Market Rules: The Incidental Relationship between Democratic Compatibility and International Commerce

Abstract

Democracies trade more with other democracies than they trade with closed political systems, but why they do so is unclear. We present a ''gravity equation'' that disentangles foreign policy from country-specific influences on trade by adding explanatory variables to control for traits of both the mass public and the domestic political system. We apply the resulting model to a data set covering 50 years and 72 countries. The estimated effect of joint democracy, which appears in the absence of the country-specific variables, drops out when these control variables are added to eliminate omitted variable bias. Democracies do not trade together any more than they would incidentally given the usual social, economic, and political influences on commercial activity, calling into question explanations for their mutual trade activity that rely on foreign-policy favoritism or institutional compatibility.Democracies trade more with other democracies than they trade with closed political systems. This basic finding has enjoyed repeated confirmation in the literature on international commerce (Bliss and

Regime type, issues of contention, and economic sanctions: Re-evaluating the economic peace between democracies

“…The expectation that democratic constraints are less effective in low politics situations mirrors the inconclusive findings characterizing much of the literature on democracy and trade. While some studies show democracies trade more and implement fewer barriers among themselves (Mansfield, Milner & Rosendorff, 2000; Bliss & Russett, 1998), others find no significant effect (Bartilow & Voss, 2009; Dai, 2002), and some even suggest democracies are more likely to target each other economically (Sherman, 2002). The ambiguous relationship between democracy and trade suggests that institutional and normative constraints may also have a weaker influence on democracies’ decisions to employ sanctions for disagreements over other matters of low politics.…”

Capability, Credibility, and Extended General Deterrence

“…16 The S-score is based on the Correlates of War alliance data, version 3.0 (Gibler and Sarkees 2004). 17 While the S-score is positively associated with trade in the study by Bartilow and Voss (2009), it fails to reach standard levels of statistical significance in others (for example, Kim 2011). 18 The correlation between the S-score and sharing a defense pact (based on the ATOP data) is 0.24 for all dyads composed of independent states according to the Correlates of War project between 1816 and 2000.…”