International Friends and Enemies
To what extent do nations’ economic interests influence their political behavior? To shed light on this question, we develop new theory-consistent measures of the sensitivity of country welfare to foreign productivity growth. We derive these measures from the class of international trade models with a constant trade elasticity. Using exogenous sources of variation from both China’s emergence into the global economy and reductions in the cost of air travel over time, we show that as a country becomes more economically dependent on a trade partner, it realigns politically towards that trade partner.
We are grateful to Princeton University for research support. We would like to thank Daron Acemoglu, Arnaud Costinot, Keith Head, Nathan Lane, Thierry Mayer, Tommaso Porzio, Nancy Qian, Kadee Russ, Johannes Stroebel and conference and seminar participants at China Economics Summer Institute, Federal Reserve Bank of Atlanta/Emory University, Geneva Online Trade and Development Workshop, Harvard-MIT, Hong Kong University of Science and Technology, Nottingham University, National Bureau of Economic Research (NBER), National University of Singapore, Peking University, Penn State University, Princeton University, Queen Mary University of London, the RIDGE Conference in Trade and Development, the STEG Annual Conference 2021, and the World Bank for helpful comments and suggestions. We are grateful to Xavier Jaravel for sharing the strategic rivalry data. We also would like
to thank Gordon Ji, Ian Sapollnik and Maximilian Schwarz for excellent research assistance. The usual disclaimer applies. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.