Democracy and Clustered Models of Global Economic Engagement

Abstract

One of the most fundamental economic policy choices a society makes is how to order its global economic relations. What models do states use to structure this multifaceted decision, and how do they choose among these alternatives? We combine data on trade policies, foreign investment, exchange rates, capital flows, and international treaties to discover states’ strategies of global economic engagement. We identify five distinct strategies through dynamic clustering. We then examine the economic and political drivers of states’ choices among these competing strategies, focusing on the tradeoffs between public and private goods activated by differing styles of openness. In particular, we uncover a model of high global integration favored by (party-based) nondemocracies that emphasizes sacrificing consumption for production and embraces the risk of tight integration with global markets. We also uncover a cautious model of partial globalization favored by (large) democracies. Decisions over global economic engagement are clustered and multidimensional: Uncovering this variety unlocks new findings about the nonlinear effects of democracy on foreign economic policy.