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Democratization, contracts and comparative advantage

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  • Samy Soliman, Felix
  • Schymik, Jan

Abstract

We study how the international spread of democracy shaped the comparative advantage of countries. Using data on the “Third Wave of Democratization” between 1976 and 2000 we find that democratizing countries shifted their exports towards more contract intensive goods that require a larger portion of relationship-specific inputs. This shift is observed on the intensive margin (volumes of industry-level exports) as well as the extensive margin of trade (number of goods a country exports). Using an instrumental variable strategy based on democracy waves, alternative proxy variables and subsamples suggests that the effects of democratization on trade specialization are causal.

Suggested Citation

  • Samy Soliman, Felix & Schymik, Jan, 2018. "Democratization, contracts and comparative advantage," Economics Letters, Elsevier, vol. 173(C), pages 73-77.
    • Handle: RePEc:eee:ecolet:v:173:y:2018:i:c:p:73-77
    DOI: 10.1016/j.econlet.2018.09.006
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    References listed on IDEAS

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    1. Elias Papaioannou & Gregorios Siourounis, 2008. "Democratisation and Growth," Economic Journal, Royal Economic Society, vol. 118(532), pages 1520-1551, October.
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    4. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 569-600.
    5. Do, Quy-Toan & Levchenko, Andrei A. & Raddatz, Claudio, 2016. "Comparative advantage, international trade, and fertility," Journal of Development Economics, Elsevier, vol. 119(C), pages 48-66.
    6. Daron Acemoglu & Francisco A. Gallego & James A. Robinson, 2014. "Institutions, Human Capital, and Development ," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 875-912, August.
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    More about this item

    Keywords

    Comparative advantage; Institutional change; Relationship-specific investments;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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