Trade Integration and Political Radicalization: German Evidence from the Rise of the East and the Fall of

Over the last two decades, the dramatic rise of trade with low-wage manufacturing countries has been a major source of labor demand shocks in high-wage countries. The associated economic adjustments have been linked anecdotally with voters ’ rad-icalization and alienation from the political mainstream. We identify the causal effect of trade-integration with (import-competition from) Asia and Eastern Europe on vot-ing for far-right parties in German local labor markets from 1987 to 2009. For East Germany in the early 1990s, where integration with West Germany was the dominant shock, we alternatively exploit an exogenous import-competition measure based on West German revealed comparative advantage before reunification. We find large and significant effects of import-competition on voting for far-right parties. These effects are only very partially explained by observed labor market adjustments, suggesting instead psychological factors such as anxiety about the future as an important driver of political radicalization. ∗We thank participants at the 2013 Urban Economics Association Meeting for valuable comments and discussions. We thank Wolfgang Dauth for sharing the crosswalk from product classifications to industry classifications in the German IAB data