Democratization, contracts and comparative advantage

Felix Samy Soliman and Jan Schymik

Economics Letters, 2018, vol. 173, issue C, 73-77

Abstract: We study how the international spread of democracy shaped the comparative advantage of countries. Using data on the “Third Wave of Democratization” between 1976 and 2000 we find that democratizing countries shifted their exports towards more contract intensive goods that require a larger portion of relationship-specific inputs. This shift is observed on the intensive margin (volumes of industry-level exports) as well as the extensive margin of trade (number of goods a country exports). Using an instrumental variable strategy based on democracy waves, alternative proxy variables and subsamples suggests that the effects of democratization on trade specialization are causal.

Keywords: Comparative advantage; Institutional change; Relationship-specific investments (search for similar items in EconPapers)
JEL-codes: D23 F11 L14 O10 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:173:y:2018:i:c:p:73-77

DOI: 10.1016/j.econlet.2018.09.006

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