Political Economy of Democratic Transition and Optimal Cooperative Design The Case Study of Gravity model-FTA

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Political Economy of Democratic Transition and
Optimal Cooperative Design The Case Study of
Gravity model-FTA
Attakrit Patchimnan, Ph.D.
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Democratization and Interstate Cooperation
The Effects of Regime Type on the Establishment
of Trade Agreements, Trade Policies, and the
links between Democracy and Foreign Policy.
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EMPIRICAL EVIDENCEs
Groups of Countries Democratic Transmission
OECD countries, and NAFTA Intra-Industry TradegtInter-Industry
ASEAN ??????????
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Average AFTA/CEPT Rates
Source ASEAN Secretariat
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Current State of Play with the CEPT(Common
Effective Preferential Tariff)
,
Sources CENTER FOR INTERNATIONAL ECONOMICS
CEPT 2000
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ASEAN free trade agreement (AFTA)
The Increasing Problems of Cooperation in ASEAN
10 Asymmetric levels of economic
development. The divergence of trade
liberalization, macroeconomic policies, and
policy choices caused by internal and external
shocks. Divergence of mixed political
regime types The problems of collective
actions caused by ineffective collaboration and
coordination.
Cambodia
Sources IMF
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Degree of Export Dependence in ASEAN free trade
area (1993-1996)
Malaysia Indonesia Singapore Thailand Indonesia
1 Malaysia (1993) 0.000 0.116 0.440 0.248 0.218
2 Indonesia(1993) 0.070 0.000 0.051 0.197 0.131
3 Singapore(1993) 0.595 0.000 0.000 0.197 0.191
4 Thailand (1993) 0.037 0.103 0.152 0.000 0.079
5 Philippines (1993) 0.002 0.020 0.018 0.007 0.000
6 Malaysia (1994) 0.000 0.178 0.514 0.163 0.300
7 Indonesia (1994) 0.085 0.000 0.311 0.169 0.179
8 Singapore(1994) 0.849 0.000 0.000 0.511 0.250
9 Thailand (1994) 0.052 0.189 0.186 0.000 0.143
10 Philippines(1994) 0.002 0.029 0.020 0.033 0.000
11 Malaysia(1995) 0.000 0.413 0.543 0.303 0.348
12 Indonesia(1995) 0.106 0.000 0.333 0.220 0.268
13 Singapore(1995) 1.005 0.000 0.000 0.701 0.356
14 Thailand(1995) 0.073 0.226 0.236 0.000 0.206
15 Philippines(1995) 0.005 0.026 0.025 0.063 0.000
16 Malaysia(1996) 0.000 0.433 0.604 0.273 0.393
17 Indonesia(1996) 0.113 0.000 0.350 0.199 0.320
18 Singapore(1996) 0.919 1.918 0.000 0.664 0.347
19 Thailand(1996) 0.082 0.303 0.181 0.000 0.272
20 Philippines(1996) 0.005 0.046 0.036 0.051 0.000
Social Networks
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Trend of Political Regime Type (1962-2002)
Source Polity IV Data Set- point measure of
democracy and autocracy, if REG 6 , democracy
and REG -6 autocracy, and -5 to 5 are
considered "incoherent polities" that are highly
associated with regime instability and volatility
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Empirical Perspectives of Democratic Transition
and interstate Cooperation

• Remmer (1998) asserts,
• The process of democratization that began
  in the late 1970s was followed by a dramatic
  resurgence of cooperative endeavors, including
  the revitalization of the Central American Common
  Market, as well as the creation of new vehicles
  for interstate cooperation, notably NAFTA. (p.26)
• Source Remmer, K.L. (1998). The
  politics of neo-liberal economic reform in South
  America, 1980-1994, Studies in Comparative
  International Development, 33(2), 3-29.
• Mansfield, Milner, and Rosendorff (2002) assert,
• The regime type of states can strongly affect
  their propensity to cooperate on economic issues
  and more democratic countries have displayed a
  greater likelihood of concluding trade agreement
  than other countries, even when holding constant
  various political and economic influences
  .(p.505)
• Democratic countries are about twice as likely
  to form a PTA as autocratic countries, and that
  pairs of democracies are roughly four times as
  likely to do so as autocratic pairs. These
  results provide strong evidence that democracies
  are more commercially cooperative than other
  countries. (p. 481)
• Source Mansfield D. E, Milner V. H,
  Rosendorff B. P. (Summer, 2002). Why democracies
  cooperate more electoral control and
  international trade agreements. International
  Organization, 56(3), 477-513.
• The regime type serves as an international
  economic cooperation

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Literature Review

• Edward D. Mansfield Helen V. Milner B.
  Peter Rosendorff (2000) test the hypothesis on
  bilateral trade flows with gravity model from
  1960-1985/ 1990, N30480 observations.
  (in-outside, Second Image Theory)
• The Result of Study
• 1) The results of an empirical analysis based on
  the period 1960-1985/1990 are consistent with the
  these predictions.
• 2) Holding constant various economic and
  political factors, democratic dyads tend to trade
  more freely than dyad composed of a democracy and
  an autocracy.
• DemoAuto 15-20 less commerce than a dyad
  composed of two Demo. from1960-1985.
• DemoAuto 40 less commerce than a dyad composed
  of two Demo by 1990.
• Source Edward D. Mansfield Helen V. Milner B.
  Peter Rosendorff (2000). Free to Trade
  Democracies, Autocracies, and International
  Trade. The American Political Science Review,
  94(2), 305-321.
• Xinyuan Dai (2002) highlights some
  problematic aspects of MMRs analysis.
• The Result of Study
• 1) He recalculates the aggregate trade barriers
  and concludes that no clear comparison can be
  drawn without considering the preference of
  decision makers that go into the institutions.
• Source Dai X. (2002)Political Regime and
  International Trade Democratic difference
  Revisited. the American Political Science Review,
  96(1), 159-165).

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The MMR Model

• Three main Assumptions for MMR Model
• The shocks on the world prices and the
  establishment of protection level represents an
  imperfect information.
• Domestic shocks have no impacts on world
  prices since the model assumes countries are
  small opening economies.
• The voters might become aware of the
  domestic prices affected by both the shocks to
  world prices and poor economic performance. (the
  interstate conflicts or violations of trade
  agreements on commercial issues)
• The four factors that determines the MMR model
• Functions of the economy
• The polity Conditions of political regime
  type
• The executives optimal level of trade
  protection in order to explain the trade
  preference of voters and government.
• The Function of Governments Maximized
  Level of Import Tariff Settings

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Leviathan strategy
Figure 1. The best response functions
Nash Equilibrium
Sources Mansfield D. E. Milner V. H.
Rosendorff B. P. (Summer, 2002). Why democracies
cooperate more electoral control and
international trade agreements.
International Organization, 56(3), p. 486.
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The Results of MMR Model
THE NUMBERS OF PROPOSITION RESULTS OF EACH FUNCTION
PROPOSITION 1 Comparing Political Regime Imperfect Control and Gains for the Executive. The agreement is preferred by governments, which are sufficiently democratic and patient. The more democratic the polity is, the greater the gains from cooperation.
PROPOSITION 2 Comparing Political Regime Perfect Control and Gains for the Executive. The more democratic the polity is, the greater the gains from cooperation.
PROPOSITION 3 International Games. The probability that two countries form a RTA and WTO rises with the level of democracy in each country.
Sources Mansfield D. E. Milner V. H.
Rosendorff B. P. (Summer, 2002). Why democracies
cooperate more electoral control and
international trade agreements.
International Organization, 56(3), 477-513.
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Methodology

• The data for our test are drawn from a wide
  range of World Bank, UN COMTRADE, International
  Monetary Fund (IMF), Polity IV, International
  Financial Statistics (IFS), and Industry Trade
  Data.
• The data of bilateral trade in SITC REV.3
  (manufactured goods-labor intensive sectors) from
  ASEAN-5s major trade partners, such as,
  Malaysia, Philippines, Indonesia Singapore, and
  Thailand, from 1993-2005.
• The panel data analysis (cross section and
  time-series method) because the advantages of
  this method are that panels can capture all
  relevant relationships among independent and
  dependent variables over time, and monitor
  unobservable bilateral-trade-pairs individual
  effects.
• Disputes ij is not included in this inquiry
  because there is no relationship of disputes in
  terms of military conflicts
• The objective of Analysis
• Hypothesis the increased probability of
  interstate cooperation under either RTAij or
  WTOij is caused by the rising democratic levels.
• The Concept of Neoliberal Intuitionalists
  (International Institutions).

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Model I A Regression model of RTAij (Regional
Trade Agreement) RTAij ?0 ?1 GDP i ?2 GDP j
?3 CHECK BALANCE i ?4 CHECK BALANCE j ?5
REG i ?6 REG j ?7 POLARIZATION i ?8
POLARIZATION j ?9 DISTANCE ij ?10 POPULATION
i ?11POPULATION j ? ij Model II A
Regression model of WTOij (World Trade
Organization)

WTO ij ?0 ?1 GDP i ?2 GDP j ?3 GDP i
?4 GDP j?5 REG i ?6 REG j ?7 DISTANCE ij
?8 LANGUAGEij ?9 CONTIGUITY ij?10 PAR_COM i
?11PAR_COM j ?12 CHECK BALANCE i ?13 CHECK
BALANCE j ?14 DISTANCE ij ?15 POPULATION i
?16 POPULATION j ? ij
Data Descriptions RTAij the variable equals 1
if country i and j participate in interstate
cooperation or trade liberalization of RTA in
year t, and 0 otherwise. GDPi (GDPj) Gross
Domestic Product of country i (j) in year t,
(Size of State)
GDP i ( GDPj) the changes in the
GDP of i and j from year t - 1 to t, (Downturns
in the business cycle) REG i (REGj) DEMOC
AUTOC in year t, LANGUAGE ij this variable
equals 1 if country i and country j use the same
language in year t, and 0 otherwise, POLARIZATION
i (POLARIZATION j) this variable equals 1 if i
or j consists of polarization in year t and 0
otherwise, DISTANCEij distance between country
i and country j in year t, CONTIGUITYij this
variable equal 1 if country i and country j share
the same border in year t, and 0
otherwise, PARCOM i (PARCOM j) point measure
of level of competitiveness of participation
(0-10) in year t, POLCOM i (POLCOM j) point
measure of level of political competition (0-5)
in year t, CHECK BALANCE i (CHECK BALANCE j)
the point measure of level of stability and
check balance (0-5) in year t, WTO ij the
variable equals 1 if country i and j participate
in interstate cooperation of WTO, (country i) and
country j in year t, and 0 otherwise. ?ij
error term
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Table 2.1 Results of Binary Probit Models with
Panel Data (RTA ij)

Independent Variables (1)  (2) (3) (4) (5) (6)
Constant 2.07 2.54 2.91 2.51 2.14 2.11
(-4.48) (-4.69) (-4.6) (-5.56) (-3.66) (-5.35)
Trade flow 2.53E-09 1.70E-07
(-2.17) -1.88
Population i -5.78E-09 -7.49E-09 -1.37E-08 -3.55E-09
-2.23 (-1.93) (-2.47) (-1.7)
Population j -5.62 -9.95E-09 -4.61E-09 -5.95E-09
(-2.26) (-2.17) (-1.87) (-5.35)
Language ij

Polalization i -1.17 -1.56 -1.74 -1.12
(-1.78) (-2.17) (-2.19) (-1.48)
Polalization j -1.17 -.164 -1.55 -1.56
(-1.78) (-2.29) (-2.10) (-2.11)
Reg i 0.00 0.0058
(-0.21) (-1.49)
Reg j -0.05 0.009
(-1.2) (-2.06)
Change of GDPi -1.42E-12
(-0.16)
Change of GDPj -4.08E-14
(-1.72)
Distance ij 0.00 0 4.11E-05
(-1.61) (-0.48) -0.11
Check balance i -0.267
(-1.78)
Check balance i -0.262
(-1.89)
Observations 145 145 145 145 160 259
Number of country 5 5 5 5 5 5
R-squared 0.12 0.2 0.22 0.30  0.13 0.1
Notes Titles Robust standard errors in parentheses plt0.01, plt0.05, plt0.1 Notes Titles Robust standard errors in parentheses plt0.01, plt0.05, plt0.1 Notes Titles Robust standard errors in parentheses plt0.01, plt0.05, plt0.1 Notes Titles Robust standard errors in parentheses plt0.01, plt0.05, plt0.1 Notes Titles Robust standard errors in parentheses plt0.01, plt0.05, plt0.1 Notes Titles Robust standard errors in parentheses plt0.01, plt0.05, plt0.1


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Table 2.2 Results of Binary Probit Models with
Panel Data (WTOij)
Independent Variables (1) (2) (3) (4) (5) (6)
Constant 0.769 1.804 0.057 0.905 1.729 0.79
(-0.97) (-3.1) (-0.05) (-2.056) (-2.2) (-0.04)
Population i -4.95E-10 6.66E-10 -9.37E-09 -5.92E-09
(-0.205) -0.28 (-1.51) (-1.82)
Population j -3.57E-09 9.77E-10 9.98E-10 2.84E-09
(-1.065) (-0.677) (-0.4) (-1.28)
Check balance i -0.288 -0.209 -0.319 -0.45 -0.13
(-2.481) (-2.53) (-2.43) (-3.40) (-1.88)
Check balance j -0.2109 -2.094 -2.88 -0.32 -0.21
(-1.918) (-1.96) (-2.35) (-2.68) (-2.34)
Par_com i 0.603
(-1.75)
Par_com j 0.459
(-2.35)
GDP i 1.62E-12
(-1.2)
GDPj 1.62E-13
(-1.21)
Contiguity ij 0.016 0.0007
(-0.76) (-0.49)
Language ij 0.188 0.291 -0.472
(-0.382) (-0.54) (-0.752)
GDPi 1.76E-13 2.03E-13
(-2.083) (-2.48)

GDPj -2.28E-14 -4.04E-14
(-1.22) (-1.54)
Reg i 0.057 -6.864 0.178
(1.641) (-3.03) -3.49
Reg j -0.0846 -0.052
(-0.944) (-0.78)
Polcom i 0.0689 0074 0.06
(-1.698) (-1.735) (-1.69)
Polcom j 0.2411 0.28 0.09
(-1.668) (-2.34) (-1.92)
Distance ij -0.00 -0.00
(-0.89) (-2.82)
Observations 160 160 160 260 160 160
Number of country 5 5 5 5 5 5
R-squared 0.1 0.06 0.25 0.08 0.08 0.06
Notes Titles Robust standard errors in
parentheses plt0.01, plt0.05, plt0.1
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Concluding Remarks
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Thank You