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State Control and the Effects of Foreign Relations on Bilateral Trade

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  • Davis, Christina L.
  • Fuchs, Andreas
  • Johnson, Kristina

Abstract

Can governments still use trade to reward and punish partner countries? While WTO rules and the pressures of globalization restrict states’ capacity to manipulate trade policies, politicization of trade is likely to occur where governments intervene in markets. We examine state ownership of firms as one tool of government control. Taking China and India as examples, we use new data on imports disaggregated by firm ownership type, as well as measures of political relations based on bilateral events and UN voting data to estimate the effect of political relations on import flows since the early 1990s. Our results support the hypothesis that imports controlled by state-owned enterprises (SOEs) are more responsive to political relations than imports controlled by private enterprises. This finding suggests that politicized trade will increase as countries with partially state-controlled economies gain strength in the global economy.

Suggested Citation

  • Davis, Christina L. & Fuchs, Andreas & Johnson, Kristina, 2016. "State Control and the Effects of Foreign Relations on Bilateral Trade," MPRA Paper 74597, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:74597
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dreher, Axel & Fuchs, Andreas & Parks, Bradley & Strange, Austin M. & Tierney, Michael J., 2016. "Apples and Dragon Fruits: The Determinants of Aid and Other Forms of State Financing from China to Africa," Working Papers 0620, University of Heidelberg, Department of Economics.
    2. Sophie Meunier, 2014. "A Faustian bargain or just a good bargain? Chinese foreign direct investment and politics in Europe," Asia Europe Journal, Springer, vol. 12(1), pages 143-158, March.
    3. Hinz, Julian & Leromain, Elsa, 2017. "Critically important: The heterogeneous effect of politics on trade," Kiel Working Papers 2092, Kiel Institute for the World Economy (IfW).
    4. repec:bla:worlde:v:40:y:2017:i:9:p:1958-1988 is not listed on IDEAS
    5. repec:eee:inecon:v:108:y:2017:i:c:p:211-225 is not listed on IDEAS
    6. Roberto CARDINALE, 2017. "The Political-Economy Implications of the Transition from State-Owned to Mixed-Owned Enterprises: Evidence from the European Gas Sector," Departmental Working Papers 2017-10, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    7. Abdessalem Abassi & Lota Dabio Tamini, 2016. "Trade performance and potential of North African countries: An application of a stochastic frontier gravity model," Cahiers de recherche CREATE 2016-4, CREATE.

    More about this item

    Keywords

    International trade; Diplomatic tensions; State-owned enterprises; Firm ownership; Event data; UN voting; China; India;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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