Free to Trade: Democracies, Autocracies, and International Trade

TLDR

Few studies examine how a country's political system influences its trade relations. The study investigates how regime type shapes trade policy. Using a formal model and empirical analysis from 1960–1990, the authors show that democratic legislatures’ ratification power reduces trade barriers between democracies relative to mixed pairs. The results confirm that democratic pairs maintain significantly more open trade relations than mixed pairs.

Abstract

Relatively little research has focused on whether countries' political institutions affect their international trade relations. We address this issue by analyzing the relationship between regime type and trade policy. In a formal model of commercial policy, we establish that the ratification responsibility of the legislature in democratic states leads pairs of democracies to set trade barriers at a lower level than mixed country-pairs (composed of an autocracy and a democracy). We test this hypothesis by analyzing the effects of regime type on trade during the period from 1960 to 1990. The results of this analysis accord with our argument: Democratic pairs have had much more open trade relations than mixed pairs.