We examine whether, as countries become more economically dependent on a trade partner, they realign politically toward 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.

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1 October 2024

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American Economic Journal: Macroeconomics 16(4) , pp.350-385, 2024

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DOI: 10.1257/mac.20220223

https://www.aeaweb.org/articles?id=10.1257/mac.20220223

This Journal article is published under the centre's Trade programme, Urban programme.