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A Democratic Dividend in Trade? Evidence from a Flexible Empirical Implementation

Author

Listed:
  • Rodolphe Desbordes
  • Markus Eberhardt
  • Mario Larch

Abstract

We study the causal effect of country-specific democratic regime change on bilateral trade flows, extending structural gravity empirics to ‘heterogeneous gravity’ estimated at the country-pair level. Our difference-in-differences implementation accounts for selection into regime change, multilateral resistance, globalisation effects, and spatial dependence. We find average effects of 46% higher exports for countries after thirty years in democracy, but demonstrate that these effects are driven by the democratic dividend for income: the causal chain runs from democracy to economic prosperity to trade, and democracy appears to have a limited ‘direct’ effect on trade flows.

Suggested Citation

  • Rodolphe Desbordes & Markus Eberhardt & Mario Larch, 2025. "A Democratic Dividend in Trade? Evidence from a Flexible Empirical Implementation," CESifo Working Paper Series 11735, CESifo.
    • Handle: RePEc:ces:ceswps:_11735
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp11735.pdf
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    More about this item

    Keywords

    trade gravity model; democratic regime change; monadic variables; heterogeneity; panel data; interactive fixed effects;
    All these keywords.

    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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