Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316849 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11735
Publisher: 
CESifo GmbH, Munich
Abstract: 
We study the causal effect of country-specific democratic regime change on bilateral trade flows, extending structural gravity empirics to 'heterogeneous gravity' estimated at the country-pair level. Our difference-in-differences implementation accounts for selection into regime change, multilateral resistance, globalisation effects, and spatial dependence. We find average effects of 46% higher exports for countries after thirty years in democracy, but demonstrate that these effects are driven by the democratic dividend for income: the causal chain runs from democracy to economic prosperity to trade, and democracy appears to have a limited 'direct' effect on trade flows.
Subjects: 
trade gravity model
democratic regime change
monadic variables
heterogeneity
panel data
interactive fixed effects
JEL: 
P16
F13
F14
C23
Document Type: 
Working Paper
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