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Do Democratic Agreements Foster Bilateral Trade Flows ?

  • Siroën, Jean-Marc
  • Duc, Cindy
  • Granger, Clotilde

For several years, preferential trade agreements have been oriented towards initiating a deep integration process. As a result, treaties include clauses concerning the harmonization of regulations, policies and standards. In order to join the European Union, a future member must be a stable democracy that respects human rights, the rule of law and the protection of minorities. The inclusion of such a clause can be interpreted as a political choice to promote democracy. But it can also be viewed as a pre-condition for implanting a "deep integration" process : only democracies are able to drive the harmonization process of rules and standards. If democratic constraints imply deeper integration, we can expect that such agreements will have a higher impact on trade inside the area concerned by the agreement. The aim of this paper is to verify that preferential trade agreements (PTAs), which are bound by a democratic constraint, have a higher positive effect on trade inside the area, than non-constraining agreements. To achieve this, we use an Anderson and van Wincoop (2003) type of gravity model, and we differentiate between PTAs according to whether or not they include a democratic clause. Whereas trade between democratic countries is higher than trade between autocratic countries, empirical evidence shows that the inclusion of a democratic clause fosters bilateral trade between the partners has no significant effect relative to no PTA, and is neutral relative to a non-democratic PTAs between South countries.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4103.

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Date of creation: Sep 2005
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Handle: RePEc:dau:papers:123456789/4103
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  1. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  3. James E. Anderson & Douglas Marcouiller, S.J., 1999. "Insecurity and the Pattern of Trade: An Empirical Investigation," Boston College Working Papers in Economics 418, Boston College Department of Economics, revised 03 Aug 2000.
  4. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  5. Siroën, Jean-Marc & Granger, Clotilde & Duc, Cindy, 2004. "Trade costs and democracy," Economics Papers from University Paris Dauphine 123456789/6251, Paris Dauphine University.
  6. Clotilde Granger & Jean-Marc Siroen, 2001. "Les democraties sont-elles plus ouvertes a l'echange ?," Economie Internationale, CEPII research center, issue 88, pages 59-76.
  7. 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.
  8. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
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