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Democracy and International Trade: Differential Effects from a Panel Quantile Regression Framework

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  • Krenz, Astrid
  • Abeliansky, Ana

Abstract

There has been a wide debate on whether democracy actually has an effect on economic outcomes, and especially on international trade. In reality, economies very active in the international trading network are not necessarily the most democratic countries. With a new estimation strategy, we analyze this relationship taking a look at the distribution of countries’ trading activity. Using a panel quantile estimation framework, we find a stronger relationship at the lower quantiles, especially for the import activity. Our results suggest that the impact of democratization on trade is more important when countries trade less: the marginal benefit of democratization decreases as countries trade more. The results are robust to different institutional variables and even to instrumental variables estimation. Our results demonstrate that the effect of democracy on trade is underestimated using Ordinary Least Squares estimation for the group of countries for which the effect is statistically significant for, namely those countries that are active in the lower quantiles of the trading distribution.

Suggested Citation

  • Krenz, Astrid & Abeliansky, Ana, 2016. "Democracy and International Trade: Differential Effects from a Panel Quantile Regression Framework," VfS Annual Conference 2016 (Augsburg): Demographic Change 145788, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145788
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    References listed on IDEAS

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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