Geopolitics and International Trade: The Democracy Advantage

Author/Editor:

Serhan Cevik

Publication Date:

February 2, 2024

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Do political regimes determine how geopolitics influence international trade? This paper provides an empirical answer to the question by analyzing the joint impact of democracy and geopolitical distance between countries with an augmented gravity model of bilateral trade flows and an extensive dataset of more than 4 million observations on 59,049 country-pairs over the period 1948–2018. Implementing the Poisson Pseudo-Maximum Likelihood regression and the two-stage least squares with instrumental variable approach, I find that geopolitical developments are not as important as income and geographical distance in determining bilateral trade flows and that democracy fosters international trade and moderates the potential negative impact of geopolitics. While the impact of democracy and its interaction with geopolitical distance are significant across all countries, the magnitude of these effects is substantially larger in advanced economies than in developing countries, reflecting the greater strength of democratic institutions, on average, in advanced economies.

Series:

Working Paper No. 2024/021

Subject:

Frequency:

regular

English

Publication Date:

February 2, 2024

ISBN/ISSN:

9798400266393/1018-5941

Stock No:

WPIEA2024021

Format:

Paper

Pages:

19

Please address any questions about this title to publications@imf.org