ABSTRACT: We exploit the recent declassification of CIA documents to examine whether there is evidence of US power and influence being used to influence countries’ decisions regarding trade and trade policy. Using a newly constructed annual panel of CIA interventions during the Cold War, we show that interventions were immediately followed by increased trade with the US. We distinguish between two competing explanations: CIA interventions lowered transactions costs with the US, and interventions increased US power and influence, which were then used to create a market for US goods. We find that the data are most consistent with the second explanation. Specifically, we find that: (i) intervened countries only experience an increase in the share of imports coming from the US, but experience no increase in the share of their exports going to the US, (ii) the increase in imports from the US arises from an increase in the imports of products in which the US has a comparative disadvantage, (iii) the increase in US imports reflects trade diversion, not trade creation, (iv) these effects are limited to autocracies, where we expect US power to have the most significant effect on policy. We then examine the specific mechanisms behind this effect and find evidence of government purchases of US imports playing a central role. We find no evidence that changing tariff structures, Export-Import Bank loans, or foreign aid play a role.
Posted on: Thu, 15 Aug 2013 00:24:50 +0000