The Impact of Political Relations Between Countries on Economic Relations

In this paper, we assess the implications of changes in bilateral diplomatic relations with the United States for economic relations. We identify countries whose relations with the US changed during two historic and significant milestones in the past three decades, and a third group of countries after their leftist governments failed/collapsed in early 1990s. Using the Mann-Whitney U-test, we measure the significance of changes in economic relations. We chose the following set of economic indices to reflect economic relations: imports and exports to and from the US, capital outflows from the US to the country, economic and military assistance provided by the US, flow of students to the US, US arms export to the country, the country’s military expenditures, and believing in the importance of remittances and FDI and portfolio investment we use total figures as we did not have bilateral figures. Our results, though mixed, offer some interesting insights.