Globalization and Willingness to Support the Poor in Developing Countries: An Experiment in India

• Date: 01 September 2020
• DOI: 10.1177/0010414019897686
• Author: Sera Linardi,Nita Rudra
• Published date: 01 September 2020
• Subject Matter: Articles

https://doi.org/10.1177/0010414019897686

Comparative Political Studies

2020, Vol. 53(10-11) 1656 –1689

© The Author(s) 2019

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DOI: 10.1177/0010414019897686

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Article

Globalization and

Willingness to Support

the Poor in Developing

Countries: An

Experiment in India

Sera Linardi1 and Nita Rudra2

Abstract

Does an individual’s exposure to aspects of globalization impact their

willingness to redistribute to the poor? We hypothesize that the

“glitter” of foreign direct investment (FDI) in developing countries leads

relatively better-off citizens to perceive that the poor now have more

opportunities and are thereby less deserving of help. Findings from an

experiment across three states in India reveal that subjects lower their

financial support for the poor upon learning a foreign firm in a low-skilled

sector is located in the vicinity. Text analysis of subjects’ responses

supports the mechanism underlying our hypothesis: FDI reduces support

for redistribution when subjects believe that foreign firms offer the

uneducated poor higher wages and increased job opportunities.

Keywords

redistribution, poor, foreign direct investment, dictator game, globalization

1University of Pittsburgh, PA, USA

2Georgetown University, Washington, DC, USA

Corresponding Author:

Nita Rudra, Georgetown University, Washington, DC 20057, USA.

Email: nr404@georgetown.edu

897686CPSXXX10.1177/0010414019897686Comparative Political StudiesLinardi and Rudra

research-article2019

Linardi and Rudra 1657

Introduction

Does an individual’s exposure to facets of globalization impact their willing-

ness to support income transfers to the poor? This question is crucial at a time

when rapidly expanding trade and foreign direct investment (FDI) flows coex-

ist with the persistence of large numbers of poor “living and dying in four-

teenth-century conditions” throughout the developing world.1 Existing studies

confirm that the vicissitudes of globalization increase individual support for

redistribution; but the population in these studies is seeking social insurance

for themselves, and the motivating factor is “self-interest.”2 Scholars have yet

to assess if or how globalization affects individual preferences to help the

needy poor, specifically through their other-oriented motivations.3

Drawing on literature from behavioral economics, welfare politics, and

international political economy (IPE), we hypothesize that the presence of

FDI reduces the willingness of better-off citizens to support their poorer com-

patriots in less economically developed countries (LEDCs).4 FDI is a rela-

tively new phenomenon in many LEDCs that is highly visible to the general

public through a proliferation of productive multinational companies

(MNCs), large firms, and coveted Western brands. After decades of protec-

tionism, many LEDCs political leaders now view foreign investment as “sav-

iors of development” and seek public support by presenting it as a massive

employment generator and thereby, a key solution to poverty.5 While the

actual impact of FDI on the poor is still being debated by scholars,6 we antici-

pate that ordinary citizens may have already formed their opinions based on

elite messaging. The arrival of foreign firms in LEDC likely signals the avail-

ability of options to escape poverty, stigmatizing those who remain poor as

not taking advantage of these opportunities.

Our analysis starts with the welfare literature on how perceptions of the

recipients’ deservingness—the extent to which the poor are viewed as respon-

sible for their own predicament—affect motivations to help the poor.7 This

deservingness consideration is a heuristic—a quick judgment made in the

abstract with limited information, instead of rationally calculated from sub-

stantive information.8 For example, subjects in dictator games perceive their

recipients as less deserving and give less money when they see information

suggesting—but not necessarily confirming—that the recipients had some

control over their circumstances.9 We argue that FDI serves as a deserving-

ness cue to many LEDC citizens, due to ample exposure to information about

FDI and its potential benefits to the unemployed (or, more realistically, the

underemployed in developing economies).

Why exactly does the presence of FDI signal to ordinary citizens that the

poor are less deserving? We propose and arbitrate between two potential

1658 Comparative Political Studies 53(10-11)

mechanisms, one indirect and the other one direct. First, the arrival of FDI may

signal that the overall economy is thriving. Whether or not the poor are likely

to work for these foreign firms, citizens may focus on the benefits of spillover

effects, such as funding for social programs and higher demand for the services

that are provided by the poor (cleaning, delivery, etc.). Alternatively, the arrival

of FDI may signal that a massive employment generator for the poor is in the

vicinity. This may especially be true when foreign firms enter low-skill labor-

intensive industries, such as food and beverage manufacturing or garment pro-

duction. If the first mechanism dominates, we will see the same effect of FDI

on welfare attitudes regardless of the sector type. If the second mechanism is

driving behavior, we should see the largest drop in support for the poor follow-

ing the entrance of FDI in the low-skill sector.

To assess our arguments empirically, we design an artefactual field

experiment in India,10 where—as in many developing economies—the

United States is a top foreign investor.11 We utilize the dictator game,

which has been widely used to help explain social preferences and has

been shown to correlate well with “other-oriented” redistribution prefer-

ences in the real world.12 Our research design focuses on respondents’

willingness to give financial assistance to a real-world poor recipient based

on their altruistic, or “other-oriented” concerns, which is one (of two) criti-

cal aspect(s) of redistribution.13

In our game, real-world (relatively) better-off individuals decide whether

or not to share their earnings with an actual poor person in their country.14

Dictators are given basic information about the individuals who they have

been randomly paired with and asked to decide how much to give. They are

then randomly assigned to one of our 2 × 2 treatment that varies information

about the local economy and then allowed to revise their giving. To assess

whether the presence of FDI reduces support to the poor, we inform half of

the dictators of the fact that the main local firm in the neighborhood where

the poor person lives is foreign-owned (the FDI framing treatment), while we

omit this information for the other half (the No FDI control treatment). To

assess the direct versus indirect mechanism, half of the dictators were

assigned to poor recipients living near a food and beverage manufacturers

(the low-skill treatment), while the other half were assigned to the poor near

a telecommunications firm (the high-skill treatment).

Our findings reveal that although the amount initially donated is similar

across all treatments, the revised amount is not. More dictators in the FDI

treatment reduce their allocation to the poor than dictators in the No FDI

treatment (48% vs. 37%), lending support to our primary hypothesis. We also

find a strong sectoral effect. The phrase “U.S.-owned” almost doubled the

fraction of dictators that reduce their donation recipients living near low-skill