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Importing Democracy Abroad: Exports Earnings and Democracy in Developing
Countries John A. Doces
University of Southern California
School of International Relations
Data Trends: Global
22.
53
3.5
44.
5W
orld
ma
nufa
ctur
ed
exp
orts
(bi
llion
$)
7080
9010
011
012
0N
umb
er o
f wo
rld d
emo
crac
ies
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Year
Democracies Exports
22.
53
3.5
44.
5W
orld
ma
nufa
ctur
ed
exp
orts
(bi
llion
$)
7080
9010
011
012
0N
umb
er o
f wo
rld d
emo
crac
ies
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Year
World democracies Exports
Research Question
Based on the data I specify my question How have increased levels of exports to the U.S.
influenced the level of democracy in the exporting LDC? Why bilateral exports?
Source of GDP and much structural change Bilateral best captures notion of interdependence
associated w/globalization Why the U.S.?
World’s largest importer Also, can make simplifying assumptions
E.g. Can assume relatively capital abundant Leontief (1956)
The Literature: What’s Been Done Trade influences type of democracy
Rogowski (1987)
Trade openness negatively impacts democracyLi and Reuveny (2003); Rudra (2005)
Problems with the Literature
Measure of trade
Connection between measure of trade openness and democracy Theory is imprecise
010
020
030
040
0(E
xpor
ts+
Impo
rts)
/GD
P
1950
1960
1970
1980
1990
2000
Year
Singapore IranCuba United States
A Simple Hypothesis
Assume Heckscher-Ohlin type environment Two countries
Exporting country is imperfect democracy Relatively labor abundant
Importing country is the U.S. Relatively capital abundant
A Simple Hypothesis
Exogenous shock causes increased exportsLeads to expansion of labor-intensive good
production Demand for labor increases
Wages/earnings increase Labor specialization increases
Mechanism 1Exports increase GDP per capita
Size of the middle-class expands (Lipset, Epstein et. al.)
A Simple Hypothesis
Mechanism 2Exports increase specialization (A. Smith)
Labor gains human capital Increases education/literacy
Causes increased demands for more democracy
Empirical Tests
Use dual approach Illustrative case studies
Mexico and BangladeshEconometric tests
Panel data, 90+ countries, 1980-2000 Use TSLS estimator
Results Indicate robust support for the argument that
increased exports to the U.S. raises the level of democracy in the exporting country
Mexico: Basic Details
1970s: Political reform began with Lopez-Portillo regime Reform measure enacted on Dec. 31 1977
1980s: Labor loses long-standing privilege w/the stateEconomic dissatisfaction leads to slim victory for
PRI’s Salinas in 1988 1990s: NAFTA signed
Fox elected in 2000
Mexico: Causal Mechanism
3500
4000
4500
5000
5500
6000
Man
ufac
turi
ng w
ages
10.5
1111
.512
Exp
ort
s to
the
U.S
.
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Year
Exports (log) Manufacturing wages
Mexico: Causal Mechanism
300
400
500
600
700
800
Man
ufac
turi
ng w
ages
(w
ear
ing
appa
rel)
10.5
1111
.512
Exp
ort
s to
the
U.S
.
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Year
Exports (log) Manufacturing wages (apparel)
Mexico: Causal Mechanism
8889
9091
Lite
racy
300
400
500
600
700
800
Man
ufac
turi
ng w
ages
(a
ppa
rel)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year
Manufacturing wages (apparel) Literacy
Mexico: Exports and Democracy
-50
510
Po
lity
scor
e
910
1112
Exp
ort
s to
the
U.S
.
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
Exports to U.S. (log) Polity
Mexico: Trade Openness and Democracy
-50
510
Po
lity
scor
e
2030
4050
60T
rade
ope
nne
ss (
(Exp
ort
s +
Impo
rts)
/GD
P)
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
Trade openness Polity
Mexico: The Effect of NAFTA
Cameron and Wise: “In a nutshell, NAFTA helped to catalyze mass
political demands for more democracy, but it was just one of several forces that shaped this outcome.”
Bangladesh: Exports and Democracy
-10
-50
5P
olit
y sc
ore
45
67
8E
xpo
rts
to th
e U
.S.
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
Exports to U.S. (log) Polity
Taiwan
Lifting of martial law in 1987 Cheng and Lin: “Rapid growth begot liberalizing social consequences
that the KMT did not fully anticipate. With the economy taking off, the literacy rate increased…per capita income rose…and an overwhelming majority of people began to identify themselves as middle class.”
Growth was primarily due to exports
Summary of cases
Cases illustrate close connection between exports and democracyHelp to identify the causal connection
But also point to an issue of endogeneity E.g. Bangladesh data hints at democracy influencing
exports Academic literature supports this point
E.g. Frye and Mansfield; Milner (2005); Mansfield, Milner, and Rosendorff (2000)
Econometric Results
Equation 1
Equation 2
2 3 4
5 6 7 8 1
Polity Exports(log) GDP Growth Inflation
PopDens PolityDurable Parliament
it it itit it
itit it iit it
b b bd
eb b b b l-
= + + +
+ + + + + +
221
3 4
E x p o r t s( l o g ) = + P o l i t y + G D P ( l o g )
+ G D P U .S .( l o g ) + D i st a n ce( l o g ) + +
i t i ti t i t
i i ti t i t
a q q
mgq q
-
Sample
Uruguay
Uganda
Turkmen-istan
Turkey
Tunisia
Trinidad & Tobago
Togo
Thailand
Sudan
Zimbabwe
Zambia
Vene-zuela
Sri LankaPeruMyanmarMalaysiaJordanHaitiEl Salvador
ChileBangla-desh
SlovakiaParaguayMozam-bique
MalawiJamaicaGuinea-
Bissau
EgyptChadBahrain
SingaporePanamaMoroccoMada-gascar
Ivory Coast
GuineaEcuadorCen. Afr. Rep.
Burkina Faso
SenegalPakistanMongoliaLiberiaIsraelGuat-emala
Dom. Repub.
Came-roon
Azerbai-jan
Saudi Arabia
OmanMoldovaLaosIndonesiaGhanaDjiboutiCambodiaArmenia
RwandaNigeriaMexicoKyrgyz-stan
IndiaGambiaCongo,
D.R.
BulgariaArgentina
RomaniaNigerMauritiusKuwaitHungaryGabonCongoBrazilAngola
PolandNicara-gua
Mauri-tania
S. KoreaHungaryFijiColombiaBoliviaAlgeria
Phili-ppines
NepalMaliKenyaHondurasEthiopiaChinaBeninAlbania
Regression Results: Polity Two-stage least squares regression results of bilateral exports to the United States on democracy in the source country 1 2 3 4 5 6 Exports (log) 3.96a
(.37) .45b
(.19) .53a
(.21) 1.73a
(.26) 1.20a
(.22) 4.27a
(.37) GDP Growth
-.027c
(.013)
-.02c
(.01) -.01 (.03)
Inflation
.00017
(.00012)
.0003b (.0001)
.001a (.0002)
Population Density
-.0004 (.0007)
-.00008
(.0007) -.001
(.001) Government Durability
-.15a
(.01) -.11a
(.01) -.25a
(.02) Parliamentary System (2=yes)
.20
(.28)
Polityt-1 .82a
(.02) .82a
(.02) .58a
(.03) .68a
(.02)
Constant -19.15a
(1.91) -1.87b
(.95) -2.13b
(1.02) -6.07a
(1.28) -3.81a
(1.05) -16.56a
(1.89) Trade Openness
Observations 1104 1083 1073 811 1073 1094 Wald Statistic 169a 3279a 3257a 2649a 3295a 475a R-squared .09 .88 .87 .61 .73 .15 J Statistic 4.01^ 3.54^ .24 ̂ .43 ̂ 2.84 ̂
Notes. a=p<.01 b=p<.05 c=p<.10. ̂indicates the null hypothesis for the test of over-identifying restrictions cannot be rejected at the 10% level of significance. The first stage fixed-effects regression of Exports (log) on Polity, GDP (log), GDP_U.S.(log), and Distance (log) has a F-statistic of 83a, an R-squared of .71 and all covariates, except U.S. GDP, are statistically significant with the appropriate signs.
Regression Results: Civil LibertyTwo-stage least squares regression results of bilateral exports to the United States on
democracy in the source country. Measure of democracy is civil liberty. 1 2 3 4 5 6 Exports (log) -.53a
(.07) -.08b
(.04) -.10a
(.05) -.17a
(.05) -.18a
(.05) -.67a
(.07) GDP Growth
-.005c
(.002)
-.005c
(.002) -.003 (.004)
Inflation
-.00004
(.00003)
-.00005c (.00003)
-.0002a (.00005)
Population Density
.0002 (.002)
.0002
(.0002) .0005
(.0003) Government Durability
.03a
(.002) .01a
(.001) .03a
(.003) Parliamentary System (2=yes)
.06
(.06)
Civil Libertyt-
1
.75a
(.02) .74a
(.02) .62a
(.02) .68a
(.02)
Constant 6.92a
(.35) 1.46b
(.27) 1.56b
(.28) 1.92a
(.30) 2.00a
(.29) 7.05a
(.36) Trade Openness
Observations 1187 1187 1174 876 1166 1166 Wald Statistic 23927a 70774a 70302a 54641a 70184a 24793a R-squared .09 .81 .80 .72 .75 .14 J Statistic 4.27^ 3.75^ 9.72 ̂ 4.66 ̂ 3.50 ̂
Notes. a=p<.01 b=p<.05 c=p<.10. ̂indicates the null hypothesis for the test of over-identifying restrictions cannot be rejected at the 10% level of significance. The first stage fixed-effects regression of Exports (log) on Polity, GDP (log), GDP_U.S.(log), and Distance (log) has a F-statistic of 83a, an R-squared of .71 and all covariates, except U.S. GDP, are statistically significant with the appropriate signs.
Conclusion
Exports to U.S. encourages democracy in exporting countryCase studies provide illustrative evidenceMeasure of globalization & TSLS have yielded
new results
Scholarly Implications
Future work will need to consider direction of the effect more carefully and to take into account joint causality
Is the effect from trade openness on democracy really negative?
Did extension of democracy cause globalization? Or did globalization cause democracy?
Policy Implications
What’s the best course of action for U.S. foreign policy and promotion of democracy?How can democracy best be promoted?
Have policymakers considered using domestic markets as a means to promote democracy?
This paper provides an alternative domestic based means to democracy promotion.
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