Since first drafting this article, the United States has invaded Iraq
and deposed its leader Saddam Hussein. For more than a decade Iraq
experienced harsh economic sanctions. With Hussein's removal,
these sanctions have been lifted and Iraq is in the processes of being
reinstated into the international community. Although it was the Iraqi
people who bore the costs of the sanctions, the sanctions were aimed at
Hussein's regime. With Hussein removed, the prospects for improved
relations between Iraq and Western states look strong.
While Iraq offers an extreme example, this article assesses how the
turnover of leaders affects relations between states, as measured by
trade flows. In particular, drawing on recent theoretical developments,
we examine how domestic institutions and leadership turnover affect
dyadic trade flows. Consistent with the theoretical arguments, we find
that trade flows between states depend on the interaction of
institutions and leader turnover.
Scholars, such as Russett and Oneal, have documented that democratic
states have higher trade flows than states with less representative
institutions.1
We shift the focus of analysis. Rather
than examining how institutions affect cross-sectional differences in
trade flows, we study the dynamics of dyadic trade flows by looking at
how leadership turnover changes trade. Domestic political institutions
determine whether leadership change affects trade. Where leaders
require the support of a large proportion of the population to remain
in power, as in democratic systems, leadership turnover has no impact
on trade flows. In contrast, when leader survival requires the support
of only a small fraction of the population, as in many autocratic
systems, leadership turnover harms trade. Indeed, our estimates suggest
that on average the turnover of an autocratic leader reduces dyadic
trade with the United States by about 5 percent. Under general
circumstances, leadership turnover harms trade in autocratic, but not
in democratic systems. However, when relations with an autocratic state
are sour, as measured by trade flows substantially below recent
historical averages, the replacement of an autocratic leader
reinvigorates trade.
During the past decade, much attention has been placed on the role of
domestic political institutions in shaping relations between states.
Perhaps most prominent is the attention given to the democratic peace:
the finding that democratic states do not fight each other.2
Although controversy remains
on some questions, there is growing consensus that democracies fight each
other less, trade more, ally more, and join more intergovernmental
organizations together.
3 Much theorizing has
been done to account for these findings. Several recent theories look
intensively at the incentives of individual leaders and how these are shaped
by institutional arrangements. These theoretical developments highlight
the importance of how individual leaders respond to institutionally
created incentives when forming policy. It is these theories that
provide the point of departure for our investigation into how leader
turnover influences the dynamics of trade flows.
We proceed as follows. First, we discuss the theoretical connections
between leader turnover, institutions, and relations between states.
Second, we examine the theoretical implication of these arguments in
the context of international trade and derive testable hypotheses.
Although the theories predict that domestic institutions influence the
level of trade between states, these effects have already been
extensively investigated by others.4
We focus our attention on the
dynamic effect of leadership turnover, which to our knowledge has not
been examined before. Third, we describe our data and methods. Fourth,
we report our statistical findings for dyadic trading relations
involving the United States. We provide a statistical Appendix in which
we examine trade between all country dyads. We conclude with a
discussion of the substantive importance of our results.
Theories of Institutions, Leader Survival,
and Policy Choice
Domestic political institutions shape the incentives and hence the
policy choices of political leaders. In particular, leaders want to
pick policies that help them survive in office. Although these
assumptions form the basis of many theoretical approaches to explaining
the effects of institutions on policy formation, we focus our attention
on two specific arguments: the Bueno de Mesquita et al. theory of the
selectorate and winning coalition, and McGillivray and Smith's
theory of leader specific punishments.5
With respect to policy choice, both these
theories focus on the ease of leader removal and the desire of leaders
to keep their jobs. We now describe these arguments and then derive
their implications for dyadic patterns of international trade.
Bueno de Mesquita et al. (hereafter BdM2S2) classify domestic
political institutions according to the number of people whose support
a leader requires to retain power—the winning coalition,
W—and the number of people from whom this coalition of supporters
is drawn—the selectorate, S. These continuous dimensions of
winning coalition and selectorate are logically distinct from
traditional categorical classifications of regime types. However, it is
useful for illustration to place traditional categories of regimes
within the W and S framework. Modern liberal democracies typically have
large selectorates (usually consisting of all adult citizens) and the
winning coalition size is also large, being some portion (often around
a half) of the selectorate. Monarchies and military juntas are examples
of regimes with both small winning coalitions and small selectorates.
Autocratic states typically have a small W, although they experience
considerable variation in the size of S. The types of policies and the
survival of leaders are fundamentally influenced by these institutional
variables.
Leaders, assumed to have a fixed set of available resources, produce
two types of goods: public goods that benefit all members of society
and private goods that benefit only those in the incumbent's
winning coalition. When the winning coalition is small, the incumbent
is only beholden to a small group to retain power. Under such
circumstances, incumbent leaders can effectively enrich members of
their coalition through the provision of private goods. Hence, in small
coalition systems, BdM2S2 anticipate that leaders will foster
patronage, cronyism, and corruption rather than effective
implementation of public policy. The former secures the leaders'
tenure in office; the latter, while better policy, harms the
leaders' prospects for survival.
In contrast, if domestic political institutions require leaders to
maintain the support of a large number of individuals in order to keep
their job, then leaders will promote effective public policy. In these
large coalition systems, such as democracies, leaders cannot
effectively reward their supporters through private goods. There are
simply too many people to reward and private goods provision stretches
the pool of available resources too thinly. Under these circumstances,
leaders can reward their voluminous supporters more cost effectively
through public goods provision. The size of the winning coalition
determines the type of policies that leaders produce.
Of course in reality all policies have both public and private
components. However, this does not diminish the finding that coalition
size drives the relative public or private focus of policy provision.
An illustration is useful. Like many other countries, Kenya uses
agricultural boards to regulate its domestic market for agricultural
goods. These boards buy agricultural products at fixed prices. When set
up properly, agricultural boards help to protect farmers from the
vagaries of market prices and provide stable food prices for urban
populations, both broad-based benefits. Unfortunately, as in the Kenyan
case, these state-run boards can also be used to enrich the few at the
expense of the many. In the 1960s, Kenya's first president, Jomo
Kenyatta, promoted agricultural interests and sugar was grown as a cash
crop in the Western Province and Nyanaz. Through the use of the sugar
board and prohibitive import tariffs, Kenyatta's successor, Daniel
Arap Moi, enriched his cronies and decimated the sugar industry. The
high external tariff kept Kenya's domestic sugar price high.
However, farmers did not reap these benefits. Farmers sold their sugar
at a set price through the Kenyan Sugar Authority where it was sold on
to Kenyan consumers at high prices—about three times the world
price. Moi's supporters then imported sugar duty free on the
pretext that it was in transit to Tanzania and Uganda. Rather than
using the sugar board as a public good to insulate farmers and provide
stable food prices, Moi sacrificed a profitable industry to fill the
coffers of the ruling KANU party and Moi's cronies.6
See “Kenyan Sugar Growers Taste
Corruption's Bitter Fruits,” Times Media Limited,
26 August 1997; and Throup and Hornsby
1998.
The larger a leader's winning coalition, the greater his or her
focus on public rather than private goods. In addition to determining
the quality of policies a leader provides, winning coalition size,
especially in conjunction with selectorate size, determines the
quantity of policy produced. BdM2S2 assume that the primary focus of
leaders is to survive. They characterize how many of the available
resources a leader must expend to match the best possible offer of a
challenger. The smaller the coalition size and the larger the
selectorate the easier it becomes for leaders to better the offer of
any potential challenger. Hence when W is small and S is large, leaders
survive easily and can skim off resources for their own discretionary
purposes. The derivation of this result is as follows. When the
coalition size is small, then leaders predominantly rely on private
goods to reward their supporters. This means that the welfare of those
outside the coalition is substantially lower than that of persons
within the coalition. This creates a loyalty norm toward the incumbent.
Although a potential challenger might offer to spend every available
penny as efficiently as possible in order to come to power, having
attained office this challenger forms a coalition of size W from the
available S potential supporters. The fact that the challenger will
pick W supporters from the potential pool of S supporters makes
defecting to the challenger risky.7
In
BdM2S2's formal models, leaders have different affinities for each
of the possible supporters. In equilibrium, a leader forms a coalition
from the W highest affinity members of S. Because less is known about
the affinity structure of the relatively unknown challenger, potential
defectors cannot be certain of being among the top W affinity
types.
Even though a supporter might have been essential in
bringing a challenger to office, this does not guarantee the supporter
a place in the newly installed challenger's long-term coalition.
In contrast, the incumbent has already shown a propensity to retain
supporters in the incumbent's coalition. Defection to a challenger
is risky. This risk is the probability of exclusion from the
challenger's future coalitions. This risk is increasing in S, the
size of the pool from which future leaders can choose supporters, and
decreasing in W, the number of supporters that a leader needs.
Coalition size also influences the cost of future exclusion. When W is
large and hence rewards are predominately public in nature, supporters
have little to fear from future exclusion. Yet, when W is small and
hence rewards are private in nature, the cost of exclusion is high.
This combination of risks and costs creates a strong loyalty norm
toward leaders in small coalition systems, especially when the
selectorate is large. This loyalty norm makes it easy for leaders to
survive even if they offer benefits that are substantially lower than
those offered by potential challengers. In addition to surviving
easily, leaders in such systems can skim off resources for their own
discretionary purposes.
BdM2S2 use their theoretical framework to explain a vast array of
political phenomena. While we commend the breadth of their
theory's applicability, for our current purpose we exploit only
some of these implications. In particular, BdM2S2 provide a metric to
measure the ease of leader removal. The smaller W, the harder leader
removal becomes and the greater the discretion leaders have in their
policy choices. Indeed, as long as leaders in small W systems ensure
that their supporters receive some amount of private goods, they are
unencumbered with respect to the rest of their policy choices. Once
this minimal threshold is reached, leaders that are beholden to only a
small number of supporters are unconstrained and can adopt whatever
idiosyncratic policies they wish. Their political survival is isolated
from these policy choices. Kenya's President Moi managed to
survive in office despite abysmal policy performance. Between the time
he came to power in 1978 and his departure from office at the end of
2002, per capita income grew less than 5 percent. By way of comparison,
U.S. per capita income grew by about 50 percent over the same
period.
In contrast, the survival of leaders in large coalition systems is
always in jeopardy. Although such leaders focus on policies that
promote public welfare, so do their potential challengers. Given the
relatively small importance of private goods in such systems, there is
little loyalty toward the incumbent. If the challenger offers better
public policy ideas then the incumbent's, supporters defect
because they have little to fear in terms of either the risk or the
cost of future exclusion. Leaders in large W systems must always strive
for better public policy to survive. They have little wiggle room for
their own discretionary policies, and despite their best efforts, such
leaders are frequently removed. Indeed, BdM2S2 show at great length,
that despite their superior performance, leaders from large coalition
systems are removed more frequently than their small coalition
counterparts. Repeating their mantra: in large coalition systems good
policy is good politics, but in small coalition systems bad policy is
good politics.
Having used BdM2S2 arguments to derive a measure of the ease of
leader removal, W, and to show that the larger W, the greater leaders
work toward maximizing public welfare, we now turn to a discussion of
McGillivray and Smith's model of interstate cooperation. The
prisoners' dilemma is commonly conceived as a metaphor for
cooperation.8
In this game, each state chooses whether to
cooperate or cheat its trading partner. The game is structured such
that although both sides prefer mutual cooperation to neither side
cooperating, each side also prefers to exploit the cooperation of the
other state. Because exploiting the other side is the most preferable
outcome and being exploited is the worst possible outcome, both sides
have a dominant strategy to cheat. The gains from trade go
unrealized.
Although myopically cooperation is impossible, liberal theorists
point out the possibility of cooperation by conditioning current
behavior on previous outcomes.9
In particular, if
states refuse to cooperate with states who have previously cheated
them, then noncheating states can enforce cooperation providing the net
present value of being able to cooperate in the future is worth more
than the short term gain from cheating a trading partner today. Such
mechanisms allow the possibility of cooperation if states value the
future sufficiently. Unfortunately, the result that cooperation is
possible provides no comparative static results beyond patient states
being better able to cooperate.
10 In
contrast to this theoretical void, empirical studies have identified
strong institutional effects on international cooperation. For
instance, Russett and Oneal, among many others, show that democracies
trade more and jointly form more cooperative international agreements
and international institutions than nondemocracies.
11 Scholars such as Leeds have shown that if democratic leaders face
audience costs for cheating a trading partner, then cooperation can be
deeper and more vibrant between democracies.12
Unfortunately such arguments rely on the
assertion that audience costs exist, without any explanation for their
origins.
13 Relying on the same primary
assumption as BdM2S2, that leaders want to keep their jobs, McGillivray
and Smith invoke leader specific punishment (LSP) strategies to explain
differences in the depth of cooperation between states and in the
process endogenously derive audience costs. In parallel with standard
liberal arguments of cooperation, leader specific punishments rely on
the threat of reciprocal punishment to enforce cooperation.
14 However, unlike
traditional ideas, LSP strategies target the specific leader who
implemented the policy rather than the state as a whole. While the
punishment remains the same, the removal of future cooperation, the
practical consequence of such a strategy is that it allows for the
restoration of cooperation once the defecting leader has been replaced.
While we must wait to find out the full consequences of Hussein's
removal from power, economic sanctions against Iraq have already been
lifted. The replacement of Serbia's Slobodan Milosevic resulted in
the normalization of the West's relations with Serbia, followed by
massive waves of aid and investment.
Under LSP strategies, once a leader has cheated, other states refuse
to cooperate for as long as the deviating leader remains in power.
However, because the punishment is targeted against the actual leader
who cheated rather than the state as a whole, the replacement of this
leader reinvigorates relations and enables the restoration of
cooperation. Because public welfare is typically enhanced through trade
and cooperation, citizens improve their welfare by replacing their
leader. Hence when the cost of leader replacement is low (specifically,
less than the value of restoring good relations), then citizens replace
defecting leaders. In contrast, when the cost of replacing a leader is
high, then the leader retains power and cooperation ceases. In terms of
the BdM2S2 metric, in large coalition systems, cooperation is restored
through the replacement of the defecting leaders. In small W systems,
the high loyalty norm means that defecting leaders survive even though
the removal of such a leader would restore cooperation and improve
public welfare. Public welfare is not the key to political success for
leaders of small coalition systems.
Beyond providing mechanisms to restore cooperation, LSP strategies
prevent the breakdown of cooperation between large coalition systems in
the first place. The principal assumption is that leaders want to keep
their jobs. In a large coalition system, cheating a trading partner
will cost leaders their jobs; hence they will not cheat. The LSP
mechanism allows cooperation under conditions where extant liberal
arguments (in particular the use of grim trigger punishments) would
suggest cooperation is impossible. In large coalition systems, where
leader removal is easy, leaders effectively stake their tenure in
office on their cooperation. Because leaders in small coalition systems
are not easily removed, and certainly not for harming public welfare,
their continued tenure in office is not at stake when they decide
whether to deviate. Small coalition leaders cannot commit themselves to
cooperate. Neither small nor large coalition leaders' choices are
driven directly by concerns for public welfare. Both types of leaders
care primarily about political survival. Institutions shape the
policies that best fulfill this goal.
Having outlined the theoretical underpinnings for the two arguments,
we now derive what these theories predict in the context of trade
between states.
The Impact of Leadership Turnover and
Domestic Political Institutions on Relations Between States
Regime Type and Cooperation
States with large winning coalitions trade and cooperate at higher
levels than other pairings of political systems. Above we showed that,
because of the risk to their tenure from cheating, democratic leaders
can commit themselves more effectively to cooperate than leaders in
smaller winning coalition systems. Hence trade agreements between
democratic states are more likely to be honored. Further, democratic
leaders divert less trade than autocratic leaders. Although even
leaders of large coalitions provide some private benefits for their
supporters, their policy objectives are closer to some notion of public
welfare maximizing than those of small coalition leaders, for whom
survival depends instead on enriching a small group of supporters.
Because according to microeconomic theory, free trade is generally
welfare maximizing and barriers and distortions to trade enable certain
producer groups to earn economic rents, we should expect, even beyond
any concept of LSP, that large coalition systems pursue free trade
policies while small coalition systems tend to protect producer groups
that support the incumbent. We state this as our hypothesis:
H1: Institutional effects: Large coalition states are more open
than small coalition states and hence, all else equal, have greater
trade flows.
As a corollary, we might add that via LSP states can maintain higher
levels of cooperation when both are democratic. All else equal, dyadic
trade between large coalition systems will be higher than trade between
other pairings of states.
There is already considerable empirical support for these claims, as
cited earlier. This is reassuring. Unfortunately, it does little to
further our understanding of why institutions influence interactions
between states because these results provide no means to distinguish
the theoretical ideas advanced here from alternative explanations. We
focus on how leadership turnover affects trading relations differently
by regime type.
Dynamic Patterns of Trade and Leader Turnover
When a leader is replaced, the new leader may change policy. However,
the extent to which we should anticipate policy shifts depends on
domestic political institutions. Both the selectorate theory and the
LSP theory suggest a decline in trade accompanies leadership turnover
in small coalition systems, but not in large coalition systems. This
leads to our second hypothesis:
H2: Leadership dynamics: Leadership turnover in a small coalition
system reduces trade. The impact of leadership turnover on trade is
smaller in large coalition systems.
Although both theories predict this hypothesis, it is worth exploring
the logic of each argument in turn. As described above, the selectorate
theory suggests that large coalition leaders best maximize their chance
of political survival by promoting the provision of public goods and
improving social welfare. Because free trade has a high public goods
component, democrats tend to promote free trade policies.
Political survival in a small winning coalition depends on paying off
a small number of supporters with private goods. Trade and industrial
policy is one mechanism that allows leaders to direct resources toward
their supporters. Because it is private goods that are the key to
surviving in office, the barriers to trade that autocrats erect can be
large. Small coalition leaders draw their supporters from those members
of the selectorate for whom they have the highest affinity. Hence, one
leader's choice of coalition members, and hence policy
preferences, can be very different from his predecessor's.
Kenyan President Jomo Kenyatta drew his support from the rich
agricultural lands of the Central Highlands and the Kikuyu tribes. His
agriculture friendly policies reflected this support base. After
Kenyatta's death in August 1978, Moi rose to leadership. Although
he initially relied on Kenyatta's traditional support base, Moi
set about replacing this coalition with supporters from the Kalenjin
tribes of the Central Rift Valley region. These supporters did not
benefit from the promotion of the Central Highland's agriculture.
So Moi reformed Kenya's political economy leading to large net
outflows from the central provinces to other regions.15
As the earlier example of the sugar industry
showed, Moi policies radically shifted the focus of Kenya's trade.
In the year following Moi's ascension to power, U.S. trade with
Kenya dropped nearly 32 percent.
As the Kenya example illustrates, leadership change in small
coalition systems can lead to a significant shift in trade policy. This
policy variance makes trade unattractive because economic actors are
wary of setting up trading relations that might be terminated shortly.
The risk and uncertainty associated with policy variability discourage
trade. In our empirical tests we examine whether leadership change
affects the variance in trade flows as well as changes in the level of
trade. In large coalition systems protectionist measures are more
modest. As such, leadership changes have a greatly diminished impact on
trade flows. Of course, leadership change brings about some changes in
policy. McGillivray characterizes how the institutions of electoral
rule and party discipline affect the changes in trade and industrial
policies that accompany political change.16
McGillivray 2004. Her work
suggests that policy changes accompany political change in both
proportional representation and majoritarian systems, although the size
and timing of the policy shift differs across electoral
system.
Yet, the magnitude of these changes are small.
Furthermore, these changes in policy follow fairly predictable
patterns. Even relatively newsworthy incidents, such as U.S. President
George W. Bush's recent imposition of U.S. steel tariffs, are
relatively small in magnitude and do little to change trading relations
on aggregate.
The LSP theory also suggests that declines in trade and other
economic interactions accompany leadership turnover in small coalition
systems, but not in large coalition systems. Autocrats can and do
violate international norms with much greater frequency than democrats.
For instance, in 1960 Cuban leader Fidel Castro nationalized the
largely U.S.-owned Cuban sugar industry, as well as all other U.S.
interests in Cuba. This, combined with his adoption of communist
ideals, led to an almost complete cessation of U.S.-Cuban trade.
Despite incurring the wrath of the United States and many other Western
states, Castro remains in power today. His dependence on a small
winning coalition means he can antagonize other states with
impunity.
Just because small coalition leaders can abrogate agreements and
international norms does not mean that they will. As the liberal
paradigm suggests, cooperation is often possible even without the
threat of domestic audience costs. However, when the orientation of a
leader's chosen coalition, or some other random circumstance,
makes defection especially attractive, the lack of domestic constraints
means that autocrats defect. The majority of autocrats do not
nationalize other states' interests. Unfortunately, the inability
of leaders to commit to upholding norms creates risk and uncertainty,
which harms trade. In 1959, Castro's first year in power,
U.S.-Cuban trade declined 16 percent. Trade with the relatively unknown
and unconstrained Castro was risky. In Castro's case the danger
was subsequently realized. Yet trade is harmed by uncertainty and risk
even when cooperative relations are maintained. Castro's
predecessor, Fulgencio Batista, came to power via a coup against Carlos
Prio Socarras in March 1952. Although Batista would prove to be a firm
U.S. friend, U.S.-Cuban trade dropped by 11 percent in 1952.
The ability of small coalition leaders to form their support base
around their idiosyncratically chosen coalition leads to a redirection
of trade. The shift in trade policy that often accompanies the
ascension of small coalition leaders decreases trade flows. Further,
the fact that small coalition leaders can abrogate agreements with
impunity creates risk and discourages trade and other economic
interactions. In large coalition systems these risks are mitigated.
Leaders in large coalitions care about social welfare and so trade
distortions are minor relative to those in small coalition systems.
Large coalition leaders jeopardize their tenure if they violate
international norms, as such, they are constrained. Therefore, newly
installed democratic leaders are as trustworthy as their predecessors,
while autocrats must demonstrate themselves to be reasonable to deal
with.
Both the selectorate theory and LSP theory predict that leadership
change has a greater impact on trade in small rather than large
coalition systems.
Tainted Love: The Breakdown and Restoration
of Cooperation
Leader-specific punishments allow for the restoration of normal
relations. If states target punishment for a breach in relations
against the responsible leader rather than the state that leader
represents, then leadership turnover reinvigorates relations. LSP
offers a mechanism to normalize relations. Domestic institutions play a
crucial role in shaping the pattern of behavior we expect to see. In
large coalition systems leader replacement is easy. If democratic
leaders renege on agreements, or in other ways violate the norms of
international behavior, then those leaders will be deposed because
their citizens wish to avoid the termination of cooperation. The
leaders avoid cheating in the first place.
Therefore, we should expect to see few instances of sour relations
between democracies. This leads to our third hypothesis:
H3: Sour relations: Relative to small coalition systems, large
winning coalition systems are less likely to have poor relations with
trading partners (measured as a significant decline in trade relative
to recent historical trading patterns).
Unfortunately, in terms of testing the model, trade can deteriorate
between states for any number of reasons. In addition to the political
breakdown of relations, technological change and harvest failures can
also significantly affect trade. While all states experience the
latter, the breakdown of relations and trust should disproportionately
occur when one of the trading partners is autocratic. Instances of
marked decline in trade should be more common when one of the trading
partners has a small winning coalition than when both states are
democratic.
LSP provides a mechanism through which to restore cooperation. Should
a large coalition leader violate international norms in a manner likely
to lead to the end of cooperation, then such a leader is likely to be
rapidly removed. As stated in Hypothesis 3 above, this makes it
extremely unlikely for a democratic leader to defect in the first
place. Hence, when a deterioration in trade occurs between democratic
states, the theory suggests that it is most likely that the breakdown
in trade occurred for some ‘natural’ rather than
‘political’ reason. Under these circumstances, the
replacement of a democratic leader is unlikely to restore trade because
the leader's actions did not cause the diminished trade. In
contrast, instances of poor trading relations between states that are
not both democratic could occur for political reasons, because an
autocratic leader can violate agreements and norms with relative
impunity. Should the leader accountable for the souring of relations be
replaced for some exogenous reason, then LSP provides for the
rejuvenation of trade. It is important to remember that autocratic
leaders are not removed as a result of their reneging on an agreement.
If cheating jeopardized their tenure then the autocrat would not have
cheated in the first place. This leads to our fourth hypothesis:
H4: Restoration of cooperation: If relations between states are
poor then leadership turnover in a small winning coalition system is
more likely to restore relations than leadership change in large
coalition systems.
U.S.-Iranian relations provide an illustration. The Shah of Iran
(1941–79) was a firm U.S. ally. During his reign, the United
States and Iran enjoyed high levels of trade and economic cooperation.
For instance in 1978, U.S.-Iran trade totaled $7 billion. In 1979, the
Shah was deposed during an Islamic revolution that brought the
Ayatollah Khomeini to power. During the revolution, Khomeini ordered
the detention of U.S. embassy personnel in Tehran. The U.S. hostages
were held for fourteen months. U.S.-Iran diplomatic relations were
severed and economic relations heavily restricted. Washington
prohibited U.S. companies from investing or trading with Iran. In 1981,
U.S.-Iran trade was below $400 million. In 1989, the Ayatollah Khomeini
died. Although his successor, Hashemi Rafsanjani, largely continued
Islamic fundamentalist policies, Khomeni's death led to a
significant improvement in U.S.-Iranian relations. In 1991, trade
improved to $1.5 billion. Relations subsequently deteriorated, although
never to the depth experienced during Khomeni's rule. A similar
pattern followed Rafsanjani's replacement with Mohammed Khatami in
1997. This Iranian case suggests that leader change often provides the
impetus to normalize, or at least improve, sour relations.
Some care is required in interpreting the hypotheses because trade is
a dyadic relationship. Many of these hypotheses are stated in terms of
a single state. For instance in the context of Hypothesis 4, although
the theory is clear that relations are restored with the removal of the
leader responsible for the decline in trade, as part of a systematic
test it is hard to designate which leader is responsible. Of course,
theory suggests that it is the less democratic leader. However as a
practical matter these considerations persist. To alleviate many of
these problems, we focus primarily on the trade of all states with the
United States rather than trade between all possible dyads. From a
practical perspective this has numerous advantages. First, the United
States, as the world's largest trader, has significant and
persistent trade with most of the world's states. Second, because
the institutions of the United States are fairly constant over the
entire data, it effectively converts the dyadic predictions of the
theory, which are hard to appropriately code without a larger number of
variables, into more straightforward monadic predictions. Third, the
theoretical predictions are novel. Given that the hypotheses involve
relatively complex conditional statements, and to our knowledge there
are no prior tests of the hypotheses, we prefer to enhance the clarity
of presentation by examining the U.S. dyads only. We reserve tests
involving all dyads for the Appendix.
Data and Methods
Although much of the theory above is applicable to all forms of
cooperation and trust, we test the theories' predictions in the
context of dyadic trade flows. That is, for each pair of countries A
and B, we measure the sum of the value of trade from A to B and the
value of trade from B to A. Specifically, we use Oneal, Russett, and
Berbaum's measures of dyadic trade flows.17
These measures draw on their earlier work as well
as work by Gleditsch.
18
These data are measured in nominal U.S. dollars. Using the Bureau of
Economic Analysis's implicit price deflator we converted these
nominal data to constant U.S. dollars.
19 Bureau of Economic Analysis
2003. The trade data examine the period between 1885 and 1992.
The years 1914–20 and 1939–49 were excluded because of the
massive dislocations of the world wars. The implicit price deflator
data were only available from 1929 onwards. Analyses using the nominal
data, from 1885 onwards, yield substantively similar results.
The Oneal, Russett, and Berbaum data also include measures of gross
domestic product (GDP), population, military disputes, alliance, and
distances.
BdM2S2 measure winning coalition size, W, as a composite index based
on the variables regtype, xrcomp, xropen,
and parcomp from the Banks data.20
These data
are also commonly reported by Polity IV.
21 When
regtype is not missing data and is
not equal to codes 2 or 3 so that the regime type was not a military or
military/civilian regime, W receives one point. Military regimes
are assumed to have particularly small coalitions and so are not
credited with an increment in coalition size through the indicator of
W. When
xrcomp, the competitiveness of executive recruitment,
is larger than or equal to code 2 then another point is assigned to W.
An
xrcomp code of 1 means that the chief executive was
selected by heredity or in rigged, unopposed elections, suggesting
dependence on few people. Code values of 2 and 3 refer to greater
degrees of responsiveness to supporters, indicating a larger winning
coalition.
xropen, the openness of executive recruitment,
contributes an additional point to W if the executive is recruited in a
more open setting than heredity (that is, if the variable's value
is greater than 2). Executives who are recruited in an open political
process are more likely to depend on a larger coalition than are those
recruited through heredity or through the military. Finally, one more
point can be contributed to the index of W if
parcomp,
competitiveness of participation, is coded as a 5, meaning that
“there are relatively stable and enduring political groups that
regularly compete for political influence at the national
level”
22 This
variable is used to indicate a larger coalition on the supposition that
stable and enduring political groups would not persist unless they
believed they had an opportunity to influence incumbent leaders; that
is, they have a possibility of being part of a winning coalition. The
indicator of W is then divided by 4 to create a five-point scale for W
taking the possible values 0, 0.25, 0.5, 0.75, and 1.
23 BdM2S2 also create a measure of selectorate
size based on the polity variable legselec. Although the
inclusion of this variable was consistent with expectations, we do not
report any of these results.
We measure the turnover of leaders using the BdM2S2 compilation of
leaders. These data record the date each leader entered and left
office.24
Using these data, we code whether any change in leadership took place in
each country in each year. We also used a polychotomous version of this
variable that coded for the number of leadership changes that occurred in
a particular year. These results are not reported but are substantively
equivalent whichever measure is used.
In order to assess the prediction about the restoration of trade
hypotheses, we require variables to indicate when trading relations
have soured. We report two: bad and sour. Both
compare trade in the previous year to recent historical averages. In
particular, bad, a dichotomous measure, is coded 1 if the
logarithm of last year's trade minus the average logarithm of
trade for the preceding five years is less than −0.7. Otherwise
bad equals zero. Hence bad is coded 1 when last
year's trade was approximately only half of the historical
five-year average. sour is a continuous measure of poor
relations. It is calculated by comparing the five-year historical
average of the logarithm of trade with the logarithm of trade last
year. When last year's trade is greater than or equal to the
historical average, then sour takes the value zero. If trade
was poor last year, then sour is coded as the logarithm of
last year's trade minus the historical average:
Table 1 summarizes the definitions of key
variables.
Definitions of key variables
Many extant studies of the impact of institutions on trade flows use
a gravity model.25
This model uses the analogy of gravity to explain
the flow of goods given the masses of states (that is, their wealth and
population) and their distance apart.
26 Wall 1999. See Wall for a
background on the gravity model. A standard specification for the
gravity model is ln(tradei,t) =
β1ln(distancei) +
β2ln(gdpai,t) +
β3ln(gdpbi,t) +
β4ln(popai,t) +
β5ln(popbi,t) +…+
ei,t where i refers to the dyad and t refers to the year,
ln(trade) is the logarithm of trade, ln(distance) is
the distance between states, and ln(gdpa) and
ln(popa) refer to the logarithms of the GDP and
population of state A.
This model is well suited for
explaining cross-sectional differences in trade flows between pairs of
states. That large coalition systems, such as democracies, trade more
has been well established. The focus of our study is not to account for
the magnitude of trade flows, but to examine how these flows change in
response to leadership turnover.
27 Our basic model specification is ln(tradei,t) =
β1ln(tradei,t−1) +
β2Institutionsi,t +
β3LeaderTurnOveri,t +
β4GravityVariablesi,t …+
ei,t, where i refers to the dyad, t refers to the year and
the error term, ei,t is assumed to be normally distributed
with mean zero and variance σ2. In this lagged dependent
variable setting, the dependent variable (the magnitude of trade
between A and B) depends on the magnitude of prior trade
(ln(tradei,t−1)) and political and
leadership change. We also include the standard gravity model control
variables economic size (ln(gdpa) and
ln(gdpb)) and population size
(ln(popa) and ln(popb)). The
coefficients on the political and leadership variables determine how
the expected magnitude of trade varies relative to trade last year. As
a rough guide, appropriate for small changes, the coefficient can be
thought of as the proportionate change in trade from a unit change in
an independent variable.
The data are organized by dyads, and we represent the generic dyad as
AB. The dyads are organized by the Correlates of War (COW)
project's country code numbers, with the lower numbered state
being A. Because the United States is the lowest coded state (2), the
data contains dyads with the United States as state A and every other
state as B. In the main text we focus on the interactions of every
state with the United States, using only those dyads where state A is
the United States. In the Appendix we show the results corresponding to
all possible dyads. Given the panel nature of the data, we include a
fixed effect for each dyad. This allows a unique intercept for each
dyadic pair of states28
These
fixed-effects control for any idiosyncrasies between A and B that leads
to faster or slower growth in trade flows that is not captured by the
independent variables.
29 See Hsiao 1986; Greene 1997;
and Beck, Katz, and Tucker 1998. Other
techniques for dealing with cross-sectional time series data such as
generalized least squares (GLS) and random-effect models produce
substantively similar results and so are not reported here.
Political and leadership changes alter the magnitude of trade. However,
they might also influence the variance of trade. While the basic
fixed-effect panel model allows us to explore the impact of political
and leadership change on changes in the level of trade, it cannot
answer the question of whether such changes increase the variance in
trade flows. To capture this second-order statistic, we explicitly
model the variance parameter (σ
2) as a function of
independent variables, Z
i,t. In particular, given that
σ
2 is the variance in the error term e
i,t, we
model σ as follows: σ
i,t = γ
0 +
γZ
i,t. We estimate this model using maximum likelihood
techniques.
30 See King
1989. To be specific, to model the fixed effects we use the
following standard notation yi,t −
yi = (xi,t −
xi)β + (ei,t −
ei), where yi is the mean of
the dependent variable for dyad i, and so on. We convert all x and y
variables to difference from mean format by dyad to implement the fixed
effects. Our assumptions are that E(ei,t −
ei)=0 and E(ei,t −
ei)2 = σi,t2, where
σi,t=γ0+γZi,t.
Zi,t is a vector of independent variables (not in difference
from mean format). The fixed effects apply only to the β and not
the γ parameters. As with all other results, the likelihood
maximization was carried out in STATA 8.
Results
Leadership Dynamics and the Impact of Institutions
Leadership change reduces trade. This is shown in Model 1 (reported
in Table 2). The statistically significant
coefficient of −.044 on the leadership change variable
(ΔLeaderBt) means that if leadership change
occurs in an autocratic state B, then trade between the United States
and state B declines by about 4.4 percent relative to what it would
have done otherwise. Leadership change clearly impacts trading
relations. Yet the theory predicts that the impact is highly dependent
on institutions. In particular, we predict that the impact of
leadership turnover is much smaller in large coalition democratic
systems. The coefficient on the interaction between coalition size and
leader turnover is 0.044. Hence, if state B is a large coalition system
(wb = 1), the net impact of leader turnover is zero.
Leadership change impacts trade flows in small coalition systems, but
not in large coalition systems.
Effect of institutions and leadership turnover on dyadic trade (U.S.
dyads only)
The institutional context of leadership change determines whether
turnover influences trade flows. The pattern is repeated throughout
subsequent tests and is an extremely robust finding. The F-tests and
chi2 tests reported at the bottom of Table 2 strongly reject the null hypothesis that
the leadership change parameter and its interaction with coalition size
are both zero; however, the net impact of leadership change in large
coalition systems is indistinguishable from zero. This pattern of joint
hypotheses tests persist throughout the analyses and is robust to inclusion
or exclusion of control variables and method used.
The gravity model specification suggests the inclusion of measures of
GDP and population as important control variables. In all models
reported, we include controls for the magnitude of the economy and
population in both states A and B. As we would expect, these variables
are highly significant. Throughout we also include controls for
domestic conflict within states A and B. This is important because we
want to be certain that the act of changing leaders reduces trade and
that the result is not purely a consequence of domestic violence
surrounding changeovers. As we would anticipate, violence reduces
trade. Although not reported, similar results obtain from controlling
for interstate warfare.31
Additional
results, the data, and code to implement the maximum likelihood
estimations can be obtained from
〈http://www.nyu.edu/gsas/dept/politics/data.shtml〉.
Accessed 24 April 2004.
Throughout the results reported in Table 2,
the impact of coalition size on the dynamics of trade flows is
statistically insignificant. For instance in Model 1 the coefficient on
the wb variable is −.024 with a standard error of 0.017.
This is a consistent theme throughout, and it stands in stark contrast
to the voluminous literature cited earlier that shows democracy
increases trade. Yet, the results are not contradictory. In many cases,
such as most of Western Europe for instance, the political institutions
in state B remain constant (or near constant) throughout the data. In
the fixed-effect setting, B's institutions are subsumed into the
dyad specific intercept. The wb variable picks up the impact
of institutions only in those dyads where wb changes over the
temporal domain of the data.32
The
standard gravity control variable distance is excluded from the
analysis because it is time invariant.
Whether failing to
include fixed effects leads to an inappropriate (or
“dirty”) pooling of data, or whether their inclusion leads
to “throwing out the baby with the bath water” has been the
center of contentious debate.
33 The focus of our analysis
is the interaction of institutions with leadership change rather than the
institutions per se. The results on this dimension are unaffected by
the inclusion or exclusion of fixed effects. Therefore, we present the
more demanding tests.
The analyses in Table 2 show a striking
and, we believe, a novel result. If leadership change occurs in a small
coalition system then that state's trade with the United States
will decline by, on average, 5 percent. Leadership change in large
coalition systems has little or no impact on trading relations. This
result is robust to the inclusion or exclusion of control variables and
the methodology used. Yet, given its novelty, we are under obligation
to try to rule out alternative explanations that might also account for
this new result. It is to this important task that we now turn.
Leadership change in small coalition systems reduces trade. In such
small coalition systems, regimes are often synonymous with leaders. As
such, regime change often accompanies leadership change. Therefore, it
is plausible that the results in Model 1 originate from changes in
institutions rather than just changes in leadership. Models 2 and 4
test this hypothesis. The variable Δwb codes changes in
the size of state B's winning coalition (wbt
− wbt−1). This variable captures the
effect of democratization on trade, while the squared version of the
variable captures the impact of any form of institutional change, be it
toward or away from a large coalition. The positive coefficient on the
(Δwb)2 variable suggests that any institutional
change increases trades, while the positive coefficient on the
Δwb variable suggests that democratizing states increase
their trade with the United States more than states becoming more
autocratic. Neither of these variables (or joint hypotheses tests) are
statistically significant, and their inclusion leaves the effect of
leadership turnover unaltered. It would appear that leadership change,
rather than institutional change, alters trade flows.
In addition to affecting the level of trade, one might argue that
leadership turnover increases trade volatility. This is a perfectly
plausible conjecture and it is important to exclude the possibility
that this heteroskedascity might account for our findings. To examine
the extent to which leadership change and political institutions
influence the volatility of trade we explicitly model the variance as a
function of explanatory variables. Model 3 shows that σ (the square
root of the variance of the error term) is decreasing in the level of
prior trade and decreasing in wb. Specifically, if we consider
a state whose annual trade with the United States is in the order of
about $100 million, then the variance in this trade is about twice as
large for small coalition systems (wb = 0) as it is for large
coalition systems (wb = 1). The impact of leadership change,
and its interaction with wb, are statistically insignificant.
Consistent with our theoretical predictions that large coalitions are
more trustworthy and their trade policies are more stable; coalition
size reduces the variability of trade flows, as evidenced by the
statistically significant negative coefficient on the wb
term.
Model 4 examines the impact of institutional change both in terms of
changes in trade flows via the β coefficient and the variance of
trade flows via the σ coefficient. Consistent with the results
reported in Model 2, institutional change does not significantly alter
the level of trade between states. Similarly, the institutional change
has only a modestly significant effect on the volatility of trade.
Although the coefficient on Δwb is statistically
significant at the 5 percent level, the coefficient on the
(Δwb)2 is not and neither is the joint
hypothesis test that both these variables are nonzero.
Incidences of Sour Relations
The leader specific punishments described by McGillivray and Smith
suggest that leaders of large coalition systems are far more wary of
terminating cooperation than leaders of small coalition systems.34
As such, instances of poor trading relations
between large coalition states should be less common compared to
instances of the breakdown of relations involving small coalition
systems. Of course, leaders' policy choices do not account for all
instances of large-scale shifts in trading relations. States A and B
might stop trading because a technological development means that state
A no longer requires state B's exports. States that trade
agricultural goods often experience large-scale shifts in trade when
crops fail as a result of weather conditions.
Obviously the weather is beyond the control of politicians, and so
all states can experience a radical decline or rise in trade. While all
states are equally subjected to the vagaries of the weather and other
natural phenomena, small coalition systems are at greater risk of
“politically induced” large-scale trade disruption than
large coalition systems. Unlike their large coalition counterparts,
small coalition leaders can antagonize other states without
jeopardizing their tenure in office. This suggests that while all
systems are likely to experience some instances of large-scale
disruption of trading relations, such instances are more likely in
small coalition systems.
Table 3 provides a test of the prediction
that instances of poor trading relations are more common amongst dyads
containing small coalition states. Above we defined bad
trading relations as trade during the past year being only half of the
value of the average in the preceding five years. Table 3 shows the number of instances of
bad trade relations (at time t+1) for dyadic trade with the
United States as a function of the institutions of state B.35
The variable bad compares trade in
period t − 1 with the previous five years. To ensure we are
examining the contemporaneous impact of institutions, we use
bad at time t+1.
As
Table 3
reveals, bad trading relations are more common when coalition size is
small. Of the 514 dyad years in which state B had the smallest winning
coalition (W = 0), twenty-six cases (or 5.06 percent) experienced
bad relations. In contrast, of the 1,173 dyad years in which
state B was of the largest winning coalition category (W = 1), only
eight (or 0.68 percent) experienced
bad relations. A
chi
2 test strongly rejects the hypothesis that these
differences arose by chance.
How coalition size affects incidences of bad trading relations (U.S.
dyads only)
Small coalition systems are more likely to experience poor trading
relations with the United States than large coalition systems. The
results in Table 4 confirm these conclusions.
Model 5 is a probit model of the occurrence of poor trading relations.
This model supports the prediction that small coalition systems are
more likely to experience poor trading relations. Model 6, which
estimates a tobit model of sour trade relations (at time
period t+1), further supports this conclusion. Remember that
sour is a continuous measure of poor trading relations, which
takes value zero when trade at time t − 1 did not decline
relative to the prior five-year period and takes a value equal to the
size of the decline relative to the previous five years when trade
declined. In 2,622 of the 4,020 observations, trade increases and so
sour is left censored. In the remaining 1,398 observations
trade declines relative to the previous five years. The negative
coefficient of −5.155 on the wb variables indicates that
the greater state B's coalition size the less likely it is to
experience any decline in trade and, conditional on such a decline
occurring, the smaller the decline is likely to be. Large coalition
size reduces the risk of negative trade shocks. We now turn to the
question of how institutions and leadership change interact to
influence how trade patterns respond following instances of poor
trading relations.
The impact of institutions and political change on the occurrence and
extent of poor relations (U.S. dyads only)
Restoring Sour Relations
If sour relations are the result of a leader's behavior then
trading relations should be reinvigorated when the leader is replaced.
While this theoretical statement is straightforward, testing it is more
complex. First, instances of poor relations need not be related to the
behavior of the leader and might instead be the result of a harvest
failure. In such a case we should not expect leadership turnover to
have any significant effect on the restoration of trade. Unfortunately,
we have no good way to identify when a leader's actions, rather
than ‘natural’ circumstances, caused a decline in trade.
Under LSP, leader replacement of a cheating leader reinvigorates trade.
In general we do not know which leader was responsible for the
deterioration of trade. This creates a second problem: in examining
whether the removal of a leader who has previously cheated normalizes
relations, we are averaging over both cheating and innocent leaders, in
addition to averaging over instances of cheating and
‘natural’ trade disruptions. The possibility of
‘natural’ decline in trade and our inability to assign
responsibility to a particular leader diminishes our ability to observe
whether leader change has its predicted effects.
Fortunately, we are guided by theory. According to LSP theory, and
supported by the evidence in Tables 3 and 4, democratic leaders are less likely to cheat than
autocratic leaders.36
It is extremely difficult
to test the impact of LSP directly on the tenure of leaders because of this
selection effect. On the equilibrium path large coalition leaders do not take
actions that cost them their jobs. Schultz
2001a.
Large coalition system leaders do not cheat even when
doing so is highly attractive because it costs them their jobs. In contrast,
on the equilibrium path, autocrats might be tempted to cheat when particularly
attractive circumstances arise. Their jobs are not in jeopardy. Thus,
in small coalition systems a greater proportion of trade failures are
likely to be the result of cheating than is the case in large coalition
systems. The replacement of a large coalition leader is likely to do
little to restore trade, because it is unlikely that it was the
leader's actions that brought about the diminished trade. The
replacement of a small coalition leader is likely to do more to
rejuvenate trade, because it is more likely that such a leader was
responsible for the sour relations. If the theory is correct, then we
should expect to see a positive coefficient on the variable interacting
bad and leadership change. This coefficient represents the
normalization of relations following the removal of the accountable
leaders. We should also expect an offsetting negative coefficient on
the triple interaction variable
bad*Δ
LeaderB*
wb. This interaction
variable captures the circumstance of a democratic leader being deposed
following bad relations.
Table 5 reports analyses that test the LSP
predictions. The analyses are similar to those reported in Table 2, but with the inclusion of variables to reflect
poor relations. Model 7 includes the dichotomous measure of poor relations,
bad, as well as its interactions with leadership change in state B,
coalition size in state B, and its interaction with both wb and
leader turnover. Model 8 includes the same interactions but measures poor
relations using the continuous measure, sour. Both models also
include institutional change and control variables and the variance
structures are explicitly modeled. The results with respect to variables
already considered are similar to those in Table 2.
For instance, leadership change reduces trade in small, but not large,
coalition systems. Therefore, we focus directly on the variables
relating to instances of poor trading relations.
Sour trading relations and how institutions and leadership turnover
can restore relations (U.S. dyads)
Under LSP, deposition of the leader responsible for a deterioration
in relations restores cooperation. The interaction between leader
change in state B and bad in Model 7 captures this effect. The
positive coefficient supports the prediction. If state B's leader
is replaced, wb = 0, and trade last year was bad, then trade
increases by about 14 percent (0.172 − 0.035). In contrast,
leadership turnover in large coalition systems hampers the restoration
of trade: specifically, the net effect of leadership turnover when
wb = 1 is (0.172 − 0.035 + 0.074 − 0.328) =
−11.7 percent. However, this negative effect is largely
counteracted by the greater increase in trade following an incident of
bad trade in a large coalition system (the coefficient on the
interaction of bad and wb is 0.074). Although the
individual coefficients are insignificant, joint hypothesis tests show
statistically significant difference between how large and small
coalition systems respond to leadership change during periods of poor
relations.
Model 7 shows that large coalition systems recover from instances of
poor trading relations more quickly than do small coalitions. Further,
the mechanisms through which relations are restored differ. When state
B is democratic, leadership turnover delays the restoration of trade.
When state B is a small coalition system, leader turnover provides the
impetus for trade restoration. The estimated effects of leadership
change during instances of poor relations are large, yet we suspect
that our results underestimate the true effect. The research design
prevents us from identifying whether leader A or leader B is
responsible for the breakdown in cooperation. Similarly, we cannot
ascertain whether the breakdown occurred because of
“natural” dips in trade or in response to leaders'
policies.
Model 8 also provides limited support for LSP. If trading relations
are poor, leadership change in state B improves trade when B's
coalition size is small, but not when B's coalition size is large.
Unfortunately, many of the individual coefficient estimates for the
effect of leadership change and regime type interacted with
sour are insignificant. However, in joint hypothesis tests
where these coefficients are all simultaneously zero, the null
hypothesis is rejected at the 5 percent level. In the Appendix, where
we look at trading relations between all possible dyads, the results
are highly significant.
Conclusions
Through the examination of dyadic trade this article assesses the
impact of leadership turnover and domestic institutions on relations
between states. The results suggest that the extent to which leader
change influences relations between states strongly depends on the
institutional context in which leaders govern. When leaders are easily
removed and political survival is closely related to the provision of
public goods, then trading relations are robust to leadership change.
In contrast, when leaders are beholden only to a small group of
supporters, leadership change has a strong impact on trading relations.
Generally, the replacement of small coalition leaders harms trade,
although when trading relations are poor (substantially below recent
historical levels) the replacement of a small coalition leader offers
the prospect for normalized relations.
The statistical analyses presented endeavored to test hypotheses
derived from two specific theories: Bueno de Mesquita et al.'s
BdM2S2 selectorate theory and McGillivray and Smith's Leader
Specific Punishment theory.37
While
necessarily focused on these specific goals, this article recognizes
the growing trend toward examining international politics at the level
of the leader. This is not to say that this article examines the
individual traits of leaders but rather recognizes that leaders serve
within specific institutional contexts. Institutions shape the
incentives of leaders and hence the decisions and policies of leaders.
In both the theories considered, the primary goal of leaders was to
retain power. The institution of winning coalition size affected not
only whether leaders can achieve this goal but also the policy routes
they choose in their attempts to do so. Domestic incentives profoundly
alter the playing out of international relations.
Since the path-breaking explorations into international outcomes and
the survival of political leaders by Bueno de Mesquita, Siverson, and
Woller, scholars are increasingly focusing on individual leaders as the
unit of analysis.38
We believe that this movement toward a finer-grained unit of analysis
offers the prospect for great leaps forward in our understanding of
international relations. While the legacy of theories based on
individual decision making is long, too often the focus on
international events has led theorists to aggregate up the actions of
individuals to examine the behavior of states. Explaining
macro-phenomena is a laudable goal and while this direction has allowed
consideration of the most salient questions in international relations,
it has ignored the opportunity for theory testing. Akin to many other
arguments, the theories considered here suggest that democratic states
behave differently to autocratic ones. The state level data support
such a conclusion, yet this result fails to distinguish the theories
under consideration from the myriad of contending explanations at the
level of institutional differences between states. However, at the
leader level of analysis the theories under consideration make numerous
additional predictions that distinguish them from other theories of
democratic behavior, such as normative considerations. Through an
increased focus on leader level data we believe that international
relations scholars will make great advances in sorting through the
multitudes of potential causal explanations.
Appendix
In the main text we examined only dyadic relations involving the
United States. As explained above, this simplified model specification
and presentation. Here we briefly present analyses for all dyads. Table 6 is analogous to Table
2, considering the general effect of leadership turnover and
regime type. The restoration of relations results, the analogy of Table 5, are presented in Table
7.
Effect of institutions and leadership turnover on dyadic trade (all
dyads)
Bad trading relations and how institutions and leadership turnover
can restore relations (all dyads)
The principal problem with considering all dyads is that, unlike the
tests in the main text, institutions vary in both countries of the
generic dyad AB. Dyads are organized by COW country codes with the
lowest indexed state being state A. Because there is no theoretical
reason why lower indexed states should be systematically different from
higher indexed states, we constrain the parameter estimates relating to
states A and B to be the same and report a single coefficient that
corresponds to the appropriate variable in both states. The results
support the same substantive conclusions as those presented in the main
text. The principal difference is that when all dyads are considered,
the effects of leadership change, although strongly statistically
significant, are smaller in magnitude than those reported in the text.
This is unsurprising because for many countries dyadic trade flows are
inconsequential.
Model A1 in Table 6 is a standard
fixed-effect regression model that shows that on average leadership
change in a small coalition system reduces dyadic trade by about 0.6
percent. In large coalition systems, leader change has no appreciable
impact on leader change. Model A2 reports similar results but
explicitly models the determinant of the variance in trade. High levels
of prior trade and large coalition systems both increase the variance
in trade. Leadership change in small coalition systems also
significantly increases the variance in trade, but in large coalition
systems the volatility of trade is uninfluenced by leader turnover.
Table 7 assesses the restoration of poor
relations using sour, the continuous measure of poor
relations. Again the coefficients corresponding to variables relating
to states A and B are constrained to be identical. These models support
the substantive conclusions articulated in the main text. When
relations are poor, leadership turnover in small coalition, but not
large coalition, systems reinvigorates trade. Model A3 examines a
straightforward fixed-effect model, while models A4 and A5 explicitly
model the variance in the error structure.
