Importing Democracy Abroad: Exports Earnings and Democracy in Developing Countries

1. Importing Democracy Abroad: Exports Earnings and Democracy in Developing Countries John A. Doces University of Southern California School of International Relations

2. Data Trends: Global

3. 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)

4. The Literature: What’s Been Done • Trade influences type of democracy • Rogowski (1987) • Trade openness negatively impacts democracy • Li and Reuveny (2003); Rudra (2005)

5. Problems with the Literature • Measure of trade • Connection between measure of trade openness and democracy • Theory is imprecise

6. 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

7. A Simple Hypothesis • Exogenous shock causes increased exports • Leads to expansion of labor-intensive good production • Demand for labor increases • Wages/earnings increase • Labor specialization increases • Mechanism 1 • Exports increase GDP per capita • Size of the middle-class expands (Lipset, Epstein et. al.)

8. A Simple Hypothesis • Mechanism 2 • Exports increase specialization (A. Smith) • Labor gains human capital • Increases education/literacy • Causes increased demands for more democracy

9. Empirical Tests • Use dual approach • Illustrative case studies • Mexico and Bangladesh • Econometric 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

10. 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 state • Economic dissatisfaction leads to slim victory for PRI’s Salinas in 1988 • 1990s: NAFTA signed • Fox elected in 2000

11. Mexico: Causal Mechanism

12. Mexico: Causal Mechanism

13. Mexico: Causal Mechanism

14. Mexico: Exports and Democracy

15. Mexico: Trade Openness and Democracy

16. 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.”

17. Bangladesh: Exports and Democracy

18. 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

19. Summary of cases • Cases illustrate close connection between exports and democracy • Help 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)

20. Econometric Results • Equation 1 • Equation 2

21. Albania Benin China Ethiopia Honduras Kenya Mali Nepal Phili-ppines Sudan Vene-zuela Algeria Bolivia Colombia Fiji Hungary S. Korea Mauri-tania Nicara-gua Poland Thailand Zambia Angola Brazil Congo Gabon Hungary Kuwait Mauritius Niger Romania Togo Zimbabwe Argentina Bulgaria Congo, D.R. Gambia India Kyrgyz-stan Mexico Nigeria Rwanda Trinidad & Tobago Armenia Cambodia Djibouti Ghana Indonesia Laos Moldova Oman Saudi Arabia Tunisia Azerbai-jan Came-roon Dom. Repub. Guat-emala Israel Liberia Mongolia Pakistan Senegal Turkey Burkina Faso Cen. Afr. Rep. Ecuador Guinea Ivory Coast Mada-gascar Morocco Panama Singapore Turkmen-istan Bahrain Chad Egypt Guinea- Bissau Jamaica Malawi Mozam-bique Paraguay Slovakia Uganda Bangla-desh Chile El Salvador Haiti Jordan Malaysia Myanmar Peru Sri Lanka Uruguay Sample

22. Regression Results: Polity

23. Regression Results: Civil Liberty

24. Conclusion • Exports to U.S. encourages democracy in exporting country • Case studies provide illustrative evidence • Measure of globalization & TSLS have yielded new results

25. 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?

26. 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.