Economic Integration and Democracy: An Empirical Investigation

56 Pages Posted: 25 Jul 2018

Date Written: May 24, 2017

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.

Keywords: democracy, institutional development, economic integration, international trade.

JEL Classification: F14, F15, P16.

Suggested Citation

Magistretti, Giacomo and Tabellini, Marco, Economic Integration and Democracy: An Empirical Investigation (May 24, 2017). Harvard Business School BGIE Unit Working Paper No. 19-003. Available at SSRN: https://ssrn.com/abstract=3220028 or http://dx.doi.org/10.2139/ssrn.3220028

Giacomo Magistretti

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Marco Tabellini (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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