Stephanie J. Rickard
London School of Economics
Does democracy promote free trade? In an analysis of 138 countries from 1990 to 2008, we find that democratic countries have lower tariffs than non-democracies, on average, but higher levels of discrimination in public procurement. In other words, democratically-elected governments are more likely to discriminate against foreign firms when awarding lucrative government contracts.
A growing number of international agreements regulate governments' purchases of goods and services. In theory, such rules make "buy national" programs illegal. Yet, governments often fail to change their purchasing behavior after signing international procurement agreements. Governments continue to discriminate against foreign firms when awarding lucrative government contracts, even as signatories to the World Trade Organization's (WTO) Agreement on Government Procurement (GPA) or as members of the European Union (EU) with its detailed procurement rules.
International trade affects countries’ budgets, particularly in developing countries where trade taxes make up a large portion of government revenue. In a study of 44 developing countries, I find that increased trade prompts governments to cut social welfare spending. However, governments spend more on industrial subsidies following a rise in imports.
Democratic institutions are ostensibly designed to serve the majority. Yet in some democracies, politicians routinely cater to the interests of a few. Why are leaders more responsive to parochial interests in some democracies than in others? Political institutions and economic geography provide the answer. Politicians competing in plurality electoral systems privilege special interests when they are geographically concentrated. When special interests are geographically diffuse, politicians in proportional systems do more to cater to their demands.
The 2008 global economic crisis prompted fears that governments would turn to trade protection. While these fears appear to have been largely unwarranted, modest moves toward protection did occur, notably in the form of subsidies. Which governments use subsidies to protect domestic producers and why? In a study of 68 countries, I find that spending on subsidies is higher in majoritarian democracies than in democracies with proportional electoral rules, holding all else equal.
How much inﬂuence do citizens have in negotiations with the International Monetary Fund? Using new data from IMF loan documents, we ﬁnd that citizens can impact IMF loan agreements. Democratic governments facing powerful labor at home receive less stringent labor-related loan conditions. This finding suggests that the IMF is responsive to domestic politics in borrowing countries.
Why do some democracies comply with international rules more often than others? Electoral politics explains this variation. Among democratic members of the World Trade Organization (WTO), governments elected via majoritarian electoral rules and/or single-member districts are more likely to violate WTO agreements than those elected via proportional electoral rules and/or multi-member districts.
What factors explain international trade flows? Recent theories point to the importance of countries’ legal traditions. In this article, we offer the ﬁrst test of the effect of Islamic law on countries’ trade relations. We ﬁnd that, on average, levels of bilateral trade are lowest among Islamic law states, holding all else constant. However, the importance of countries’ legal systems appears to be decreasing over time. We speculate that the decreased importance of legal systems may be due to the growing role of international arbitration bodies.
In democracies, politicians compete to win votes in free and fair elections. Elected representatives should therefore be responsive to citizens’ demands. Yet, leaders in some democracies are more reactive to pressures for trade protection than in others. The varied responsiveness of elected officials results from the dissimilar rules that govern democratic elections around the world. In this study, I find that politicians elected via proportional electoral systems are more responsive to increased demand for trade protection.