DP5942 Non-Economic Engagement and International Exchange: The Case of Environmental Treaties

Author(s): Andrew K Rose, Mark Spiegel
Publication Date: November 2006
Keyword(s): arrangement, assets, debt, discount, empirical, partnership, reputation, theory
JEL(s): F02, F10, F34
Programme Areas: International Macroeconomics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5942

We examine the role of non-economic partnerships in promoting international economic exchange. Since far-sighted countries are more willing to join costly international partnerships such as environmental treaties, environmental engagement tends to encourage international lending. Countries with such non-economic partnerships also find it easier to engage in economic exchanges since they face the possibility that debt default might also spill over to hinder their non-economic relationships. We present a theoretical model of these ideas, and then verify their empirical importance using a bilateral cross-section of data on international cross-holdings of assets and environmental treaties. Our results support the notion that international environmental cooperation facilitates economic exchange.