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Article

The Politics of Trade and Climate Change  

Daniel Yuichi Kono

Both trade and climate change policies affect the international competitiveness of carbon-intensive industries. This suggests that policy changes in one area may affect politics in the other. Does openness to international trade affect climate change politics? Do climate change policies affect the politics of trade? Does formally linking trade and climate policies via trade sanctions affect the prospects for cooperation in each domain? There are good theoretical reasons to believe that the answer to these questions is yes. Theoretically, each set of policies should affect the other, but these interactions could either encourage or discourage trade and climate cooperation. How trade and climate politics interact is thus an empirical question. Empirically, the overall picture is of a nascent but promising field of research. Extant studies provide indirect tests and suggestive evidence, but little in the way of firm conclusions. Only one point emerges clearly: progress in this area will require more and better data on national climate policies.

Article

Labor and Trade Protection in Comparative Perspective  

Erica Owen and Rena Sung

Research on the domestic politics of trade typically begins with a theory about who benefits from trade and who is harmed by it. The actors—for instance, firms, workers, or industries—who benefit from trade are expected to support liberalization while those who are harmed are expected to oppose liberalization. For individuals, exposure to globalization through the labor market—including the type of job, firm, or industry—is likely to be an important determinant of individuals’ preferences over policies governing the global economy. To understand the domestic politics of trade with respect to labor, therefore, it is important to ask two key questions. First, what explains the preferences of workers? Broadly, scholars can be divided between those that argue different economic factors (i.e., labor market consequences) explain attitudes toward free trade and those who argue that noneconomic factors (e.g., values, information) are the main drivers of attitudes. Empirical tests of these theories rely on survey data. Second, how do trade pressures influence elections and when do workers’ interests influence policy outcomes? Research on mass politics shows that workers’ interests with respect to trade shape not only support for incumbents in elections but also whether elected officials support free trade. Domestic institutions also play an important role in this process, with research suggesting that democracies and left-leaning governments implement trade policies that are more favorable to workers. Yet trade in the 21st century looks very different from trade 30 years ago. It no longer involves only (or even primarily) the exchange of final goods but also trade in intermediate goods and services. Trade is also closely linked to the production strategies of multinational firms, including offshoring. These fundamental changes in the nature of global economic activity have important implications for the how the interests of workers relate to those of their employers, and by extension the politics of trade. As a result, scholars are increasingly incorporating new models of trade into analysis of politics at the individual and aggregate levels.

Article

The Comparative and International Political Economy of Anti-Globalization Populism  

Robert J. Franzese

The basic economics of international trade imply that globalization will have driven in the developed democracies of the Western world an increasing divergence between the material advancement of human, physical, and financial capitalists—a minority of the population—and the material stagnation or even decline of labor—a majority. This article reviews that theory and the strong comparative-historical empirical record substantiating those effects, and explains how the rise of xenophobic, nationalistic, anti-elite populism has its complementary roots in these economic developments.

Article

Fiscal Politics  

Mark Hallerberg

The topic of fiscal politics includes taxation and spending, budget balances and debt levels, and crises and the politics of austerity. The discussion often focuses on how some variable—such as the international environment, or political institutions—constrains “politics” in this realm. Almost omnipresent concerns about endogeneity run through this research. While this is a “big” policy area that deserves study, tracing causation is difficult.

Article

The Political Economy of Financial Markets  

Federico Maria Ferrara and Thomas Sattler

The relationship between politics and financial markets is central for many, if not most, political economy arguments. The existing literature focuses on the effect of domestic and international political interests, institutions, and policy decisions on returns and volatility in stock, bond, and foreign exchange markets. This research bears implications for three major debates in political science: the distributive effects of politics, globalization and state autonomy, and the political roots of economic credibility and its tensions with democratic accountability. While the study of politics and financial markets is complicated by several theoretical and empirical challenges, recent methodological innovations in political research provide a window of opportunity for the development of the field.

Article

Labor and the Global Political Economy  

Layna Mosley

What does current scholarship suggest about the relationship between the rights of workers in the developing world and the global economy? Contemporary multinational production includes both direct ownership of manufacturing facilities abroad and arm’s length subcontracting and supply chain relationships. Thus far, political economists have paid greater attention to the former; there are various reasons to expect that multinational firms may have positive, rather than negative, effects on workers’ rights. For instance, some multinationals are interested in hiring at the top end of local labor markets, and high standards serve as a tool for recruitment and retention. Multinationals also could bring “best practices” from their home countries to their local hosts, and some face pressure from shareholders and consumers—given their visibility in their home locations—to act in “socially responsible” ways. Hence, while directly owned production does not automatically lead to the upgrading of labor standards, it can do so under some conditions. Supply chain production is likely more mixed in its consequences for workers. Such production involves arm’s length, subcontracted production, in which multiple potential suppliers typically compete to attract business from lead firms. Such production often includes more labor-intensive activities; minimizing costs (including labor costs) and lowering production times can be key to winning subcontracts. We may therefore expect that subcontracted production is associated with greater violations of labor rights. It is worth noting, however, that research regarding the consequences of supply chain production—and the conditions under which such production may lead to improvements for workers—is less advanced than scholarship related to foreign direct investment. The governance of labor rights in a supply chain framework is marked by several challenges. It is often difficult for lead firms, even those that wish to protect worker rights, to effectively monitor compliance in their subcontractor facilities. This becomes more difficult as the length and breadth of supply chains grow; private governance and corporate social responsibility have therefore not always lived up to their promise. Rather, achieving labor protections in a supply chain framework often requires both private and public sector efforts—that is, governments that are willing to privilege the rights of workers over the rights of local factory owners and governments that are willing to enact and implement legal protections of core labor rights. Such government actions, when coupled with private sector–based capacity building, codes of conduct, and regular monitoring, offer the most promise for protecting labor rights within global supply chains. Finally, governments of developed countries also may play a role, if they are willing to credibly link working conditions abroad with market access at home.

Article

Comparative and International Political Economy and the Global Financial Crisis  

Alison Johnston

The 2008 Global Financial Crisis (GFC) and subsequent European Debt Crisis had wide-sweeping consequences for global economic and political stability. Yet while these twin crises have prompted soul searching within the economics profession, international political economy (IPE) has been relatively ineffective in accounting for variation in crisis exposure across the developed world. The GFC and European Debt Crisis present the opportunity to link IPE and comparative political economy (CPE) together in the study of international economic and financial turmoil. While the GFC was prompted by the inter-connectedness of global financial markets, its instigators were largely domestic in nature and were reflective of negative externalities that stemmed from unsustainable national policies, especially those related to financial regulation and household debt accumulation. Many in IPE take an “outward looking in” approach to the examination of international economic developments and domestic politics; analysis rests on how the former impacts the latter. The GFC and European Debt Crisis, however, demonstrate the importance of a (CPE-based) “inward looking out” approach, analyzing how unique policy and political features (and failures) of individual nation states can unleash economic and financial instability at the global level amidst deepened economic and financial integration. IPE not only needs to grant greater attention to variation in domestic politics and policies in a time of closely integrated financial markets, but also should acknowledge the impact of a wider array of actors beyond banks and financial institutions (specifically more domestically rooted actors like households) on cross-national variation in the consumption of foreign credit.

Article

Financial Globalization and Domestic Policy Autonomy in Latin America  

Giselle Datz

Despite theoretical assumptions about the potential for financial liberalization in Latin America to foster economic growth, empirical developments revealed a different story. With financial liberalization came greater macroeconomic instability, exposing countries to financial crises even when domestic economic fundamentals were mostly in order. At the policy front, capital account liberalization posed crucial challenges to macroeconomic governance. Indeed, international political economy literature on financial globalization has highlighted that developing countries’ governments who chose to implement policies that contradicted financial markets’ expectations could be “disciplined” or “punished” by the threat of capital outflows. Yet, capital flows to emerging economies are not determined solely by domestic (push) factors. Even in the most extreme case of noncompliance with investors’ (creditors’) preferences—i.e., sovereign default—evidence shows that market re-access and the cost of new debt are a function of credit cycles rather than solely determined by investors’ decisions to “punish” defaulters. In addition, to the extent that the “market” can indeed be considered as a single analytical category, industry-specific incentives shape portfolio investors’ bets. Caveats also apply to how market reforms differed in nature and degree, even in Latin American countries subjected to similar external pressures. The same is true for policy responses to the 2008 financial crisis. These dynamics add necessary nuance to broad depictions of financial liberalization as a deterministic process unequivocally constraining domestic policy autonomy in predictable ways.

Article

What Do We Know About Global Financial Crises? Putting IPE and Economics in Conversation  

Michael J. Lee

Since the 1970s, financial crises have been a consistent feature of the international economy, warranting study by economists and political scientists alike. Economists have made great strides in their understanding of the dynamics of crises, with two potentially overlapping stories rising to the fore. Global crises appear to occur highly amid global imbalances—when some countries run large current account deficits and others, large surpluses. A second story emphasizes credit booms—financial institutions greatly extend access to credit, potentially leading to bubbles and subsequent crashes. Global imbalances are, in part, the product of politically contested processes. Imbalances would be impossible if states did not choose to liberalize (or not to liberalize) their capital accounts. Global political structures—whether international institutions seeking to govern financial flows, or hierarchies reflecting an economic power structure among states—also influence the ability of the global system to resolve global imbalances. Indeed, economists themselves are increasingly finding evidence that the international economy is not a flat system, but a network where some states play larger roles than others. Credit booms, too, and the regulatory structures that produce them, result from active choices by states. The expansion of the financial sector since the 1970s, however, took place amid a crucible of fire. Financial deregulation was the product of interest group knife-fights, states’ vying for position or adapting to technological change, and policy entrepreneurs’ seeking to enact their ideas. The IPE (international political economy) literature, too, must pay attention to post-2008 developments in economic thought. As financial integration pushes countries to adopt the monetary policies of the money center, the much-discussed monetary trilemma increasingly resembles a dilemma. Whereas economists once thought of expanded access to credit as “financial development,” they increasingly lament the preponderance of “financialized” economies. While the experimentalist turn in political science heralded a great search for cute natural experiments, economists are increasingly turning to the distant past to understand phenomena that have not been seen for some time. Political scientists might benefit from returning to the same grand theory questions, this time armed with more rigorous empirical techniques, and extensive data collected by economic historians.

Article

Latin American Labor Regulation in the 21st Century  

Matthew E. Carnes

The labor market of the 21st century is evolving at a rapid pace, making traditional manufacturing and agricultural jobs increasingly precarious and generating significant pressure for turnover, retraining, and adaptation by workers. Latin America’s labor regulation, adopted in the middle of the 20th century to foster industrial development and incorporate urban workers, has been slow to adapt to these conditions. Its restrictive and costly hiring and firing rules offer stronger protections than in many other parts of the world, but they often apply to a diminishing minority of laborers. Despite a few exceptions, once-strong unions have been hollowed out in the region, and workers have become increasingly atomized in their job seeking. The region’s educational systems are plagued by underinvestment, and they struggle to provide the needed technical skills that could galvanize investment that would provide higher-wage employment. Large segments of the workforce—a majority in most countries—find themselves in the informal sector, in jobs that are not registered with the state and that do not make contributions to pensions and social security systems. Why has Latin America—a region endowed with a variety of natural resources and a resilient entrepreneurial spirit—exhibited these patterns in its labor market regulation? The answer lies in an overlapping nexus of economic and political influences in the region. In this complex mix, one strand of scholarship has documented the lasting and recurrent alliance between organized labor and political parties on the left. Another strand has highlighted the concentrated power of business interests—both local and transnational—that have had the power to shape policies. And a third body of research concentrates on the electoral dynamics that have given rise to a growing set of politically motivated policies that seek to support informal sector workers, but may incentivize their remaining in that status. Finally, considerable attention has been given to the under-resourced state agencies that are not adequately monitoring labor regulations, allowing for widespread evasion of required payroll taxes. A change-resistant cycle has predominated in the region, in which protected insiders in the unionized sectors seek to preserve a set of protections that apply to a shrinking few, while politicians court support among outsiders with direct benefits that address immediate needs but have not yet achieved long-term or intergenerational change. Business interests have largely benefited from the status quo of labor law evasion and social security avoidance, so they have been slow to invest in upgrading the workforce or changing technology that would inspire additional investment in education. Addressing this situation will require efforts at both the political and economic levels, perhaps loosening the partisan ties that lock in preferential policies, as well as increasing the skill levels that would attract higher-tech industries and higher-paying jobs.

Article

The Politics of Domestic Taxation  

Lucy Barnes

All governments require revenue, and domestic taxes are the primary means for generating it. Yet both the size and shape of taxation vary significantly across countries and have been transformed over time. What explains variation in domestic taxation? To answer this question, recent scholarship on taxation has focused on the politics of taxation as a tool for redistribution. This has led to a wide body of research on the fiscal impact of taxation and on the introduction, evolution, and variation in direct and progressive tax regimes, particularly the income tax. Yet the focus on taxation as a redistributive tool yields a puzzle, as more progressive tax systems tend to be found where redistribution is in fact the lowest. Explanations of this paradox often center on the impossibility of high and progressive taxes on capital in the context of international economic integration. Not as well studied are taxes other than the taxation of income, and the deliberate politics of nonfiscal, regulatory, and incentive effects of different tax choices. Methodologically, problems of endogeneity are ubiquitous in the study of tax policy choices, but more sophisticated experimental work is well underway in research on individual preferences for taxation.

Article

Globalization and Regionalism in Africa  

Pádraig Carmody

Globalization, or increased interconnectedness between world regions, is a dialectical and recursive phenomenon that consequently tends to deepen through time as one set of flows sets off other related or counterflows. This is evident in the history of the phenomenon in Africa, where transcontinental trade, and later investment, were initially small but have grown through different rounds including slavery, colonialism, neocolonialism, and the early 21st-century era of globalization. However, globalization on the continent, as in other places, is not unilinear and has generated a variety of “regional responses” in terms of the construction of organizations such as the African Union and other more popularly based associations. The phenomenon of globalization on the continent is deepening through the information technology “revolution,” which also creates new possibilities for regional forms of association.