Democratization, New Leaders, and the Need for Economic Reform: Can Preferential Trading Agreements Help?

Baccini, Leonardo and Urpelainen, Johannes Democratization, New Leaders, and the Need for Economic Reform: Can Preferential Trading Agreements Help? Working Paper # /2011 (Unpublished)

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Abstract

Can international institutions help leaders commit economic reform? In this article, we examine how leaders use preferential trading agreements with major powers (European Union and the United States) to promote liberal economic policies. We argue that under democratization, new leaders benefit the most from credible commitment. Using original data on treaty negotiations, our empirical analysis shows that under democratization, leader change greatly increases the probability that the government of a developing country begins treaty negotiations. We also demonstrate that preferential trading agreements are accompanied by liberalization in different sectors of the economy, and this effect is most pronounced if it follows a leader change. These findings support the notion that international institutions enable credible commitment to economic reform.

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