The Evolutionary Effects of Democracy: In the Long Run, We are All Trading?

Abstract

It is well established that democracy affects trade, but how does this relationship change over time? The results suggest that democracy increases trade openness both in the short and long run. However, democracy only leads to a reduction in trade restrictions in the short term. In addition, the durability of a polity is employed as an instrument in order to consider the possibility that democracy and trade are endogenously related. This method helps to isolate a causal effect of democracy on trade, and the results suggest that the economic effect of democracy is 2–3 times larger than under OLS.

KEYWORDS:

• democracy
• institutions
• intertemporal
• trade

Notes

¹ Including GDP per capita as an additional control variable as other studies have done does not alter the results.