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): assets , debt , theory , reputation , discount , empirical , arrangement , partnership

JEL(s): F02 , F10 , F34

Programme Areas: International Macroeconomics , International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP5942.asp.asp

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.