One reason for this is that compensation is difficult—governments may not have

the instruments needed. Trade integration may affect the redistributive capacity of
governments by changing the structure of the economy and, therefore, the tax base,
and by affecting the distribution of political power. The capacity and willingness
to
provide for domestic redistribution and compensation cannot be analyzed separ-
ately from the decision to open the country to trade and foreign direct investment
flows (Verdier, 2005). This suggests that policymakers may need to provide insur-
ance mechanisms in order to secure national welfare gains. To minimize distor-
tions, any such instruments should not involve manipulation of relative factor and
goods prices (which, of course, is exactly what trade policies do). Examples of
such instruments are lump-sum, one-off payments and mechanisms that provide
insurance against declines in the value of key assets such as land and human
capital.
‘The latter is particularly important in rural communities as land values may be a
primary base for local tax revenues, and thus the provision of public goods and
services.