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Free Trade Agreements and the Consolidation of Democracy

  • Xuepeng Liu
  • Emanuel Ornelas

We study the relationship between participation in free trade agreements (FTAs) and the sustainability of democracy. Our model shows that FTAs can critically reduce the incentive of authoritarian groups to seek power by destroying protectionist rents, thus making democracies last longer. This gives governments in unstable democracies an extra motive to form FTAs. Hence, greater democratic instability induces governments to boost their FTA commitments. In a dataset with 116 countries over 1960-2007, we find robust support for these predictions. They help to rationalize the rapid simultaneous growth of regionalism and of worldwide democratization since the late 1980s.

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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 6 (2014)
Issue (Month): 2 (April)
Pages: 29-70

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Handle: RePEc:aea:aejmac:v:6:y:2014:i:2:p:29-70
Note: DOI: 10.1257/mac.6.2.29
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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