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The Effects of Political Institutions on the Extensive and Intensive Margins of Trade

Published online by Cambridge University Press:  25 September 2019

In Song Kim ,
John Londregan  and
Marc Ratkovic
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Abstract

We present a model of political networks that integrates both the choice of trade partners (the extensive margin) and trade volumes (the intensive margin). Our model predicts that regimes secure in their survival, including democracies as well as some consolidated authoritarian regimes, will trade more on the extensive margin than vulnerable autocracies, which will block trade in products that would expand interpersonal contact among their citizens. We apply a two-stage Bayesian LASSO estimator to detailed measures of institutional features and highly disaggregated product-level trade data encompassing 131 countries over a half century. Consistent with our model, we find that (a) political institutions matter for the extensive margin of trade but not for the intensive margin and (b) the effects of political institutions on the extensive margin of trade vary across products, falling most heavily on those goods that involve extensive interpersonal contact.

Keywords

Extensive and intensive margins of tradepolitical networksdifferentiated productspolitydemocracyinternational tradevariable selectionmachine learningLASSOzero trade
Type
Research Article
Information
International Organization , Volume 73 , Issue 4 , Fall 2019 , pp. 755 - 792
Copyright
Copyright © The IO Foundation 2019 

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