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 crossholdings of assets and environmental treaties. Our results support the notion that international environmental cooperation facilitates economic exchange.
Rose, Andrew K., and Mark M. Spiegel. 2006. “Non-Economic Engagement and International Exchange: The Case of Environmental Treaties,” Federal Reserve Bank of San Francisco Working Paper 2006-33. Available at https://doi.org/10.24148/wp2006-33