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Economic Integration and Democracy: An Empirical Investigation

Author

Listed:
  • Giacomo Magistretti

    (Northwestern University)

  • Marco Tabellini

    (Harvard Business School, Business, Government and the International Economy Unit)

Abstract

We study whether economic integration fosters the process of democratization and the channels through which this might happen. Our analysis is based on a large panel dataset of countries between 1950 and 2014. We instrument actual trade with predicted trade constructed by estimating a time-varying gravity equation similar to Feyrer (2009). We find that economic integration has a positive effect on democracy, driven by trade with democratic partners and stronger for countries with lower initial levels of economic and institutional development. These results are consistent with a learning/cultural exchange process whereby economic integration promotes the spread of democracy from more to less democratic countries. We corroborate this interpretation by providing evidence against alternative mechanisms, such as income effects, human capital accumulation, and trade-induced changes in inequality.

Suggested Citation

  • Giacomo Magistretti & Marco Tabellini, 2018. "Economic Integration and Democracy: An Empirical Investigation," Harvard Business School Working Papers 19-003, Harvard Business School.
    • Handle: RePEc:hbs:wpaper:19-003
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    References listed on IDEAS

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    Cited by:

    1. Tabellini, Guido & Persson, Torsten, 2020. "Culture, Institutions and Policy," CEPR Discussion Papers 15233, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    democracy; institutional development; economic integration; international trade.;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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