Democratization, New Leaders, and the Need for Economic Reform: Can Preferential Trading Agreements Help?

Can international institutions help leaders commit economic reform? In this article, we examine how leaders use preferential trading agreements with major powers (European Union and the United States) to promote liberal economic policies. We argue that under democratization, new leaders benefit the most from credible commitment. Using original data on treaty negotiations, our empirical analysis shows that under democratization, leader change greatly increases the probability that the government of a developing country begins treaty negotiations. We also demonstrate that preferential trading agreements are accompanied by liberalization in different sectors of the economy, and this effect is most pronounced if it follows a leader change. These findings support the notion that international institutions enable credible commitment to economic reform

Identification and Estimation of Causal Mechanisms and Net Effects of a Treatment under Unconfoundedness

An important goal when analyzing the causal effect of a treatment on an outcome is to understand the mechanisms through which the treatment causally works. We define a causal mechanism effect of a treatment and the causal effect net of that mechanism using the potential outcomes framework. These effects provide an intuitive decomposition of the total effect that is useful for policy purposes. We offer identification conditions based on an unconfoundedness assumption to estimate them, within a heterogeneous effect environment, and for the cases of a randomly assigned treatment and when selection into the treatment is based on observables. Two empirical applications illustrate the concepts and methods.causal inference, causal mechanisms, post-treatment variables, principal stratification

Recent Developments in the Econometrics of Program Evaluation

Many empirical questions in economics and other social sciences depend on causal effects of programs or policies. In the last two decades much research has been done on the econometric and statistical analysis of the effects of such programs or treatments. This recent theoretical literature has built on, and combined features of, earlier work in both the statistics and econometrics literatures. It has by now reached a level of maturity that makes it an important tool in many areas of empirical research in economics, including labor economics, public finance, development economics, industrial organization and other areas of empirical micro-economics. In this review we discuss some of the recent developments. We focus primarily on practical issues for empirical researchers, as well as provide a historical overview of the area and give references to more technical research.program evaluation, causality, unconfoundedness, Rubin Causal Model, potential outcomes, instrumental variables