No. 1497 - Safer trade among democracies? Downward trade volatility and political regimes (1962-2018)
Temi di discussione (Working papers)
by Dario Pellegrino
October 2025
The study assesses the risk of trade contraction for Italy and other G7 countries, depending on the political regime of their trading partners. To this end, it reconstructs a measure of volatility in bilateral trade flows, covering the period 1962-2018.
The findings show that trade with democratic countries is less prone to sudden drops and disruptions than trade with non-democratic regimes. This holds for both imports and exports and remains robust when accounting for the partner's level of development and the types of goods exchanged. The results can be explained by the institutional checks on executive power typical of democracies, which may help reduce institutional and economic instability.
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