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    Economic Integration and Democracy: An Empirical Investigation
    07 Aug 2018Working Paper Summaries

    Economic Integration and Democracy: An Empirical Investigation

    by Giacomo Magistretti and Marco Tabellini
    Economic integration reduces or eliminates trade barriers and coordinates monetary and fiscal policies. This study suggests that demand for democracy increases with economic integration due to the presence of a learning and cultural transmission channel, so less democratic countries learn from the institutions of their (more) democratic partners.
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    Author Abstract

    We study whether economic integration fosters the process of democratization and the channels through which this might happen. Our analysis is based on a large panel dataset of countries between 1950 and 2014. We instrument actual trade with predicted trade constructed by estimating a time-varying gravity equation similar to Feyrer (2009). We find that economic integration has a positive effect on democracy, driven by trade with democratic partners and is stronger for countries with lower initial levels of economic and institutional development. These results are consistent with a learning/cultural exchange process whereby economic integration promotes the spread of democracy from more to less democratic countries. We corroborate this interpretation by providing evidence against alternative mechanisms, such as income effects, human capital accumulation, and trade-induced changes in inequality.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: July 2018
    • HBS Working Paper Number: HBS Working Paper #19-003
    • Faculty Unit(s): Business, Government and International Economy
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    Marco E. Tabellini
    Marco E. Tabellini
    Assistant Professor of Business Administration
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