Capitalization of the economy and labor return: How does lobbying affect resource allocation?

As globalization displaces labor's economic power, labor attempts to engage in political intervention in order to overcome the resulting negative effects. In this paper, by employing a detailed and complex model we show how globalization attenuates the economic and political influence of labor. Using panel data from 28 countries and 17 manufacturing industries from 2001 to 2014, we investigate how capital and labor interest groups adjust their lobbying expenditure as capitalization advances. We find that the demands of capital interest groups are more actively reflected in trade policy than those of labor interest groups. Empirical evidence reveals that when the capital–labor endowment ratio increases by 10%, the pro-capital party's trade intervention level is 1.2% higher than that of the pro-labor party. Thus, only the capital interest group's lobbying achieves more of its objectives, whereas labor's lobbying becomes inefficient.