State Control and the Effects of Foreign Relations on Bilateral Trade

MPRA Paper No. 74597

52 Pages Posted: 23 Nov 2016

See all articles by Christina Davis

Christina Davis

Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Political Science

Andreas Fuchs

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration; Kiel Institute for the World Economy

Kristina Johnson

Collins Center for Public Management, University of Massachusetts Boston

Multiple version iconThere are 2 versions of this paper

Date Written: October 16, 2016

Abstract

Can governments still use trade to reward and punish partner countries? While WTO rules and the pressures of globalization restrict states’ capacity to manipulate trade policies, politicization of trade is likely to occur where governments intervene in markets. We examine state ownership of firms as one tool of government control. Taking China and India as examples, we use new data on imports disaggregated by firm ownership type, as well as measures of political relations based on bilateral events and UN voting data to estimate the effect of political relations on import flows since the early 1990s. Our results support the hypothesis that imports controlled by state-owned enterprises (SOEs) are more responsive to political relations than imports controlled by private enterprises. This finding suggests that politicized trade will increase as countries with partially state-controlled economies gain strength in the global economy.

Keywords: International trade, Diplomatic tensions, State-owned enterprises, Firm ownership, Event data, UN voting, China, India

JEL Classification: D74, F13, P16, P26

Suggested Citation

Davis, Christina and Fuchs, Andreas and Johnson, Kristina, State Control and the Effects of Foreign Relations on Bilateral Trade (October 16, 2016). MPRA Paper No. 74597. Available at SSRN: https://ssrn.com/abstract=2874231 or http://dx.doi.org/10.2139/ssrn.2874231

Christina Davis

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Princeton University - Department of Political Science ( email )

Corwin Hall
Princeton, NJ 08544-1013
United States

Andreas Fuchs (Contact Author)

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

Kiel Institute for the World Economy ( email )

Kiellinie 66
Kiel, Schleswig-Hosltein 24105
Germany

Kristina Johnson

Collins Center for Public Management, University of Massachusetts Boston ( email )

100 William T Morrissey Blvd
Healey Library, 10th Fl.
Boston, MA 02125
United States

HOME PAGE: http://www.umb.edu/cpm

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