Does democracy cause trade policy liberalisation? Unpacking the black box of trade policy



This paper contributes to the ongoing debate on the relationship between democracy and the liberalisation of international trade. A number of well-known works in international political economy have argued that democracy promotes trade liberalisation. However, these previous studies have taken trade policy as a whole and largely ignored the sub-dimensions of trade policy. In this paper, we disaggregate trade policy into tariff barrier, trade facilitation and trade openness and argue that democracy reduces trade barrier and promotes trade facilitation, but does not necessarily make the economy more dependent on trade. We test our hypotheses using a panel of about 150 developed and developing countries in the period from 1974 to 2014 and estimate four equations to obtain four different estimators for each dependent variable of interest. Specifically, we investigate the effects of democracy on tariff barrier, trade facilitation and trade openness using pooled OLS, fixed effect (FE), instrumental variable (IV) and system general method of moments (GMM) estimators. Overall, our hypotheses receive good empirical support. With other confounding factors being controlled for, democracy is negatively associated with tariff rate, positively associated with the Logistics Performance Index, but there is no evidence that democracy increases a country’s trade openness.


democracy optimal obfuscation tariff barrier trade facilitation trade openness 



This research is funded by the President Foundation Start-up Grant (ID: 20720151286) of Xiamen University. The authors would like to thank Marc Ratkovic, Kosuke Imai, Erin Jenne, Levente Littvay, the participants at the 3rd Annual Meeting of Asian Political Methodology and the members of the Political Behaviour Research Group (POLBERG) at Central European University. Thanks are also due to JIRD’s editor(s) and three anonymous reviewers. C.C. and A.X.L. reviewed the literature. C.C. constructed the argument. C.C. and A.X.L. prepared the dataset. A.X.L. ran the regressions and discussed the results. A.X.L. conceived the research. C.C. and A.X.L. wrote the manuscript. A.X.L. copyedited the manuscript. C.C. and A.X.L. contributed equally to this work. The authors declare no conflict of financial interest.


  1. Acemoglu, Daron, Simon Johnson and James A. Robinson (2001) ‘The Colonial Origins of Comparative Development: An Empirical Investigation’, American Economic Review 91(5): 1369–401.CrossRefGoogle Scholar
  2. Acemoglu, Daron and James A. Robinson (2006) Economic Origins of Dictatorship and Democracy, Cambridge: Cambridge University Press.Google Scholar
  3. Albouy, David (2006) ‘The Colonial Origins of Comparative Development: An Investigation of the Settler Mortality Data’, Berkeley: Center for International and Development Economics Research.Google Scholar
  4. Arvis, Jean-François, Daniel Saslavsky, Lauri Ojala, Ben Shepherd, Christina Busch and Anasuya Raj (2014) Connecting to Compete 2014: Trade Logistics in the Global EconomyThe Logistics Performance Index and Its Indicators, Washington: World Bank.CrossRefGoogle Scholar
  5. Baker, Andy (2003) ‘Why Is Trade Reform So Popular in Latin America?: A Consumption-based Theory of Trade Policy Preferences’, World Politics 55(3): 423–55.CrossRefGoogle Scholar
  6. Barro, Robert J. (1999) ‘Determinants of Democracy’, Journal of Political Economy 107(S6): S158–83.CrossRefGoogle Scholar
  7. Bliss, Harry and Bruce Russett (1998) ‘Democratic Trading Partners: The Liberal Connection, 1962-1989’, Journal of Politics 60(4): 1126–47.CrossRefGoogle Scholar
  8. Boix, Carles and Susan C. Stokes (2003) ‘Endogenous Democratization’. World Politics 55(4): 17–549.CrossRefGoogle Scholar
  9. Bussmann, Margit (2001) ‘Examining Causality among Conflict, Democracy, Openness, and Economic Growth’, Tuscaloosa: University of Alabama, unpublished paper.Google Scholar
  10. Chinn, Menzie D. and Hiro Ito (2006) ‘What Matters for Financial Development? Capital Controls, Institutions, and Interactions’, Journal of Development Economics 81(1): 163–92.CrossRefGoogle Scholar
  11. Dent, Christopher M. (2005) ‘Bilateral Free Trade Agreements: Boon or Bane for Regionalism in East Asia and the Asia-Pacific’, European Journal of East Asian Studies 4(2): 287–314.CrossRefGoogle Scholar
  12. Dent, Christopher M. (2010a) ‘Free Trade Agreements in the Asia-Pacific a Decade On: Evaluating the Past, Looking to the Future’, International Relations of the Asia-Pacific 10(2): 201–45.CrossRefGoogle Scholar
  13. Dent, Christopher M. (2010b) ‘Freer Trade, More Regulation? Commercial Regulatory Provisions in Asia-Pacific Free Trade Agreements’, Competition & Change 14(1): 48–79.CrossRefGoogle Scholar
  14. Eichengreen, Barry and David Leblang (2008) ‘Democracy and Globalization’, Economics & Politics 20(3): 289–334.CrossRefGoogle Scholar
  15. Giavazzi, Francesco, and Guido Tabellini (2005) ‘Economic and Political Liberalizations’, Journal of Monetary Economics 52(7): 1297–330.CrossRefGoogle Scholar
  16. Glaeser, Edward L., Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer (2004) ‘Do Institutions Cause Growth?’, Journal of Economic Growth 9(3): 271–303.CrossRefGoogle Scholar
  17. Grainger, Andrew (2011) ‘Trade Facilitation: A Conceptual Review’, Journal of World Trade 45(1): 39–62.Google Scholar
  18. Grossman, Gene M. and Elhanan Helpman (1994) ‘Protection for Sale’, American Economic Review 84(4): 833–50.Google Scholar
  19. Hall, Robert E. and Charles I. Jones (1999) ‘Why Do Some Countries Produce So Much More Output Per Worker Than Others?’, Quarterly Journal of Economics 114(1): 83–116.CrossRefGoogle Scholar
  20. Hausman, Jerry A. (1978) ‘Specification Tests in Econometrics’, Econometrica 46(6): 1251–71.CrossRefGoogle Scholar
  21. Herrmann, Richard K., Philip E. Tetlock and Matthew N. Diascro (2001) ‘How Americans Think about Trade: Reconciling Conflicts among Money, Power, and Principles’, International Studies Quarterly 45(2): 191–218.CrossRefGoogle Scholar
  22. Hicks, Raymond and Soo Yeon Kim (2012) ‘Reciprocal Trade Agreements in Asia: Credible Commitment to Trade Liberalization or Paper Tigers?’, Journal of East Asian Studies 12(1): 1–29.CrossRefGoogle Scholar
  23. Hoekman, Bernard M. and Michel M. Kostecki (2009) The Political Economy of the World Trading System, New York: Oxford University Press.Google Scholar
  24. Jaggers, Keith and Ted R. Gurr (1995) ‘Tracking Democracy’s Third Wave with the Polity III Data’, Journal of Peace Research 32(4): 469–82.CrossRefGoogle Scholar
  25. Keefer, Philip (2006). ‘Elections, Political Checks and Balances, and Growth’, in Leszek Balcerowicz and Stanley Fischer, eds, Living Standards and the Wealth of Nations: Successes and Failures in Real Convergence, 41–54, Cambridge: MIT Press.Google Scholar
  26. Kono, Daniel Y. (2006) ‘Optimal Obfuscation: Democracy and Trade Policy Transparency’, American Political Science Review 100(3): 369–84.CrossRefGoogle Scholar
  27. Li, Quan and Rafael Reuveny (2003) ‘Economic Globalization and Democracy: An Empirical Analysis’, British Journal of Political Science 33(1): 29–54.CrossRefGoogle Scholar
  28. Lipset, Seymour M. (1959) ‘Some Social Requisites of Democracy: Economic Development and Political Legitimacy’, American Political Science Review 53(1): 69–105.CrossRefGoogle Scholar
  29. Liu, Xuepeng and Emanuel Ornelas (2014) ‘Free Trade Agreements and the Consolidation of Democracy’, American Economic Journal: Macroeconomics 6(2): 29–70.Google Scholar
  30. López-Córdova, J. Ernesto and Christopher M. Meissner (2008) ‘The Impact of International Trade on Democracy: A Long-run Perspective’, World Politics 60(4): 539–75.CrossRefGoogle Scholar
  31. Mansfield, Edward D. and Helen V. Milner (2012), Votes, Vetoes, and the Political Economy of International Trade Agreements, Princeton: Princeton University Press.Google Scholar
  32. Mansfield, Edward D., Helen V. Milner and B. Peter Rosendorff (2000) ‘Free to Trade: Democracies, Autocracies, and International Trade’, American Political Science Review 94(2): 305–21.CrossRefGoogle Scholar
  33. Milner, Helen V. and Keiko Kubota (2005) ‘Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries’, International Organization 59(1): 107–43.CrossRefGoogle Scholar
  34. Milner, Helen V. and Bumba Mukherjee (2009) ‘Democratization and Economic Globalization’, Annual Review of Political Science 12: 163–81.CrossRefGoogle Scholar
  35. Munck, Gerardo L. and Jay Verkuilen (2002) ‘Conceptualizing and Measuring Democracy Evaluating Alternative Indices’, Comparative Political Studies 35(1): 5–34.Google Scholar
  36. Papaioannou, Elias and Gregorios Siourounis (2008) ‘Economic and Social Factors Driving the Third Wave of Democratization’, Journal of Comparative Economics 36(3): 365–87.CrossRefGoogle Scholar
  37. Przeworski, Adam and Fernando Limongi (1997) ‘Modernization: Theories and Facts’, World Politics 49(2): 155–83.CrossRefGoogle Scholar
  38. Ravenhill, John (2003) ‘The New Bilateralism in the Asia Pacific’, Third World Quarterly 24(2): 299–317.CrossRefGoogle Scholar
  39. Ravenhill, John (2008) ‘The Move to Preferential Trade on the Western Pacific Rim: Some Initial Conclusions’, Australian Journal of International Affairs 62(2): 129–50.CrossRefGoogle Scholar
  40. Rigobon, Roberto and Dani Rodrik (2005) ‘Rule of Law, Democracy, Openness, and Income’, Economics of Transition 13(3): 533–64.CrossRefGoogle Scholar
  41. Rodrik, Dani (1998) ‘The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will It Last?’, in Federico Sturzenegger and Mariano Tommasi, eds, The Political Economy of Reform, 209–40, Cambridge: MIT Press.Google Scholar
  42. Rudra, Nita (2005) ‘Globalization and the Strengthening of Democracy in the Developing World’, American Journal of Political Science 49(4): 704–30.CrossRefGoogle Scholar
  43. Sally, Razeen (2011) ‘Regional Economic Integration in Asia: The Track Record and Prospects’, in Shiro Armstrong, ed., The Politics and the Economics of Integration in Asia and the Pacific, 37–64, Oxfordshire: Routledge.Google Scholar
  44. Walsh, Keith (2006) ‘Trade in Services: Does Gravity Hold? A Gravity Model Approach to Estimating Barriers to Services Trade’, Discussion Paper No. 183, Institute for International Integration Studies.Google Scholar
  45. Yu, Miaojie (2010) ‘Trade, Democracy, and the Gravity Equation’, Journal of Development Economics 91(2): 289–300.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd 2017

Authors and Affiliations

  1. 1.School of Social SciencesNanyang Technological UniversitySingaporeRepublic of Singapore
  2. 2.Collaborative Innovation Centre for Peaceful Development of Cross-strait Relations, Institute of Taiwan ResearchXiamen UniversityXiamenChina

Personalised recommendations