The Politics of Consumer Home-Bias: Evidence from Scanner Data in Brazil

• In Event: New Approaches to the Political and Economic Consequences of Trade Exposure

Abstract

Do consumers react to international trade for political reasons? Home-bias is often considered a major factor explaining a significant portion of the so-called missing global trade predicted by neo-classical economic theory. An expression of this phenomenon is the fact that consumers disproportionately prefer domestically produced goods over otherwise identical imported goods. While home-bias has been extensively documented, there is limited research identifying the political and psychological reasons explaining this form of consumer behavior. This paper shows that political motivations are an important driver explaining the amount of home bias in Brazil, one of the largest markets in the developing world.
We exploit a natural experiment to identify the effect of an exogenous shock of patriotism inspired by sports mega-events, such as the 2022 FIFA World Cup, on the amount of consumer home-bias. We use a large consumer dataset with daily purchase information for three different goods (rice, beer, and coffee) from over 25,000 points of sale (POS) distributed across all of Brazil. The data allows us to examine the heterogeneity of home-bias using district-level data from approximately 4500 municipalities. We find that consumers' propensity to buy local substantially varies with consumer political characteristics and local long-term exposure to import competition. Our findings imply that the link between individual preferences and international trade also operates directly through market-based channels rather than through elections and democratic politics.

Authors

• Santiago López-Cariboni, Universidad de la República

• Paula Martinez, Universidad de la Republica