Title: Trade and Autocracy: the Effect of the First Wave of Globalization on Democratization
Author: Carlos Felipe Balcazar (co-authored with Rafael Ch)
Abstract: Does international trade foster democratization? Theories of trade liberalization and democracy ignore the role that tariffs and thus trade revenues play in democratization. We posit that an increase in tariff revenues halts democratization because these fiscal windfalls attract intra-elite conflict to shape trade policy and capture these rents. We study this claim in the context of a technological shock that reduces the costs of transportation and increases trade flows. Specifically, we estimate the effect of the first wave of globalization on democratization from 1850 to 1905. To do this we exploit the exogenous source of variation provided by the asymmetric change in trade distances among countries owing to the exogenous timing of ships and the change from sail to steam ships, and use it to instrument trade flows. We find that a one standard deviation increase in imports leads to a decrease of -0.54 standard deviations in political competition and a decrease of other measures of democratization. The main mechanism behind this result is an increase in the likelihood of executive survival, even in the presence of higher intra-elite conflict. We also investigate the underlying distributive effect of the trade shock. Consistent with our theoretical expectations, we find that non-democratic regime change is less likely to occur when there is an economic structure wherein manufacturing elites stand to benefit economically from a fall in international transport costs. We also find that a more equal distribution of de facto economic and political power preceding the shock prevents democratic backsliding.