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A re-examination of the relation between democracy and international trade

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  • Christopher Balding

Abstract

Scholars and policy makers believe that democracy will bring prosperity through integration into the global economy via increased international trade. Existing research is plagued by methodological problems that obscure the empirics and avoid the theoretical problem of why democracies may or may not trade more. In this paper, I seek to correct these shortcomings. I test two theories as to why democracies might trade more. First, political freedom may be correlated with economic freedom, thus prompting higher levels of economic activity, thereby driving states to trade more. Second, democracy implies higher quality governance either through institutions or policy making procedures. To test the impact of democracy on trade and the potential transmission mechanisms, I utilize a bilateral gravity trade model covering approximately 150 countries from 1950 to 1999, with fixed effects for time, importers, and exporters. I find the theory that democracy, and many of its components, promotes international trade unconvincing. The coefficients are the theoretically correct sign; however, many are statistically or economically insignificant and fragile to changes in modeling or data. Economic freedom does not have the expected impact on international trade levels, but quality of governance variables have broad economic and statistical significance.

Suggested Citation

  • Christopher Balding, 2011. "A re-examination of the relation between democracy and international trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(5), pages 585-603, July.
  • Handle: RePEc:taf:jitecd:v:20:y:2011:i:5:p:585-603
    DOI: 10.1080/09638190903159457
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    File URL: http://hdl.handle.net/10.1080/09638190903159457
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    References listed on IDEAS

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    1. N/A, 1998. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 166(1), pages 3-3, October.
    2. N/A, 1998. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 165(1), pages 3-3, July.
    3. N/A, 1998. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 164(1), pages 3-3, April.
    4. N/A, 1998. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 163(1), pages 3-3, January.
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    Cited by:

    1. Krenz, Astrid & Abeliansky, Ana, 2016. "Democracy and International Trade: Differential Effects from a Panel Quantile Regression Framework," Annual Conference 2016 (Augsburg): Demographic Change 145788, Verein für Socialpolitik / German Economic Association.
    2. Abeliansky, Ana & Krenz, Astrid, 2015. "Democracy and international trade: Differential effects from a panel quantile regression framework," Center for European, Governance and Economic Development Research Discussion Papers 243, University of Goettingen, Department of Economics.
    3. Aditya Rangga Yogatama & Fithra Faisal Hastiadi, 2015. "The Role of Democracy and Governance in the Enhancement of Indonesian Exports to the Organization of the Islamic Cooperation (OIC) Countries," Working Papers in Economics and Business 201504, Faculty of Economics and Business, University of Indonesia, revised Jul 2015.
    4. Kollias Christos & Paleologou Suzanna Maria, 2016. "Globalization and Democracy: A Disaggregated Analysis by Income Group," Global Economy Journal, De Gruyter, vol. 16(2), pages 213-228, June.
    5. Christos Kollias & Suzanna-Maria Paleologou, 2017. "The Globalization and Peace Nexus: Findings Using Two Composite Indices," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(3), pages 871-885, April.

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