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The Globalization of Trade and Democracy, 1870-2000

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  • J. Ernesto Lopez-Cordova
  • Christopher M. Meissner

Abstract

We study whether international trade fosters democracy. The likely endogeneity between democracy and trade is addressed via the gravity model of trade, allowing us to obtain a measure of natural openness. This serves as our instrumental variable for actual trade openness à la Frankel and Romer (1999). We use this powerful instrument to obtain estimates of the causal impact of openness on democratization. A positive impact of openness on democracy is apparent from about 1895 onwards. Late nineteenth century trade globalization may have helped generate the "first wave" of democratization. Between 1920 and 1938 countries more exposed to international trade were less likely to become authoritarian. Finally, our post-World War II results suggest that a one standard deviation increase in trade with other countries could bring countries like Indonesia, Russia or Venezuela to be as democratic as the US, Great Britain or France. We also see some variation in the impact of openness by region and note that commodity exporters and petroleum producers do not seem to become more democratic by exporting more of such items.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11117.

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Date of creation: Feb 2005
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Handle: RePEc:nbr:nberwo:11117

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  1. Christopher M. Meissner, 2003. "Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era," American Economic Review, American Economic Association, vol. 93(1), pages 344-353, March.
  2. Ianchovichina, Elena & Nicita, Alessandro & Soloaga, Isidro, 2001. "Trade reform and household welfare : the case of Mexico," Policy Research Working Paper Series 2667, The World Bank.
  3. Ritschl, Albrecht & Wolf, Nikolaus, 2003. "Endogeneity of Currency Areas and Trade Blocs: Evidence from the Inter-war Period," CEPR Discussion Papers 4112, C.E.P.R. Discussion Papers.
  4. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  5. Julio J. Rotemberg, 2003. "Commercial Policy with Altruistic Voters," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 174-201, February.
  6. Barro, Robert J., 1999. "Determinants of Democracy," Scholarly Articles 3451297, Harvard University Department of Economics.
  7. Kevin H. O'Rourke & Jeffrey G. Williamson, 2001. "Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650592, December.
  8. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  9. Guido G. Porto, 2003. "Using survey data to assess the distributional effects of trade policy," Policy Research Working Paper Series 3137, The World Bank.
  10. Eichengreen, Barry & Irwin, Douglas A., 1995. "Trade blocs, currency blocs and the reorientation of world trade in the 1930s," Journal of International Economics, Elsevier, vol. 38(1-2), pages 1-24, February.
  11. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
  12. Borraz Fernando & Lopez-Cordova Jose Ernesto, 2007. "Has Globalization Deepened Income Inequality in Mexico?," Global Economy Journal, De Gruyter, vol. 7(1), pages 1-57, February.
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Cited by:
  1. Dalibor Eterovic & Nicolas Eterovic, 2010. "Political Competition vs. PoliticalParticipation: Effects on Government's Size," Working Papers wp_006, Adolfo Ibáñez University, School of Government.
  2. Spilimbergo, Antonio, 2006. "Democracy and Foreign Education," CEPR Discussion Papers 5934, C.E.P.R. Discussion Papers.
  3. Fenske, James, 2010. "Ecology, trade and states in pre-colonial Africa," MPRA Paper 27203, University Library of Munich, Germany.
  4. Aidt, T.S. & Jensen, P.S., 2011. "Workers of the World, Unite! Franchise Extensions and the Threat of Revolution in Europe, 1820-1938," Cambridge Working Papers in Economics 1102, Faculty of Economics, University of Cambridge.
  5. Jorge Braga de Macedo & Luis Brites Pereira & Joaquim Oliveira Martins & João Tovar Jalles, 2013. "Globalization, Democracy and Development," NBER Working Papers 19575, National Bureau of Economic Research, Inc.
  6. Aidt, T. & Jensen, P.S., 2007. "The Taxman Tools Up: An Event History Study of the Introduction of the Personal Income Tax in Western Europe, 1815-1941," Cambridge Working Papers in Economics 0766, Faculty of Economics, University of Cambridge.
  7. Dalibor Eterovic & Toke Aidt, 2010. "Political Competition, Electoral Participation and Public Finance in 20th Century Latin America," Working Papers wp_001, Adolfo Ibáñez University, School of Government.
  8. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  9. Toke Aidt & Peter S. Jensen, 2013. "Democratization and the Size of Government: Evidence from the Long 19th Century," CESifo Working Paper Series 4132, CESifo Group Munich.
  10. Nobuhiro Mizuno, 2010. "Inequality And Sequence Of Economic Liberalization And Democratization," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(1), pages 1-13, March.
  11. Simeon Djankov & Jose G. Montalvo & Marta Reynal-Querol, 2006. "Does Foreign Aid Help," Cato Journal, Cato Journal, Cato Institute, vol. 26(1), pages 1-28, Winter.

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