Economic Globalization and Democracy: An Empirical Analysis

Abstract

The theoretical literature presents conflicting expectations about the effect of globalization on national democratic governance. One view expects globalization to enhance democracy; a second argues the opposite; a third argues globalization does not necessarily affect democracy. Progress in explaining how globalization affects democracy requires confronting these theoretical positions with data. We assess empirically the effects of globalization on the level of democracy from 1970 to 1996 for 127 countries in a pooled time-series cross-sectional statistical model. The effects of four national aspects of globalization on democracy are examined: trade openness, foreign direct investment inflows, portfolio investment inflows and the spread of democratic ideas across countries. We find that trade openness and portfolio investment inflows negatively affect democracy. The effect of trade openness is constant over time while the negative effect of portfolio investment strengthens. Foreign direct investment inflows positively affect democracy, but the effect weakens over time. The spread of democratic ideas promotes democracy persistently over time. These patterns are robust across samples, various model specifications, alternative measures of democracy and several statistical estimators. We conclude with a discussion of policy implications.