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Democracy and trade: an empirical study

Author

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  • Jessica Decker
  • Jamus Lim
Abstract
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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Suggested Citation

  • Jessica Decker & Jamus Lim, 2009. "Democracy and trade: an empirical study," Economics of Governance, Springer, vol. 10(2), pages 165-186, April.
    • Handle: RePEc:spr:ecogov:v:10:y:2009:i:2:p:165-186
    DOI: 10.1007/s10101-008-0053-8
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    2. Zissimos, Ben, 2017. "A theory of trade policy under dictatorship and democratization," Journal of International Economics, Elsevier, vol. 109(C), pages 85-101.
    3. C. Umana Dajud, 2013. "Political Proximity and International Trade," Economics and Politics, Wiley Blackwell, vol. 25(3), pages 283-312, November.
    4. Herz Bernhard & Wagner Marco, 2011. "Regionalism as a Building Block for Multilateralism," Global Economy Journal, De Gruyter, vol. 11(1), pages 1-25, March.
    5. Gislain Stéphane Gandjon Fankem, 2016. "Les déterminants du faible degré d'intégration commerciale de la CEEAC: le poids de la fragmentation politique, de la prolifération des Communautés Economiques Régionales et du niveau de démocr," African Development Review, African Development Bank, vol. 28(4), pages 383-396, December.
    6. Messner, Wolfgang, 2024. "Distance is the spice, but not the whole enchilada: Country-pair psychic distance stimuli and country fixed effects in a deep learning implementation of the trade flow model," International Business Review, Elsevier, vol. 33(1).
    7. Daumal, Marie, 2008. "Federalism, separatism and international trade," European Journal of Political Economy, Elsevier, vol. 24(3), pages 675-687, September.
    8. Roesmara Donna, Duddy & Widodo, Tri & Adiningsih, Sri, 2018. "Does Democracy Increase Bilateral Trade in MENA Region?," MPRA Paper 86369, University Library of Munich, Germany.
    9. Oxana Babecká Kucharčuková & Jan Babecký & Martin Raiser, 2012. "Gravity Approach for Modelling International Trade in South-Eastern Europe and the Commonwealth of Independent States: The Role of Geography, Policy and Institutions," Open Economies Review, Springer, vol. 23(2), pages 277-301, April.
    10. Whelsy Boungou & Francis Osei-Tutu & Amara Zongo, 2024. "Democracy and Intra-Africa Trade," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 66(1), pages 70-90, March.
    11. Yung-hsiang Ying & Koyin Chang & Ginny ju-ann Yang & Chen-hsun Lee, 2014. "Measuring co-movement of globalization and democratization in the time–frequency space," Economics Bulletin, AccessEcon, vol. 34(1), pages 206-219.
    12. Hongchang Wang & Eric Overby, 2023. "Do Political Differences Inhibit Market Transactions? An Investigation in the Context of Online Lending," Management Science, INFORMS, vol. 69(8), pages 4685-4706, August.
    13. Josheski, Dushko & Apostolov, Mico, 2013. "Macedonia’s exports and the gravity model," MPRA Paper 48180, University Library of Munich, Germany.
    14. Khan, Zakir Saadullah & Hossain, M Ismail, 2010. "Democracy and Trade Balance: A Vector Autoregressive Analysis," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 33(4), pages 23-37, December.
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    16. Shahedul Alam Khan & Rumana Mubin, 2019. "Trade, Governance And The Mediating Role Of Innovation," Romanian Economic Business Review, Romanian-American University, vol. 14(3), pages 29-43, September.

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    More about this item

    Keywords

    Democracy; Trade; Gravity model; F13; P51;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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