Rafael Reuveny

Economic Globalization and Democracy: An Empirical Analysis

The theoretical literature presents conflicting expectations about the effect of globalization on national democratic governance. One view expects globalization to enhance democracy; a second argues the opposite; a third argues globalization does not necessarily affect democracy. Progress in explaining how globalization affects democracy requires confronting these theoretical positions with data. We assess empirically the effects of globalization on the level of democracy from 1970 to 1996 for 127 countries in a pooled time-series cross-sectional statistical model. The effects of four national aspects of globalization on democracy are examined: trade openness, foreign direct investment inflows, portfolio investment inflows and the spread of democratic ideas across countries. We find that trade openness and portfolio investment inflows negatively affect democracy. The effect of trade openness is constant over time while the negative effect of portfolio investment strengthens. Foreign direct investment inflows positively affect democracy, but the effect weakens over time. The spread of democratic ideas promotes democracy persistently over time. These patterns are robust across samples, various model specifications, alternative measures of democracy and several statistical estimators. We conclude with a discussion of policy implications.

Economic Openness, Democracy, and Income Inequality An Empirical Analysis

Scholars have studied effects of economic openness and democracy on national income inequality in two literatures. In democracy studies, scholars agree democracy reduces inequality but empirical evidence is ambiguous. In globalization studies, effects of economic openness on inequality are debated but have not been rigorously examined. This article is the first systematic statistical study of the effects of both economic openness and democracy on income inequality. These effects need to be studied together. The authors measure national income inequality from a comprehensive Gini coefficient data set. Economic openness is measured from trade flows, foreign direct investment inflows, and financial capital inflows. The period studied is 1960 to 1996, the unit of analysis is a country decade, and the sample includes 69 countries. The authors find that democracy and trade reduce income inequality, foreign direct investments increase income inequality, and financial capital does not affect income inequality. Policy implications are discussed.

Trade Still Follows the Flag: The Primacy of Politics in a Simultaneous Model of Interdependence and Armed Conflict

While many scholars have posited a simultaneous relationship between trade and conflict, very few empirical studies have specified the relationship as such. Those that did employed samples that were relatively limited in spatial-temporal coverage. None have employed conflict indicators based on Militarized Interstate Dispute (MID) data due to the difficulty of including discrete dependent variables in a simultaneous equation framework. We overcome both limitations in this study and offer results with important theoretical implications. In line with the most recent published studies, we design our model to “condition” the estimates on recent histories of dyadic trade and conflict. We apply Maddalas estimator, which is designed for a two-equation system in which one endogenous variable is continuous and the other is dichotomous. While the signs of all control variable coefficients match those reported in mainstream trade-conflict literature, our main result does not. We find what we call the “primacy of politics”; i.e., that conflict indeed inhibits trade while the effect of dyadic interdependence on the likelihood of conflict is statistically insignificant. Extensive sensitivity analyses show the results to be consistent across estimators as well as alternative model specifications and trade data sets. We conclude that liberal claims about interdependence and conflict may be problematic.

Economic Globalization and Civil War

In recent decades, the number of countries with ongoing civil wars and the share of these countries in the international system have increased dramatically. At the same time, the scope of economic globalization has also increased. Are these trends related? The theoretical literature on the determinants of civil wars presents conflicting views about the effects of globalization on such wars. One view expects economic globalization to reduce the likelihood of civil wars, ceteris paribus. A second view expects the opposite. A third view implies that globalization does not necessarily affect the likelihood of civil war. Progress in assessing the validity of these arguments requires confronting them with data. However, so far economic globalization has been included as a control variable in a very small number of studies, and only trade was inspected. This paper statistically investigates the effect of several aspects of globalization on civil war from a large-N, time-series, cross-sectional sample. The occurrence of civil war is measured in two ways: the presence of civil war (or civil war prevalence) and the breakdown of civil war (or civil war onset). Economic globalization is measured by the flows of trade, foreign direct investment, portfolio investment, and Internet use. We find that economic forms of globalization reduce the likelihood of civil war, but that Internet use does not affect its likelihood. We conclude the paper with a discussion of the implications of these findings for public policy and for future research.

Bilateral Trade and Political Conflict/Cooperation: Do Goods Matter?

This article investigates Granger causality between political conflict/cooperation and bilateral trade. The measures of conflict/cooperation are constructed by accumulating daily events and splicing the two datasets of the Conflict and Peace Data Bank and the World Events Interaction Survey. Trade data from the United Nations include ten commodity groups as well as total trade. Quarterly data are analyzed from the very early 1970s to the early 1990s for four dyads of USA-USSR, USA-China, Turkey-Greece, and Egypt-Israel. Yearly data are investigated from the early 1960s to the early 1990s for 16 dyads. Granger causality between bilateral trade and conflict/cooperation is generally reciprocal in most goods and dyad dependent, but independent of whether or not two countries are political rivals. For USA-USSR and USA-China, however, there is a tendency for bilateral trade to increase in some goods when political relations improve. For USA-USSR, in particular, causality from conflict to trade is pronounced in more goods than causality from trade to conflict. While the effect of cooperation in these dyads is mostly positive, the effect of an increase of trade on conflict is generally ambiguous. For 20 dyads collectively, conflict/cooperation tends to Granger-cause bilateral trade in minerals, iron and steel, fuels, basic manufactures and control and scientific equipment; whereas bilateral trade somewhat more frequently Granger-causes conflict/cooperation in food and live animals, beverages and tobacco, and machines and transport equipment. The concept of strategic goods, much debated in the literature, is further discussed in light of these results. The general result of reciprocal Granger causality calls for a model in which both bilateral trade and conflict/cooperation are simultaneously determined. Such a simultaneous equations model is briefly sketched.

Resource Scarcity and Conflict in Developing Countries

As time passes, renewable resource scarcities are becoming more common. There is increasing evidence that these scarcities are a causal factor in political conflict, especially in developing countries. We present a simple dynamic model of renewable resource and population interaction featuring the possibility of conflict triggered by per capita resource scarcity. In the model, conflict diverts resources away from resource harvesting, increases the death rate, and damages the resource. The two former effects may speed the return to a peaceful steady state. If conflict results in resource destruction, however, it may destabilize the system, leading it towards collapse. Conflict due to renewable resource scarcity could be cyclical, implying recurring phases of conflict. However, such conflict cannot last for ever. We use the model to examine various policy scenarios concerning population control and technical innovations in harvesting and natural resource growth. A key insight of the model is the importance of the bidirectional interplay between conflict and resource scarcity, as opposed to the unidirectional notion that resource scarcity leads to conflict. As such, the model points to the need for the use of simultaneous equation econometric models in empirical investigations of resource scarcity and conflict.

Easter Island: historical anecdote or warning for the future?

Two standard solutions for the ‘Malthusian Trap’ involve institutional reforms and technological progress. Using Easter Island as an example, we investigate the hypothetical role that technological progress and population management reform might have played in preventing the collapse of the island’s civilization. The model includes a composite manufactured good and a composite harvested renewable resource. Fertility is assumed to rise with per capita income. The resource’s carrying capacity and intrinsic growth rate as well as labor’s harvesting productivity are subject to technological progress. Fertility is subject to population management reform. The model yields a system of two simultaneous, nonlinear, non-autonomous differential equations. We first study the system’s steady states. The system is then parameterized for Easter Island and its comparative dynamics are investigated in simulations. We find that technological progress can generate large fluctuations in population, renewable resources, and per capita utility, sometimes resulting in system collapse. With high fertility rates, the population and the resource vanish. None of the simulations investigated here exhibit a constantly growing per capita utility over time. Finally, we evaluate the applicability of these results to contemporary societies.

Conflict and Renewable Resources

The economic literature on conflict employs a static, game-theoretic framework developed by Jack Hirshleifer. The authors introduce conflict dynamics into a model with two rival groups, each dependent on a single contested renewable resource. The model is based on two stylized facts: conflict often arises over scarce renewable resources, and those resources often lack well-defined and/or enforceable property rights. In each period, groups allocate their members between resource harvesting and resource appropriation (or conflict) to maximize their income. This leads to a complex nonlinear dynamic interaction between conflict, the two populations, and the resource. As developed, the model relates most closely to conflict over renewable resources in primitive societies. The systems global dynamics are investigated in simulations calibrated for the historical society of Easter Island. The models implications for contemporary lesser developed societies are examined.

The Joint Democracy–Dyadic Conflict Nexus: A Simultaneous Equations Model

Many statistical studies in international relations investigate the claim that democracies do not fight one another. Virtually all of these studies employ a single-equation design, where the dependent variable measures the presence or absence of a dyadic militarized interstate dispute (MID). A separate group of studies argues that conflict affects democracy and that its effect could be positive or negative. By and large, these two bodies of literature have not incorporated one anothers insights. We argue that democracy and dyadic conflict affect each other significantly and that statistical models that ignore the reciprocal nature of these effects may make incorrect inferences. To test this argument, we develop a simultaneous equations model of democracy and dyadic conflict. Our sample includes all the politically relevant dyads from 1950 to 1992. We find that dyadic military disputes reduce joint democracy and joint democracy reduces the probability of MIDs. Compared with the single-equation estimates in the literature, the absolute effect of joint democracy in our paper is smaller while in relative terms, the effect is similar in size. The effect of joint democracy on MID involvement is considerably smaller for noncontiguous countries than for contiguous ones. The effects of a number of control variables in the MID equation are also found to differ from those reported previously in single- equation–based studies.

International Conflict and Cooperation: Splicing COPDAB and WEIS Series

Events data sets are used extensively in the study of international relations. The Conflict and Peace Data Bank (COPDAB) data from 1948 to 1978 and the World Events Interaction Survey (WEIS) data since 1966 are the two events data sets that are most widely used. In this article a simple method is proposed to combine (or splice) COPDAB and WEIS events time series in order to create a single spliced time series from 1948 to 1993. Past research on the compatibility of COPDAB and WEIS is inconclusive: some authors claim that COPDAB and WEIS are compatible, while others claim they are not. We here investigate six dyads and show that the compatibility of WEIS and COPDAB depends on the particular dyad in question, but the two series are generally compatible so that COPDAB and WEIS can be spliced into one time series in five out of six dyads. (One dyad contains too many periods of missing reports in the data.) The article is organized in the following sections: The COPDAB and WEIS data sets are described in the first section. The second section reviews the literature about the COPDAB and WEIS compatibility. The third section outlines our approach to the question of compatibility. Statistical tests for compatibility and the method for splicing the two data sets are provided in the fourth section. A summary of our findings is provided in the last section.