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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

Importing Democracy Abroad: Exports Earnings and Democracy in Developing Countries

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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. Research Question. Based on the data I specify my question - PowerPoint PPT Presentation

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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

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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

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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

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1998

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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

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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.