Economic Globalization and Democracy: An Empirical Analysis

Abstract

The theoretical literature presents conflicting expectations about the effect of globalization on national democratic governance. One view expects globalization to enhance democracy; a second argues the opposite; a third argues globalization does not necessarily affect democracy. Progress in explaining how globalization affects democracy requires confronting these theoretical positions with data. We assess empirically the effects of globalization on the level of democracy from 1970 to 1996 for 127 countries in a pooled time-series cross-sectional statistical model. The effects of four national aspects of globalization on democracy are examined: trade openness, foreign direct investment inflows, portfolio investment inflows and the spread of democratic ideas across countries. We find that trade openness and portfolio investment inflows negatively affect democracy. The effect of trade openness is constant over time while the negative effect of portfolio investment strengthens. Foreign direct investment inflows positively affect democracy, but the effect weakens over time. The spread of democratic ideas promotes democracy persistently over time. These patterns are robust across samples, various model specifications, alternative measures of democracy and several statistical estimators. We conclude with a discussion of policy implications. Does economic globalization affect the level of democracy? Is deepening integration into the world economy associated with a decline or rise of democratic governance? These questions have captured the imagination of policy makers and academic scholars alike. Various answers have been provided, and policy recommendations have been made. Anecdotal evidence is typically invoked in debates, but systematic evidence is scarce. This article seeks to fill up this empirical lacuna.The notions of globalization and democracy are widely discussed in the literature. Most scholars agree that, at the minimum, globalization implies that countries are becoming more integrated into the world economy, with increasing information flows among them. 1 Greater economic integration, in turn, implies more trade and financial openness. Rising information flows imply, arguably, cultural convergence across countries. Most scholars also agree that democracy implies a national political regime based on free elections and broad political representation. 2

Framing Sustainability in a Telecoupled World

“…More water transfer projects are being built to address water crises in regions plagued by water scarcity, including the world's largest and longest one, China's South-North Water Transfer Scheme, which aims for 45 billion m³ of annual water transfer with a planned investment of US$ 77 billion (Liu and Yang 2012). At the same time, expansion of information technology and networks has promoted democracy (Li and Reuveny 2003), availability of cellular phones that allow for connections with distant partners has improved trade opportunities for local shareholders (Aker 2008), and global health networks have made vaccines increasingly available for remote communities (Milstien et al 2006). In addition, the rapid growth of ecocertification, sustainability standards, and sustainable sourcing strategies by large agribusiness corporations offer a potentially countervailing trend to the increase of commodity trade, by harnessing the forces of globalization for sustainability (Giovannucci andPonte 2005, Van Kooten et al 2005).…”

Does Globalization Reduce or Enhance Democracy? A Micro Analysis Based on an 18 Country Cross-National Asia-Europe Survey

“…The second approach, a micro-level approach, uses a survey data set that consists of individuals. The above-mentioned studies conducted by Li and Reuveny (2003) and Starr and Lindborg (2003) exemplify the first type of approach.…”

“…For example, using the Polity III data and a set of economic indices, Li and Reuveny (2003) examine the impact of economic globalization on democratic and autocratic changes in 127 countries from 1970 to 1996. Their independent variables, which measure the degree of globalization, consist of four different national aggregate statistics-trade openness, foreign direct investment inflows, portfolio investment inflows, and the spread of democratic ideas.…”

“…In this respect, Li and Reuveny (2003) made a pioneering systematic contribution, us-ing macro-economic and other statistical data. In contrast to their usage of aggregate data, this article makes use of cross-national data from an eighteen-country survey (the Asia-Europe Survey) to examine the impact of globalization on democracy.…”

Do Political Institutions Influence International Trade? Measurement of Institutions and the Long-Run Effects

“…The authors do not estimate the effect of trade on institutional quality, but rather use an instrumental variable strategy for estimating the one-sided effects on trade. Employing instrumental variables for trade, Eichengreen and Leblang (2008), Lopez-Cordova and Meissner (2005) and Rudra (2005) find a positive effect of trading activity for democratization, whereas Yu (2007), Li and Reuveny (2003) and Rigobon and Rodrik (2005) find a negative effect of trade liberalization on political liberalization. The literature provides explanations for both positive and negative effects of trade on institutional quality.…”