How Welfare States Shape Global Production Networks and Trade Preferences

How do welfare states shape global production networks? Existing studies highlight how institutional quality, factor endowments, and geography shape countries’ placement in global supply chains. We provide a new perspective, arguing that welfare states shape global production networks by imposing differential costs on firms along supply chains: Expansive welfare states increase marginal production costs relatively more for firms in upstream production, effectively pushing production further downstream. Leveraging a series of firm-level panel data with over 4 million observations and product-level panel data with over 2 million observations from European Union member countries, we provide evidence for this argument. We also provide evidence for new political implications. Drawing on a series of individual-level and firm-level survey data, we demonstrate that workers in downstream occupations voice more support for open markets, and firms in more downstream industries are more concerned about trade regulation in more expansive welfare states. We develop a new argument on how welfare states shape countries’ placement in global supply chains, and delineate the consequences for the politics of globalization.