The influence of societal nationalist sentiment on trade flows

Abstract

In recent years, the world has witnessed a backlash against globalization and a rise in populist and nationalist movements around the world. However, there appears to be little empirical research concerning how these movements, and especially nationalist sentiment, actually influence trade. Therefore, we explore how and when nationalist sentiment within a country influences trade. Our results indicate that the effect of nationalist sentiment on imports is mediated by lower participation in free trade agreements (FTAs) but not via tariffs. Furthermore, we are unable to confirm support for a direct effect of nationalist sentiment on imports, as predicted by the consumer ethnocentricity literature. However, we do find a strong and negative impact of nationalist sentiment on exports. It would appear that nationalist sentiments tend to blunt the desire to export. Psychic distance between the countries appears to magnify the effects of nationalist sentiment on tariffs and FTAs, but not the direct effects on trade. Finally, we also find that custom union membership, such as the EU, negates the effect of nationalist sentiment on tariffs but this cannot be confirmed for FTAs. Overall, our model enriches our understanding of how nationalist sentiment in society affects trade and offers guidance to policymakers.