Whose trade follows the flag? Institutional constraints and economic responses to bilateral relations

Abstract

This study revisits the association between bilateral relations and trade based on rare-event data from Integrated Data for Event Analysis (IDEA). Our results suggest that a country imports more from another if the two countries are friendlier. We further argue that states face two constraints when attempting to manipulate trade. First, they are constrained by domestic institutions such as elections and congress. Second, they are constrained by international institutions such as the World Trade Organization (WTO). Our results show that the imports of authoritarian countries follow the flag of politics, but democratic countries’ imports are less likely to be affected by bilateral relations. Moreover, WTO membership can gradually restrict democratic states from intervening on imports but has little impact on authoritarian governments.