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Democracy and Trade: An Empirical Study

  • Lim, Jamus Jerome
  • Decker, Jessica Henson

The theoretical discussion on globalization has suggested that there are linkages between democracy and trade, although the direction of influence is less certain. Formal empirical studies remain scarce, and have often focused on the question of whether democratic regimes influence trade policy, as opposed to the actual relationship between democracy and trade. This paper seeks to answer the question, ``Do democracies trade more?'' by applying the gravity equation to a large dataset of bilateral trade data for the period 1948-1999, while taking into account the role of democracy. It finds that democracy has a positive effect on trade flows, but only after controlling for trade pair heterogeneity. In addition, it makes the case for studies of this nature to draw a distinction between trade flows in the pre- and post-1990s period of rapid democratization as well as between developed and developing countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6077.

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Date of creation: Oct 2007
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Handle: RePEc:pra:mprapa:6077
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  1. Kevin H. O'Rourke & Alan M. Taylor, 2006. "Democracy and Protectionism," NBER Working Papers 12250, National Bureau of Economic Research, Inc.
  2. Acemoglu, Daron & Johnson, Simon & Robinson, James A & Yared, Pierre, 2005. "Income and Democracy," CEPR Discussion Papers 5273, C.E.P.R. Discussion Papers.
  3. Robert J. Barro, 1999. "Determinants of Democracy," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S158-S183, December.
  4. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoglu, 2002. ""Protection For Sale" In A Developing Country: Democracy Vs. Dictatorship," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 497-508, August.
  5. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  6. Venet, Baptiste & Hurlin, Christophe, 2001. "Granger Causality Tests in Panel Data Models with Fixed Coefficients," Economics Papers from University Paris Dauphine 123456789/6159, Paris Dauphine University.
  7. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
  8. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  9. Mansfield, Edward D. & Milner, Helen V. & Rosendorff, B. Peter, 2002. "Why Democracies Cooperate More: Electoral Control and International Trade Agreements," International Organization, Cambridge University Press, vol. 56(03), pages 477-513, June.
  10. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  11. 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.
  12. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
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