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Democracy and Trade: An Empirical Study

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  • Lim, Jamus Jerome
  • Decker, Jessica Henson

Abstract

The theoretical discussion on globalization has suggested that there are linkages between democracy and trade, although the direction of influence is less certain. Formal empirical studies remain scarce, and have often focused on the question of whether democratic regimes influence trade policy, as opposed to the actual relationship between democracy and trade. This paper seeks to answer the question, ``Do democracies trade more?'' by applying the gravity equation to a large dataset of bilateral trade data for the period 1948-1999, while taking into account the role of democracy. It finds that democracy has a positive effect on trade flows, but only after controlling for trade pair heterogeneity. In addition, it makes the case for studies of this nature to draw a distinction between trade flows in the pre- and post-1990s period of rapid democratization as well as between developed and developing countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6077.

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Date of creation: Oct 2007
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Handle: RePEc:pra:mprapa:6077

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Keywords: Democracy; trade; gravity model;

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  1. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoglu, 2002. ""Protection For Sale" In A Developing Country: Democracy Vs. Dictatorship," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 497-508, August.
  2. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  3. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  4. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S158-S183, December.
  5. O'Rourke, Kevin H & Taylor, Alan M, 2006. "Democracy and Protectionism," CEPR Discussion Papers 5698, C.E.P.R. Discussion Papers.
  6. Mansfield, Edward D. & Milner, Helen V. & Rosendorff, B. Peter, 2002. "Why Democracies Cooperate More: Electoral Control and International Trade Agreements," International Organization, Cambridge University Press, vol. 56(03), pages 477-513, June.
  7. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  8. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  9. Venet, Baptiste & Hurlin, Christophe, 2001. "Granger Causality Tests in Panel Data Models with Fixed Coefficients," Economics Papers from University Paris Dauphine 123456789/6159, Paris Dauphine University.
  10. Acemoglu, Daron & Johnson, Simon & Robinson, James A & Yared, Pierre, 2005. "Income and Democracy," CEPR Discussion Papers 5273, C.E.P.R. Discussion Papers.
  11. Milner, Helen V. & Kubota, Keiko, 2005. "Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries," International Organization, Cambridge University Press, vol. 59(01), pages 107-143, January.
  12. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
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Cited by:
  1. Oxana Babecka Kucharcukova & Jan Babecky & Martin Raiser, 2010. "A Gravity Approach to Modelling International Trade in South-Eastern Europe and the Commonwealth of Independent States: The Role of Geography, Policy and Institutions," Working Papers 2010/04, Czech National Bank, Research Department.
  2. Bernhard Herz & Marco Wagner, 2010. "Multilateralism versus Regionalism!?," Working Papers 089, Bavarian Graduate Program in Economics (BGPE).
  3. Oxana Babecká Kucharčuková & Jan Babecký & Martin Raiser, 2012. "Gravity Approach for Modelling International Trade in South-Eastern Europe and the Commonwealth of Independent States: The Role of Geography, Policy and Institutions," Open Economies Review, Springer, vol. 23(2), pages 277-301, April.
  4. Yung-hsiang Ying & Koyin Chang & Ginny ju-ann Yang & Chen-hsun Lee, 2014. "Measuring co-movement of globalization and democratization in the time–frequency space," Economics Bulletin, AccessEcon, vol. 34(1), pages 206-219.
  5. Josheski, Dushko & Apostolov, Mico, 2013. "Macedonia’s exports and the gravity model," MPRA Paper 48180, University Library of Munich, Germany.
  6. Daumal, Marie, 2008. "Federalism, separatism and international trade," European Journal of Political Economy, Elsevier, vol. 24(3), pages 675-687, September.

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