Does Democracy Increase Bilateral Trade in MENA Region?

Roesmara Donna, Duddy and Widodo, Tri and Adiningsih, Sri (2018): Does Democracy Increase Bilateral Trade in MENA Region?

Abstract

This paper aims to analyze the effects of democracy to the trade of countries in MENA Regions. The Gravity Model used to test the effects of democracy on trade. Estimation is done with several models, that is FE, RE, MLE, and PPML. From this estimation can be detected endogenity problem that is caused by simultaneity between export and democracy. The FE model with the infant mortality rate as instrumental variable was chosen to address the problem. After controlling endogenity, it can be concluded that democracy positively affects (3-4 per cent) of trade in MENA Regions, especially democracy in partner countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: trade, export, democracy, Gravity Model, MENA.
• Subjects: F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F1 - Trade > F17 - Trade Forecasting and Simulation

References

Acemoglu, D. (2009). "Introduction to Modern Economic Growth". New Jersey: Princeton University Press.

Anderson, J. E. (1979). "A Theoritical Foundation for the Gravity Equation". The American Economic Review, 69(1), 106-116.

Anderson, J. E., & Wincoop, E. v. (2003). "Gravity with Gravitas : A Solution to the Border Puzzle". The American Economic Review, 93(1), 170-192.

Anderson, J. E., & Wincoop, E. v. (2004). "Trade Costs". Journal of Economic Literature, 42(3), 691-751.

Anderson, J. E., Vesselovsky, M., & Yotov, Y. V. (2016). "Gravity with Scale Effects". Journal of International Economics, 100, 174-193.

Balding, C. (2011). "A Re-examination of The Relation Between Democracy and International Trade". The Journal of International Trade & Economic Develompment, 20(5), 585-603.

Behar, A., & Freund, C. (2011). "The Trade Performance of the Middle East and North Africa". Middle East and North Africa Working Paper Series(53).

CEPII. (no year.). Dataset. Taken from CEPII Research of Expertise on the World of Economy: http://www.cepii.fr/pdf_pub/wp/2011/wp2011-25.pdf

Cindy, D., Clotilde, G., & Jean-Marc, S. (2004). "Trade and democracy. An empirical investigation". European Trade Study Group 6th. Nothingham.

Decker, J. H., & Lim, J. J. (2009). "Democracy and Trade: An Empirical Study". Econ Gov, 10, 165-186.

De Haan, J. dan Sturn, J.E. (2003). "Does Democracy Lead to Greater Economic Freedom? New Evidence for Developing Countries". Europan Journal of Political Economiy, 19(3), 547-563.

Diamond, L. (2010). "Why are There No Arab Democracies?". Journal of Democracy, 21(1), 93-104.

Diop, N., & Marotta, D. (2012). "An Overview of Diversification in MENA: Rationale, Stylized Facts, and Policy Issues". Dalam N. Diop, D. Marotta, & J. de Melo, "Natural Resource Abundance,Growth, and Diversification in the Middle East and North Africa The Effects of Natural Resources and the Rle of Policies". Washington DC: The World Bank.

Diop, N., Walkenhorst, P., & Lopez-Calix, J. R. (2010). "Trade Reforms for Export Competitiveness: What Are the Issues for the Middle East and North Africa?". Dalam N. Diop, P. Walkenhors, & J. R. Lopez-Calix, Trade Competitiveness of Middle East and North Africa Policies for Export Diversification (hal. 1-9). Washington DC: World Bank Publications.

Duc, C., Granger, C., & Siroën, J. M. (2005). "Do Democratic Agreements Foster Bilateral Trade Flows?". Working Paper of The Europan Trade Study Group.

Freund, C., & Perez, A. P. (2012). "Assesing MENA's Trade Agreements". Middle East and North Africa Working Paper Series(55).

Gourdon, J. (2010). "FDI Flows and Export Diversification: Looking at Extensive and Intensive Margin". Dalam N. Diop, P. Walkenhors, & J. R. Lopez-Calix, Trade Competitiveness of Middle East and North Africa Policies for Export Diversification (hal. 13-46). Washington DC: The World Bank.

Khan, M. S., & Hossain, M. I. (2010). "Democracy and Trade Balance: A Vector Autoregressive Analysis". The Bangladesh Development Studies, 33(4), 23-37.

Kono, D. Y. (2006). "Optimal Obfuscation: Democracy and Trade Policy Transparency". The American Political Science Review, 100(3), 369-384.

Kono, D. Y. (2008). "Democracy and Trade Discrimination". The Journal of Politics, 70(4), 942-955.

Linder, S. (1961). "An Essay on Trade and Transformation". London: Wiley Publishers.

Mansfield, E. D., Milner, H. V., & Rosendroff, B. P. (2000). "Free to Trade: Democracies, Autocracies, and International Trade". The American Political Science Review, 94(2), 305-321.

Paldam, M. (2003). "Economic freedom and the Succes of Asian Tigers: an Essay of Controversy". European Journal of Politica Economy, 19(3), 453-477.

Polity IV Project. (t.thn.). Polity IV. Quoted form Center for Systemic Peace: www.systemicpeace.org/polity/polity4.htm

Rose, A. K. (2004). "Do We Really Know That the WTO Increases Trade?". American Economic Review, 94(1), 98-114.

Ross, M., Kaiser, K., & Mazaheri, N. (2011). "The 'Resource Curse' in MENA? Political Transitions, Resource Wealth, Economic Shocks, and Conflict Risk". Policy Researhc Working Paper.

Rouis, M., & Tabor, S. R. (2013). "Regional Economic Integration in the Middle East and North Africa Beyond Trade Reform". Washington DC: The World Bank. UN Comtrade. (no year). Data Query. Taken from UN Comtade: http://comtrade.un.org/db/

WDI. (no year.). World Development Indicators. Taken from The World Bank: http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators

Wooldridge, J. M. (2013). "Introductory Econometrics A Modern Approach 5th Edition". Mason: South-Western Cengage Learning.

Yu, M. (2010). "Trade, Democracy, and Gravity Equation". Journal of Development Economics, 91, 289-300.