A Democratic Dividend in Trade? Evidence from a Flexible Empirical Implementation

Rodolphe Desbordes, Markus Eberhardt and Mario Larch

No 11735, CESifo Working Paper Series from CESifo

Abstract: We study the causal effect of country-specific democratic regime change on bilateral trade flows, extending structural gravity empirics to ‘heterogeneous gravity’ estimated at the country-pair level. Our difference-in-differences implementation accounts for selection into regime change, multilateral resistance, globalisation effects, and spatial dependence. We find average effects of 46% higher exports for countries after thirty years in democracy, but demonstrate that these effects are driven by the democratic dividend for income: the causal chain runs from democracy to economic prosperity to trade, and democracy appears to have a limited ‘direct’ effect on trade flows.

Keywords: trade gravity model; democratic regime change; monadic variables; heterogeneity; panel data; interactive fixed effects (search for similar items in EconPapers)
JEL-codes: C23 F13 F14 P16 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11735

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