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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. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  2. 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.
  3. Wacziarg, Romain & Welch, Karen Horn, 2003. "Trade Liberalization and Growth: New Evidence," Research Papers 1826, Stanford University, Graduate School of Business.
  4. 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.
  5. 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.
  6. Siroën, Jean-Marc & Granger, Clotilde & Duc, Cindy, 2004. "Trade costs and democracy," Economics Papers from University Paris Dauphine 123456789/6251, Paris Dauphine University.
  7. 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.
  8. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
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