The Effects of Political Institutions on the Extensive and Intensive Margins of Trade∗

We present a model of political networks that integrates both the choice of trade partners (the extensive margin) and trade volumes (the intensive margin). Our model predicts that regimes secure in their survival, including democracies and consolidated authoritarian regimes, will trade more on the extensive margin than vulnerable autocracies, which will block trade in products that would expand interpersonal contact among their citizens. We then apply a two-stage Bayesian LASSO estimator to detailed measures of institutional features, and highly disaggregated product-level data encompassing 131 countries over a half century. Consistent with our model, we find that (i) political institutions matter more for the extensive than the intensive margin of trade, (ii) while some characteristics of democracy promote trade, others tend to inhibit it, (iii) the effects of political institutions on trade vary across products falling most heavily on manufactures and differentiated products.