the US, shared a common thread: a rising support for populist parties. In recent years, two major and conflicting narratives have come to light in explaining the growing appeal of populist parties: while (Inglehart and Norris, 2016) found mainly cultural reasons for the rise of populist parties, others including (Colantone and Stanig, 2018; Guiso et al., 2019) argued for a larger role of economic factors.
This paper investigates the trade shock of China joining the WTO in 2001 and its impact on the Central and Eastern European (CEE) region. The trade shock in the USA and in Western Europe, led to the manufacturing sector experiencing import competition from cheaper Chinese goods, which resulted in loss of business, closures and layoff of workers. This increased resentment amongst voters, and increased support for populist politicians. However the CEE region was a beneficiary of globalisation as many of the enterprises from Western Europe relocated to this region because of lower wages.
This article uses a Bartik type instrument (Autor et al., 2013) and NUTS-2 regional data, to test how voters in CEE countries responded to trade shocks. The article finds that as opposed to Western European countries, a 1% increase in imports from China decreased the support for populist parties by 2%. We explain this effect by showing how CEE countries benefited from foreign direct investment from Western European countries, which needed cheap imports from China.