How Dictators Maintain Power Using International Trade Policy

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We examine how a dictatorship uses trade policy to maintain political stability in response to a world price shock. A country’s comparative advantage will determine the trade policy that it uses for this purpose. If the shock is to an export (import) price then the dictatorship must raise (lower) the corresponding export tax (import tariff) to maintain political stability. We find support for these predictions in the data for dictatorships, but not for established democracies whose behavior is predicted by Grossman and Helpman (1994). We find that trade policy setting behavior by ‘illiberal democracies’ is indistinguishable from that of dictatorships.