Working Paper: NBER ID: w27587
Authors: Benny Kleinman; Ernest Liu; Stephen J. Redding
Abstract: We examine whether as countries become more economically dependent on a trade partner, they realign politically towards that trade partner. We use network measures of economic exposure to foreign productivity growth derived from the class of trade models with a constant trade elasticity. We establish causality using two different sources of quasi-experimental variation: China’s emergence into the global economy and the reduction in the cost of air travel over time. In both cases, we find that increased economic friendship causes increased political friendship, and that our theory-based network measures dominate simpler measures of trading relationships between countries.
Keywords: Economic Dependence; Political Alignment; Trade Relationships
JEL Codes: F14; F15; F50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic friendship (F15) | Political friendship (D72) |
| Chinese productivity growth (O49) | Economic friendship (F15) |
| Reduction in air travel costs (L93) | Economic friendship (F15) |
| Economic friendship (F15) | Political alignment towards China (F52) |
| Reduction in air travel costs (L93) | Political alignment (D72) |