Geopolitics and International Trade: The Democracy Advantage

February 2, 2024

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Format: Chicago

Serhan Cevik. Geopolitics and International Trade: The Democracy Advantage, (USA: International Monetary Fund, 2024) accessed November 12, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Do political regimes determine how geopolitics influence international trade? This paper provides an empirical answer to the question by analyzing the joint impact of democracy and geopolitical distance between countries with an augmented gravity model of bilateral trade flows and an extensive dataset of more than 4 million observations on 59,049 country-pairs over the period 1948–2018. Implementing the Poisson Pseudo-Maximum Likelihood regression and the two-stage least squares with instrumental variable approach, I find that geopolitical developments are not as important as income and geographical distance in determining bilateral trade flows and that democracy fosters international trade and moderates the potential negative impact of geopolitics. While the impact of democracy and its interaction with geopolitical distance are significant across all countries, the magnitude of these effects is substantially larger in advanced economies than in developing countries, reflecting the greater strength of democratic institutions, on average, in advanced economies.

Subject: Econometric analysis, General Agreement on Tariffs and Trade, Globalization, Gravity models, International trade, Plurilateral trade, Trade balance

Keywords: Country pair, Democracy, Democracy advantage, Destination countries help, General Agreement on Tariffs and Trade, Geopolitics, Global, Gravity model, Gravity models, Impact of democracy, International trade, Plurilateral trade, Trade balance, Trade globalization

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/021
Stock No:

WPIEA2024021
ISBN:

9798400266393
ISSN:

1018-5941

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