Democracy and Globalisation

65 Pages Posted: 20 Sep 2007  

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

David A. Leblang

University of Virginia

Date Written: December 2006


The relationship between democracy and globalisation has been the focus of substantial policy and academic debate. Some argue that democracy and globalisation go hand in hand suggesting that unrestricted international transactions leads to increased political accountability and transparency. And, politically free societies are likely to have minimal restrictions on the mobility of goods and services across national borders. Others argue that the causal relationship should be reversed: democracies are more likely to have closed markets and vice versa. We examine these relationships between political democracy and trade and financial globalisation over the period 1870-2000 and treat both democracy and globalisation as both cause and effect. Our empirical strategy uses instrumental variables and estimates relationships using the Generalised Method of Moments framework. Our general findings support the hypothesis of a positive two-way relationship between democracy and globalisation.

Keywords: Democracy, globalisation

JEL Classification: D72, P51, F02, F41, N10

Suggested Citation

Eichengreen, Barry and Leblang, David A., Democracy and Globalisation (December 2006). BIS Working Paper No. 219. Available at SSRN: or

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

David A. Leblang

University of Virginia ( email )

PO Box 400787
University of Virginia
Charlottesville, VA 22904
United States

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