Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-23T20:40:24.624Z Has data issue: false hasContentIssue false
  • English
  • Français

Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries

Published online by Cambridge University Press:  15 February 2005

Helen V. Milner  and
Keiko Kubota
Keiko Kubota
Affiliation:
Keiko Kubota is Research Assistant at the World Bank. She can be reached at [email protected].
Get access

Abstract

Rising international trade flows are a primary component of globalization. The liberalization of trade policy in many developing countries has helped foster the growth of these flows. Preceding and concurrent with this move to free trade, there has been a global movement toward democracy. We argue that these two trends are related: democratization of the political system reduces the ability of governments to use trade barriers as a strategy for building political support. Political leaders in labor-rich countries may prefer lower trade barriers as democracy increases. Empirical evidence supports our claim about the developing countries from 1970–99. Regime change toward democracy is associated with trade liberalization, controlling for many factors. Conventional explanations of economic reform, such as economic crises and external pressures, seem less salient. Democratization may have fostered globalization in this period.We wish to thank the editors at International Organization, David Baldwin, Jim Fearon, Geoffrey Garrett, Barbara Geddes, Tim Groseclose, Robert Kaufmann, Robert Keohane, David Laitin, Jean Leca, Edward Mansfield, Jim Morrow, Ronald Rogowski, B. Peter Rosendorff, Alex Segura, Mike Tomz, Robert Trager, Romain Wacziarg, and Greg Wawro, for their very helpful comments on versions of this article. We also received helpful comments from seminar participants at the University of Michigan, Stanford University, the University of Pennsylvania, Syracuse University, Princeton University, Rutgers University, Yale University, and the University of California at Berkeley. Ben Judkins, Robert Trager, Megumi Naoi, and Tom Kenyon provided invaluable research assistance. An earlier version was presented at the 2001 APSA meeting in San Francisco.

Type
Research Article
Information
International Organization , Volume 59 , Issue 1 , January 2005 , pp. 107 - 143
Copyright
© 2005 The IO Foundation and Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Abiad, Abdul, and Ashoka Mody. 2003. Financial Reform: What Shakes It? What Shapes It? Working Paper 03/70. Washington, D.C.: International Monetary Fund.
African Development Bank. 2003. African Development Report 2003. Oxford: Oxford University Press.
Alesina, Alberto, and Allan Drazen. 1991. Why Are Stabilizations Delayed? American Economic Review 81 (5):1170–88.Google Scholar
Alvarez, Mike, José Antonio Cheibub, Fernando Limongi, and Adam Przeworski. 1996. Classifying Political Regimes. Studies in Comparative International Development 31 (2):3–36.Google Scholar
Andriamananjara, Shuby, and John Nash. 1997. Have Trade Policy Reforms Led to Greater Openness in Developing Countries? Policy Research Working Paper 1730. Washington, D.C.: World Bank.
Aslund, Anders, Peter Boone, and Simon Johnson. 1996. How to Stabilize? Lessons from Post-Communist Countries. Brookings Papers on Economic Activity 1996 (1):217–313.Google Scholar
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.Google Scholar
Balistreri, Edward. 1997. The Performance of the Heckscher-Ohlin-Vanik Model in Predicting Endogenous Policy Forces at the Individual Level. Canadian Journal of Economics 30 (1):1–17.Google Scholar
Barro, Robert. 1997. Determinants of Economic Growth: A Cross-Country Empirical Study. Cambridge, Mass.: MIT Press.
Barro, Robert. 2001. Human Capital and Growth. American Economic Review 91 (2):12–17.Google Scholar
Barro, Robert, and Jong-Wha Lee. 2001. International Data on Educational Attainment: Updates and Implications. Working Paper 42. Cambridge, Mass.: Center for International Development, Harvard University.
Bates, Robert H. 1981. Markets and States in Tropical Africa. Berkeley: University of California Press.
Beaulieu, Eugene. 2002. The Stolper-Samuelson Theorem Faces Congress. Review of International Economics 10 (2):343–60.Google Scholar
Beck, Nathaniel, and Jonathan Katz. 1995. What to Do (and Not to Do) with Time-Series-Cross-Section Data. American Political Science Review 89 (3):634–47.Google Scholar
Beck, Nathaniel, Jonathan Katz, and Richard Tucker. 1998. Taking Time Seriously: Time-Series-Cross-Section Analysis with a Binary Dependent Variable. American Journal of Political Science 42 (4):1260–88.Google Scholar
Beck, Thorsten, George Clarke, Alberto Groff, Philip Keefer, and Patrick Walsh. 2001. New Tools in Comparative Political Economy: The Database of Political Institutions. World Bank Economic Review 15 (1):165–76.Google Scholar
Bermeo, Nancy. 1994. Sacrifice, Sequence, and Strength in Successful Dual Transitions: The Case of Spain. Journal of Politics 56 (3):601–27.Google Scholar
Bienen, Henry, and Jeffrey Herbst. 1996. The Relationship Between Political and Economic Reform in Africa. Comparative Politics 29 (1):23–42.Google Scholar
Bierstecker, Thomas. 1995. The ‘Triumph’ of Liberal Economic Ideas in the Developing World. In Global Change, Regional Response, edited by Barbara Stallings, 174–96. New York: Cambridge University Press.
Bueno de Mesquita, Bruce, James D. Morrow, Randolph M. Siverson, and Alastair Smith. 1999. An Institutional Explanation of the Democratic Peace. American Political Science Review 93 (4):791–807.Google Scholar
Collier, David, and Robert Adcock. 1999. Democracy and Dichotomies: A Pragmatic Approach to Choices about Concepts. Annual Review of Political Science 2:537–65.Google Scholar
Collier, Paul, and Jan Willem Gunning. 1999. Explaining African Economic Performance. Journal of Economic Literature 37 (1):64–111.Google Scholar
Cordoba, Jose. 1994. Mexico. In The Political Economy of Policy Reform, edited by John Williamson, 232–84. Washington, D.C.: Institute for International Economics.
Davidson, Russell, and James MacKinnon, eds. 1993. Estimation and Inference in Econometrics. New York: Oxford University Press.
Diamond, Larry, and Marc Plattner, eds. 1993. The Global Resurgence of Democracy. Baltimore, Md.: Johns Hopkins University Press.
Dollar, David. 1992. Outward Oriented Developing Economies Do Really Grow More Rapidly: Evidence from 95 LDCs, 1976–85. Economic Development and Cultural Change 40 (3):523–44.Google Scholar
Drazen, Allan. 1996. The Political Economy of Delayed Reform. Journal of Policy Reform 1 (1):25–46.Google Scholar
Drazen, Allan, and William Easterly. 2001. Do Crises Induce Reform? Economics and Politics 13 (2):129–57.Google Scholar
Drazen, Allan, and Victorio Grilli. 1993. The Benefit of Crises for Economic Reforms. American Economic Review 83 (3):598–607.Google Scholar
Dutt, Pushan, and Devashish Mitra. 2002a. Endogenous Trade Policy Through Majority Voting: An Empirical Investigation. Journal of International Economics 58 (1):107–33.Google Scholar
Dutt, Pushan, and Devashish Mitra. 2002b. Political Ideology and Endogenous Trade Policy: An Empirical Investigation. Working Paper 9239. Cambridge, Mass.: National Bureau of Economic Research.
Easterly, William, and Sergio Rebelo. 1993. Fiscal Policy and Economic Growth. Journal of Monetary Economics 32 (3):417–58.Google Scholar
Edwards, Sebastian. 1992. Trade Orientation, Distortions and Growth in Developing Countries. Journal of Development Economics 39 (1):31–58.Google Scholar
Edwards, Sebastian. 1995. Crisis and Reform in Latin America. New York: Oxford University Press.
Edwards, Sebastian. 1998. Openness, Productivity and Growth: What Do We Really Know? Economic Journal 108 (447):383–98.Google Scholar
Elkins, Zachary. 2000. Gradations of Democracy?: Empirical Tests of Alternative Conceptualizations. American Journal of Political Science 44 (2):293–300.Google Scholar
Feng, Yi, Jacek Kugler, and Paul Zak. 2000. The Politics of Fertility and Economic Development. International Studies Quarterly 44 (4):667–93.Google Scholar
Fernandez, Raquel, and Dani Rodrik. 1991. Resistance to Reform: Status Quo Bias in the Presence of Individual Specific Uncertainty. American Economic Review 81 (5):1146–55.Google Scholar
Fishlow, Albert. 1990. The Latin American State. Journal of Economic Perspectives 4 (3):61–74.Google Scholar
Frankel, Jeffrey, and David Romer. 1999. Does Trade Cause Growth? American Economic Review 89 (3):379–99.Google Scholar
Frye, Timothy, and Edward Mansfield. 2001. Voting for Openness: Elections and Trade Liberalization in the Post-Communist World. Paper presented at the 97th Annual Conference of the American Political Science Association, August 30–September 2, San Francisco.
Gartzke, Erik, and Dong-Joon Jo. 2002. The Affinity of Nations Index, 1946–1996. Version 3.0: Codebook. New York: Columbia University.
Geddes, Barbara. 1995. Challenging the Conventional Wisdom. In Economic Reform and Democracy, edited by Larry Diamond and Marc Plattner, 59–73. Baltimore, Md.: Johns Hopkins University Press.
Geddes, Barbara. 1999. The Effect of Regime Type on Authoritarian Breakdown: The Empirical Test of a Game Theoretic Argument. Paper presented at the 95th Annual Conference of the American Political Science Association, September, Atlanta, Ga.
Grossman, Gene, and Elhanan Helpman. 1994. Protection for Sale. American Economic Review 84 (4):833–50.Google Scholar
Gurr, Ted Robert, Keith Jaggers, and Will H. Moore. 1990. Polity II: Political Structures and Regime Change, 1800–1986. Ann Arbor, Mich.: Inter-University Consortium for Political and Social Research.
Haggard, Stephan. 1990. The Political Economy of the Philippines Debt Crisis. In Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World, edited by Joan Nelson. Princeton, N.J.: Princeton University Press.
Haggard, Stephan, and Robert Kaufmann, eds. 1992. The Politics of Economic Adjustment. Princeton, N.J.: Princeton University Press.
Haggard, Stephan, and Robert Kaufmann, eds. 1995. The Political Economy of Democratic Transitions. Princeton, N.J.: Princeton University Press.
Haggard, Stephan, and Steven Webb, eds. 1994. Voting for Reform: Democracy, Political Liberalization, Distributive Conflicts, and Economic Adjustment. New York: Oxford University Press.
Harrison, Ann. 1994. Productivity, Imperfect Competition, and Trade Reform: Theory and Evidence. Journal of International Economics 36 (1/2):53–74.Google Scholar
Harrison, Ann. 1996. Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries. Journal of Development Economics 48 (2):419–47.Google Scholar
Hiscox, Michael J. 2002. International Trade and Political Conflict: Commerce, Coalitions, and Mobility. Princeton, N.J.: Princeton University Press.
Horn Welch, Karen, and Romain Wacziarg. 2003. Trade Liberalization and Growth: New Evidence. Working Paper 10152. Cambridge, Mass.: National Bureau of Economic Research.
International Monetary Fund (IMF). 1992. Issues and Developments in International Trade Policy. Washington, D.C.: International Monetary Fund.
International Monetary Fund (IMF). Various years. Government Finance Statistics (IMF GFS). Ann Arbor, Mich.: Inter-University Consortium for Political and Social Research.
Jaggers, Keith, and Ted Robert Gurr. 1995. Tracking Democracy's Third Wave with the Polity III Data. Journal of Peace Research 32 (4):469–82.Google Scholar
Jenkins, Rob. 1999. Democratic Politics and Economic Reform in India. Cambridge: Cambridge University Press.
Kahler, Miles. 1986. The Politics of International Debt. Ithaca, N.Y.: Cornell University Press.
Kahler, Miles. 1989. International Financial Institutions and the Politics of Adjustment. In Fragile Coalitions: The Politics of Economic Adjustment, edited by Joan Nelson, 139–59. New Brunswick, N.J.: Transaction Books.
Katzenstein, Peter. 1985. Small States in World Markets: Industrial Policy in Europe. Ithaca, N.Y.: Cornell University Press.
Kornai, János. 1992. The Socialist System: The Political Economy of Communism. Princeton, N.J.: Princeton University Press.
Kotwal, Ashok, and Bharat Ramaswami. 1999. Economic Reforms in Agriculture and Rural Growth. In India in the Era of Economic Reforms, edited by Jeffrey Sachs, Ashutosh Varshney, and Nirupam Bajpai, 121–59. Oxford: Oxford University Press.
Krasner, Stephen. 1976. State Power and the Structure of International Trade. World Politics 28 (3):317–47.Google Scholar
Krueger, Anne. 1997. Trade Policy and Economic Development: How We Learn. American Economic Review 87 (1):1–22.Google Scholar
Leamer, Edward. 1988. Measures of Openness. In Trade Policy Issues and Empirical Analysis, edited by Robert Baldwin, 147–200. Chicago: University of Chicago Press.
Levinsohn, James. 1999. Employment Responses to International Liberalization in Chile. Journal of International Economics 47 (2):321–44.Google Scholar
Levy-Yeyati, Eduardo, and Federico Sturzenegger. Forthcoming. Classifying Exchange-Rate Regimes: Deeds vs. Words. European Economic Review.
Little, I. M. D., Richard N. Cooper, W. Max Corden, and Sarath Rajapatirana. 1993. Boom, Crisis and Adjustment: The Macroeconomic Experiences of Developing Countries. New York: Oxford University Press.
Mansfield, Edward, and Rachel Bronson. 1997. Alliances, Preferential Trading Arrangements, and International Trade. American Political Science Review 91 (1):94–107.Google Scholar
Mansfield, Edward, Helen V. Milner, and B. Peter Rosendorff. 2000. Free to Trade: Democracies, Autocracies, and International Trade. American Political Science Review 94 (2):305–22.Google Scholar
Markusen, James R., and Randall M. Wiggle. 1990. Explaining the Volume of North-South Trade. Economic Journal 100 (403):1206–15.Google Scholar
Marshall, Monty, and Keith Jaggers. 2001. Polity IV: Political Regime Change and Transitions, 1800–2001. College Park, Md.: Integrated Network for Societal Conflict Research (INSCR) Program, University of Maryland. Available at 〈http://www.cidcm.umd.edu/inscr/polity/〉. Accessed 15 September 2004.
Mayer, Wolfgang. 1984. Endogenous Tariff Formation. American Economic Review 74 (5):970–85.Google Scholar
Milner, Helen V., and Keiko Kubota. 2001. Why the Rush to Free Trade? Democracy and Trade Liberalization in the Developing World, 1970–1999. Paper presented at the 97th Annual Conference of the American Political Science Association, September, San Francisco.
Munoz, Oscar. 1994. Toward Trade Opening. In Intricate Links: Democratization and Market Reforms in Latin America and Eastern Europe, edited by Joan Nelson, 61–104. New Brunswick, N.J.: Transaction Publishers.
Murillo, Maria. 2001. Labor Unions, Partisan Coalitions and Market Reform in Latin America. New York: Cambridge University Press.
Naím, Moisés. 1993. Paper Tigers and Minotaurs: The Politics of Venezuela's Economic Reforms. Washington, D.C.: Carnegie Endowment for International Peace.
Nelson, Joan. 1990. Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World. Princeton, N.J.: Princeton University Press.
Nelson, Joan, ed. 1994a. Intricate Links: Democratization and Market Reforms in Latin America and Eastern Europe. New Brunswick, N.J.: Transaction Publishers.
Nelson, Joan, ed. 1994b. A Precarious Balance: Democracy and Economic Reform in Eastern Europe. San Francisco: Institute for Contemporary Studies Press.
Ozden, Caglar, and Eric Reinhardt. 2002. The Perversity of Preferences: The Generalized System of Preferences and Developing Country Trade Policies, 1976–2000. Working Paper 2955. Washington, D.C.: World Bank.
Pritchett, Lant. 1996. Measuring Outward Orientation in LDCs: Can It Be Done? Journal of Development Economics 49 (2):307–35.Google Scholar
Przeworski, Adam, and James Vreeland. 2000. The Effect of IMF Programs on Economic Growth. Journal of Development Economics 62 (2):385–421.Google Scholar
Przeworski, Adam, Michael F. Alvarez, José Antonio Cheibub, and Fernando Limongi. 2000. Democracy and Development: Political Institutions and Well-Being in the World, 1950–1990. New York: Cambridge University Press. Updated data to 2000 available from José Cheibub.
Quinn, Dennis. 2001. Democracy and International Financial Liberalization. Paper presented at the 97th Annual Conference of the American Political Science Association, September, San Francisco.
Remmer, Karen. 1990. Democracy and Economic Crisis: The Latin American Experience. World Politics 42 (3):315–35.Google Scholar
Rodriguez, Francisco, and Dani Rodrik. 2001. Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence. In NBER Macroeconomics Annual 2000, edited by B. Bernanke and K. Rogoff, 261–325. Cambridge, Mass.: MIT Press.
Rodrik, Dani. 1992. The Limits of Trade Policy Reform in Developing Countries. The Journal of Economic Perspectives 6 (1):87–105.Google Scholar
Rodrik, Dani. 1994. The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will It Last? In Voting For Reform, edited by Stephan Haggard and Steven Webb, 1457–94. New York: Oxford University Press.
Rodrik, Dani. 1995. Political Economy of Trade Policy. In Handbook of International Economics, edited by Gene Grossman and Kenneth Rogoff, 1457–94. Amsterdam, Netherlands: Elsevier Science Press.
Rodrik, Dani. 1996. Understanding Economic Policy Reform. Journal of Economic Literature 34 (1):9–41.Google Scholar
Rodrik, Dani. 1997. Has Globalization Gone Too Far? Washington, D.C.: Institute for International Economics.
Rogowski, Ronald. 1987. Political Cleavages and Changing Exposure to Trade. American Political Science Review 81 (4):1121–37.Google Scholar
Rose, Andrew. 2002a. Do We Really Know that the WTO Increases Trade? Working Paper 9273. Cambridge, Mass.: National Bureau of Economic Research.
Rose, Andrew. 2002b. Do WTO Members Have More Liberal Trade Policy? Working Paper 9347. Cambridge, Mass.: National Bureau of Economic Research.
Sachs, Jeffrey, and Andrew Warner. 1995. Economic Reform and the Process of Global Integration. Brookings Papers on Economic Activity 1995 (1):1–118.Google Scholar
Scheve, Kenneth, and Matthew Slaughter. 2001. What Determines Individual Trade-Policy Preferences? Journal of International Economics 54 (2):267–92.Google Scholar
Seddon, Jessica, and Romain Wacziarg. 2004. Trade Liberalization and Intersectoral Labor Movements. Journal of International Economics 64 (4):411–39.Google Scholar
Sharer, Robert, Piritta Sorsa, and IMF staff. 1998. Trade Liberalization in IMF-Supported Programs. Washington, D.C.: International Monetary Fund.
Sikkink, Kathryn. 1997. Development Ideas in Latin America: Paradigm Shift and the Economic Commission for Latin America. In International Development and the Social Sciences: Essays in the History and Politics of Knowledge, edited by Frederick Cooper and Randall Packard, 228–56. Berkeley: University of California Press.
Simmons, Beth. 2000. International Law and State Behavior: Commitment and Compliance in International Monetary Affairs. American Political Science Review 94 (4):819–36.Google Scholar
Stallings, Barbara, ed. 1995. Global Change, Regional Response: A New International Context of Development. New York: Cambridge University Press.
Stallings, Barbara, and Robert Kaufmann, eds. 1989. Debt and Democracy in Latin America. Boulder, Colo.: Westview Press.
Stokes, Susan, ed. 2001. Public Support for Market Reforms in New Democracies. New York: Cambridge University Press.
Subramanian, Arvind, and Shang-Jin Wei. 2003. The WTO Promotes Trade, Strongly but Unevenly. Working Paper 10024. Cambridge, Mass.: National Bureau of Economic Research.
Subramanian, Arvind, Enrique Gelbard, Richard Harmsen, Katrin Elborgh-Woytek, and Piroska Nagy. 2000. Trade and Trade Policies in Eastern and Southern Africa. Washington, D.C.: International Monetary Fund.
Summers, Robert, and Alan Heston. 1991. The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988. Quarterly Journal of Economics 106 (2):327–68. Version 6.0, updated to 2000, available at <http://pwt.econ.upenn.edu/php_site/pwt_index.php>. Accessed 15 September 2004.Google Scholar
Tornell, Aaron. 1998. Reform from Within. Working Paper 6497. Cambridge, Mass.: National Bureau of Economic Research.
Tybout, James, and Daniel Westbrook. 1995. Trade Liberalization and the Dimensions of Efficiency Change in Mexican Manufacturing Industries. Journal of International Economics 39 (1–2):53–78.Google Scholar
UN Conference on Trade and Development (UNCTAD). 1994. Directory of Import Regimes. Geneva: UN Conference on Trade and Development.
UN Conference on Trade and Development (UNCTAD). 2000. Trade Analysis and Information Systems (TRAINS). Geneva: UN Conference on Trade and Development. CD-ROM.
UN Development Program. 2002. Human Development Report 2002: Deepening Democracy in a Fragmented World. New York: Oxford University Press.
van de Walle, Nicolas. 2001. African Economies and the Politics of Permanent Crisis, 1979–1999. New York: Cambridge University Press.
Vreeland, James. 2003. The IMF and Economic Development. Cambridge: Cambridge University Press.
Weyland, Kurt. 2002. The Politics of Market Reform in Fragile Democracies: Argentina, Brazil, Peru and Venezuela. Princeton, N.J.: Princeton University Press.
Wooldridge, Jeffrey. 2002. Econometric Analysis of Cross Section and Panel Data. Cambridge, Mass.: MIT Press.
World Bank. 2000a. Global Development Finance. Washington, D.C.: World Bank.
World Bank. 2000b. File: tar2000.xcl. Washington, D.C. Updated file tar2002.xcl available at <http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/TRADE/0,,contentMDK:20103740∼menuPK:167374∼pagePK:148956∼piPK:216618∼theSitePK:239071,00.html>. Accessed 15 September 2004.
World Bank. Various years. World Development Indicators. (WB WDI). Washington, D.C.: World Bank. CD-ROM.
World Trade Organization (WTO). Various years. Trade Policy Review. Geneva: WTO.
Yang, C. C. 1995. Endogenous Tariff Formation under Representative Democracy: A Probabilistic Voting Model. The American Economic Review 85 (4):956–63.Google Scholar