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Noneconomic Engagement and International Exchange: The Case of Environmental Treaties

Authors


  • Rose thanks INSEAD, the MAS, and NUS for hospitality during the course of this research. Comments from an insightful anonymous referee, Meredith Crowley, Jonathan Eaton, Raquel Fernandez, Mark Gertler, Kris Mitchener, Masao Ogaki; seminar participants at FRBNY, NYU, Oregon, and Tokyo; and conference participants at the 2007 AEA and PEIF meetings are appreciated. Christopher Candelaria provided excellent research assistance. The views expressed below do not represent those of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. Older and current (PDF) versions of this paper, key output, and the chief STATA data sets used in the paper are available at http://faculty.haas.berkeley.edu/arose.

Abstract

We examine the role of noneconomic 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 noneconomic 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 noneconomic 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.

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