Daniel Yuichi Kono

Optimal Obfuscation: Democracy and Trade Policy Transparency

A growing body of research shows that democracies have more liberal trade policies than do autocracies. I argue, in contrast, that democracy has contradictory effects on different types of trade policies because electoral competition generates more information about some than about others. It generates considerable information about policies whose effects on consumer welfare are easy to explain to voters, but less information about policies whose effects are more complex. By increasing the transparency of some policies relative to others, democracy induces politicians to reduce transparent trade barriers but also to replace them with less transparent ones. I test this hypothesis by examining the impact of democracy on tariffs, “core” nontariff barriers (NTBs) such as quotas, and “quality” NTBs such as product standards in 75 countries in the 1990s. I find that democracy leads to lower tariffs, higher core NTBs, and even higher quality NTBs. I conclude that democracy promotes “optimal obfuscation” that allows politicians to protect their markets while maintaining a veneer of liberalization.

Does Foreign Aid Support Autocrats, Democrats, or Both?

Does foreign aid prop up recipient governments? Although many people argue that it does, there is little systematic evidence to support this claim. We argue that aids effects on government survival depend on both the recipients regime type and the analysts time horizons. In the long run, continued aid helps autocrats more than democrats because the former can stockpile this aid for use against future negative shocks. However, because large stocks of aid reduce the marginal impact of current aid, current aid helps democrats more than autocrats. We test and find support for our argument with a survival analysis of 621 leaders in 123 countries from 1960 to 1999. Our results imply that donors should make both the nature of aid and the use of aid conditionality contingent on the domestic regime type of aid recipients.

Democracy and Trade Discrimination

Scholars continue to debate the relationship between democracy and free trade. This paper contributes to this debate by showing that the effects of democracy on trade policy vary across trading partners. Because democratization shifts political power from wealthier individuals to poorer ones, it creates political pressures for trade liberalization with wealthier partners but for increased protection against poorer ones. I test and find support for this hypothesis using dyadic trade flows from 1950 to 2000 and dyadic trade barriers in the 1990s. My results show that democratization leads to trade discrimination against poor countries, primarily via nontariff barriers. This result explains many features of the contemporary global trading system and also highlights the need to combat discrimination in international trade.

The Uses and Abuses of Foreign Aid Development Aid and Military Spending

Research shows that foreign aid promotes economic development in democracies but not in autocracies. Although explanations for this phenomenon vary, a common theme is that autocracies are more likely to misuse aid. We provide evidence of such misuse, showing that autocracies are more likely than democracies to divert development aid to the military. Theoretically, we build on “selectorate” models in which autocrats respond to aid by contracting civil liberties. Because this strategy requires military capacity, autocracies but not democracies should spend aid on the military. We support this hypothesis empirically, providing further evidence that autocracies misuse foreign aid.

Helping hand or heavy hand? Foreign aid, regime type and domestic unrest:

Does foreign aid affect domestic political unrest? ‘Selectorate’ models of political survival predict that foreign aid should lead autocratic governments, but not democratic ones, to restrict civil liberties. This requires investment in repressive capacity, which should in turn deter unrest. We thus argue that foreign aid should reduce unrest in autocracies but not in democracies. We find strong support for this hypothesis in a sample of 84 countries from 1970 through 2007, as well as evidence for our causal mechanism. Our results add to the mounting evidence that foreign aid has more desirable effects when targeted at democratic regimes.

Buying National: Democracy, Public Procurement, and International Trade

Many studies show that democracy promotes freer trade. However, because they typically focus on “at-the-border” barriers such as tariffs, we know little about democracy’s effects on “behind-the-border” barriers such as discrimination in government procurement. We address this question by asking how democracy affects governments’ incentives to discriminate against foreigners when buying goods and services. We argue that “buy national” policies have unclear costs and are harder to attack than policies that visibly interfere with consumers’ ability to buy foreign goods. This makes such provisions more attractive than tariffs to democratic leaders seeking reelection. We thus hypothesize that democracy leads to lower tariffs but to greater discrimination in public procurement. We support this hypothesis with an analysis of procurement and imports in 138 countries from 1990 to 2008. Our results imply that a full understanding of the democracy–trade policy relationship requires attention to increasingly prominent behind-the-border barriers to trade.

Alliances, Trade Discrimination, and the Global Trade Regime

Although nondiscrimination is a central tenet of the global trade regime, discrimination was in fact common under the General Agreement on Tariffs and Trade, particularly against developing countries. The latter have recently sought to end such discrimination through World Trade Organization rules: for example, the Agreement on Textiles and Clothing (ATC) prohibited quota discrimination in this sector. I examine the ATCs impact on US discrimination, asking whether the ATC ended the US policy of favoring allies with generous textile and clothing quotas. I find that, while the United States favored allies before the ATC, this favoritism vanished in the post-ATC period. The ATC thus accomplished its goal of ending explicit textile and clothing discrimination. This result underscores the potential for multilateral rules to control trade discrimination and implies that popular theories of trade policy may be contingent on such rules.

Tariffs and Carbon Emissions

ABSTRACT International trade and the environment are uneasy partners. Both environmentalists and free traders worry that the pursuit of one goal may obstruct the other. Nowhere is this tension more evident than in the area of climate change. Does trade liberalization increase carbon emissions? Do efforts to reduce carbon emissions lead to protectionist pressures? This paper addresses these questions by examining the relationship between CO2 emissions and tariffs in 109 to 153 countries from 1988 to 2013. Using instrumental-variable regressions to address reciprocal causation, I find that emissions reductions led to higher tariffs on manufactured goods. This suggests that carbon-intensive industries responded to carbon restrictions by lobbying against trade liberalization. In contrast, emissions did not affect tariffs on less carbon-intensive primary products, and neither type of tariff affected CO2 emissions. My results imply that efforts to combat climate change may obstruct trade liberalization, but the latter should not hinder climate change mitigation.

Foreign Aid, Time Horizons, and Trade Policy

Although there are theoretical reasons to expect foreign aid to promote trade liberalization, empirical research has found no relationship. Without disputing this general nonresult, we argue that foreign aid can incentivize liberalization under certain conditions. In the absence of aid, the incentive to liberalize trade depends on government time horizons: Far-sighted governments have incentives to do so, whereas short-sighted governments do not. It follows that foreign aid should not encourage far-sighted governments to liberalize, as they do so in any case. Foreign aid can, however, induce short-sighted governments to liberalize by ameliorating short-term adjustment costs. We thus hypothesize that aid is more likely to promote trade liberalization when given to governments with short time horizons. We support this hypothesis with an analysis of aid, time horizons, and two measures of trade policy. Our results contribute to the growing debate about the conditions under which foreign aid encourages growth-enhancing policies.