Dyadic Analysis in International Relations : A Cautionary Tale

We explore problems with the use of dyadic data in international relations. We illustrate these problems by analyzing a central proposition among IR scholars that democracies seek out other democracies as trading partners. Our main contribution is to present randomization tests to infer the correct p-values associated with the trade hypotheses. Our results show that typical statistical tests for significance are severely overconfident in dyadic data. Second, we show that democratic trade can be modeled using nations as the units of analysis, testing whether the proportion of trade with other democracies increases when a country becomes more democratic. Third, we conduct a difference-in-differences analysis of change in trading partners following democratic or anti-democratic shocks. Rather than adding further layers of statistical complexity, these tests are simple and intuitive. They provide the cleanest evidence that when nations undergo democratic or nondemocratic transitions, their trade patterns change just as theory would suggest