Globalization, Political Institutions, and Redistribution in Central and Eastern Europe

Abstract

We examine the role of political institutions in mediating the effects of globalization on economic redistribution in Central and Eastern Europe. The region represents a least-likely case of welfare state resilience in the face of global economic pressures given its reliance on foreign capital and considerable domestic elite support for neoliberal recipes during the postcommunist transition. Yet, contrary to the race-to-the-bottom hypothesis and consistent with the compensation perspective, we find that economic openness is on average related to higher redistribution. Using the high-quality European Union Statistics on Income and Living Conditions database for 2004–2018, we find that this effect is particularly pronounced in institutional environments where votes are more accurately translated into legislative seats (low disproportionality) and where governments face greater scrutiny both during elections (vertical accountability) and between them (diagonal accountability). Thus, even in a region that adopted “competitive deregulation,” the downward pressures of globalization were limited by electoral pressures for economic redistribution.

Economic and Political Dynamics of Globalization: A Review of Continuity and Change in Research Focus

“…The regions represent an unlikely case of the welfare state's resistance to global economic pressures. Owing to their reliance on foreign capital, strong links to European Union markets, and significant support for neoliberal recipes by domestic elites during the post-communist transition (Petrova, Sznajder, 2023).…”

The effect of European integration on economic redistribution in Central and Eastern Europe

“…In terms of economic variables, trade, capital account openness, and foreign direct investment inflows capture the effects of globalization (Rodrik, 1998;Cameron, 1978;Garrett, 1998;Petrova and Sznajder Lee, 2022). GDP growth and unemployment rates account for changing economic conditions.…”

“…We focus on five distinct channels through which the EU can shape redistributive outcomes: trade, the free movement of people within EU borders, EMU-related budgetary constraints, access to EU funds, and EU social policy requirements. Commercial reorientation might exacerbate economic risk and increase public demand for compensatory social policies (Tober and Busemeyer, 2022; Petrova and Sznajder Lee, 2022). Similarly, emigration might undermine long-run competitiveness (Atoyan et al, 2016; Krasteva, 2019), threaten solvency, and induce governments to invest in family support.…”

“…The substantial disruptions that trade reorientation entailed and the expectation of social backlash against the reform agenda in general, and any proposed cutbacks to welfare programs in particular, might have induced political elites to invest in a relatively more comprehensive social safety net. We expect that the incentive to shield citizens from trade-induced socio-economic risks persisted (Petrova and Sznajder Lee, 2022). H3: Higher trade with the EU is associated with higher redistribution in Central and Eastern Europe. …”