Publications

2001
Skocpol, Theda. 2001. “Patriotic Partnerships: Why Great Wars Nourished American Civic Voluntarism.” Shaped by War and Trade: International Influences on American Political Development. Princeton University Press.Abstract

Gravity–based cross–sectional evidence indicates that currency unions and currency boards stimulate trade; cross–sectional evidence indicates that trade stimulates income. This paper estimates the effect that common–currency regimes have, via trade, on income per capita. We use economic and geographic data for over 200 countries to quantify the implications of common currencies for trade and income, pursuing a two–stage approach. Our estimates at the first stage suggest that belonging to a currency union more than triples trade with the other members of the zone. Moreover, there is no evidence of trade–diversion. Thus currency unions raise overall trade. Currency boards have similar effects. Our estimates at the second stage suggest that every one percent increase in trade (relative to GDP) raises income per capita by at least one third of a percent over twenty years. We combine the two estimates to quantify the effect of common currencies on output. Our results support the hypothesis that the beneficial effects of such regimes on economic performance come through the promotion of trade, rather than through a commitment to non–inflationary monetary policy, or other macroeconomic influences.

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Alesina, Alberto. 2001. “Inequality and Happiness: Are Europeans and Americans Different?”.Abstract

The answer to the question posed in the title is "yes." Using a total of 128,106 answers to a survey question about "happiness," we find that there is a large, negative and significant effect of inequality on happiness in Europe but not in the US. There are two potential explanations. First, Europeans prefer more equal societies (inequality belongs in the utility function for Europeans but not for Americans). Second, social mobility is (or is perceived to be) higher in the US so being poor is not seen as affecting future income. We test these hypotheses by partitioning the sample across income and ideological lines. There is evidence of "inequality–generated" unhappiness in the US only for a sub–group of rich leftists. In Europe inequality makes the poor unhappy, as well as the leftists. This favors the hypothesis that inequality affects European happiness because of their lower social mobility (since no preference for equality exists amongst the rich or the right). The results help explain the greater popular demand for government to fight inequality in Europe relative to the US.

428_inequality.pdf
Frieden, Jeffry. 2001. “Inequality: Causes and Possible Futures”.Abstract

One dimension of global income inequality swamps all others, the inequality due to differences in living standards among nations. This is primarily the result of differential rates of national economic growth. This paper examines current conditions, then looks at how global inequality has evolved over the past 50 years. After an examination of the causal factors that affect this inequality, it engages in a few speculative observations about what the next half–century might bring.

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Moravcsik, Andrew. 2001. “Liberal International Relations Theory: A Social Scientific Assessment”.Abstract

This paper, part of a multi–author project evaluating the evolution of theoretical paradigms in international relations (IR), evaluates the Liberal paradigm form a Lakatosian perspective. There is a distinct "Liberal" Scientific Research Program (SRP) in the study of international relations, based on three core assumptions. These Assumptions are shared by Ideational, Commercial and Republican variants of Liberal theory. The Liberal SRP is clearly progressive in the Lakatosian sense, that is, it explains a broad and expanding domain of empirical phenomena more accurately than competing research programs – and does so in such a way as to meet the specific Lakatosian criteria of "heuristic", "temporal" and "background theory" novelty. Liberal theory is thus among the most promising, perhaps the most fruitful and promising, of contemporary paradigms in IR theory. Yet legitimate doubts can be raised about the utility of Lakatosian theory as a means to evaluate research in IR. In particular, one might question its view that theories from competing paradigms are mutually excusive, which encourages one–on–one testing of unicausal theories, rather than estimation of the proper (and sometimes overlapping) scope of paradigms, or the construction of multi–paradigmatic syntheses. Given the current stage of IR theory, these two tasks may offer greater explanatory insight into world politics than unicausal theory testing. This conclusion does not undermine, however, the positive assessment of Liberal theory, which both supports clear empirical scope conditions and can play a foundational role in fruitful multi-theory syntheses.

607_moravscik.pdf

WCFIA Working Paper 01–02, April 2001.

Rogoff, Kenneth S. 2001. “Why Not a Global Currency?.” American Economic Review 91 (2): 243-247. DASH Repository DOIAbstract

It appears likely that the number of currencies in the world, having proliferated along with the number of countries over the past 50 years, will decline sharply over the next two decades. The question I plan to pose here is: where, from an economic point of view, should we aim for this process to stop? Should there be a single world currency, as Richard Cooper (1984) boldly envisioned? Should there remain multiple major currencies but with a much stricter arrangement among them for stabilizing exchange rates, as say Ronald McKinnon (1984) or John Williamson (1993) recommended? Building on Maurice Obstfeld and Rogoff (2000b, d), I will argue here that the status quo arrangement among the dollar, yen, and euro (which I take to be benign neglect) is not far from optimal, not only for now but well into the new century. And it would remain a good system even if political obstacles to achieving greater monetary policy coordination (or even a common world currency) could be overcome. Again, this is not a paper on, say, the pros and cons of dollarization for small and medium-sized economies, but rather on arrangements among the core currencies.

Any blueprint for the future core of the world currency system involves some crystal-ball gazing. But at the same time, recent research in international macroeconomics offers several important insights that can help inform the discussion.

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2000
Kornai, Janos. 2000. “Ten Years After 'The Road to a Free Economy', The Author's Self Evaluation”.Abstract

Ten years have passed since the publication of my book The Road to a Free Economy: Shifting from a Socialist System–the Example of Hungary. It was the first book in the international literature to put forward comprehensive proposals for the post–socialist transition. This paper sets out to assess the book as the author sees it ten years later.

Rodrik, Dani. 2000. “Is Turkey Winning the Fight Against Inflation?”.Abstract
Analysis of the issue of inflation in Turkey.
Robinson, James A. 2000. “Is Child Labor Inefficient?”.Abstract

Journal of Political Economy, 108, 663-679

We build a model of child labor and study its implications for welfare. We assume that there is at trade–off between child labor and the accumulation of human capital. Even if parents are altruistic and child labor is socially inefficient, it may arise in equilibrium because parents fail to fully internalize its negative effects. This occurs when bequests are zero or when capital markets are imperfect. We also study the effects of a simple ban on child labor and derive conditions under which it may be Pareto improving in general equilibrium. We show that the implications of child labor for fertility are ambiguous.

Rogoff, Kenneth S. 2000. “Perspectives on OECD Capital Market Integration: Implications for U.S. Current Account Adjustment”.
Rodrik, Dani. 2000. “Comments at a Conference Honoring Raymond Vernon”.Abstract
Ray Vernon was a great intellect, an iconoclast for whom scholarly fashions never held much attraction. That is of course what made him a visionary: his pioneering studies of the multinational enterprise, comparative political economy, and what we today call globalization anticipated the flourishing academic work in these areas by a decade or two. And his intellect and scholarly curiosity were matched by a distinguished career in the real world, spanning both the private and public sectors.
Rodrik, Dani. 2000. “Exchange Rate Regimes and Institutional Arrangements in the Shadow of Capital Flows”.Abstract
Whatever the ultimate verdict on that issue, the Malaysian experience with capital controls (not just the 1998 controls, but also the earlier restrictions on inflows in 1994) demonstrate two things: (a) capital controls can be made effective (in the sense of driving a wedge between onshore and offshore interest rates) with minimal corruption and rent-seeking; (b) capital controls on short-term flows can be implemented with minimal disruption to direct foreign investment (i.e., without scaring away the investors that one really cares about). This experience, I think, puts to rest several counter-arguments about controls: that markets can easily evade controls; that controls have to be so heavy-handed that they come with great costs to the real economy; that they are necessarily prone to corruption and rent-seeking; that it is impossible to segment short-term flows from direct foreign investment.
Kremer, Michael. 2000. “Outside Funding of Community Organizations: Benefiting or Displacing the Poor?”.Abstract

In response to the widespread consensus on the importance of social capital, and to concerns about the scarcity of institutions giving voice to disadvantaged groups, some donors have begun programs designed to strengthen indigenous community organizations. We use a prospective, randomized evaluation to examine a development program explicitly targeted at building social capital among rural women's groups in western Kenya. The program increased turnover among group members. It increased entry into group membership and leadership by younger, more educated women, by women employed in the formal sector, and by men. The analysis suggests that providing development assistance to indigenous community organizations of the disadvantaged may change the very characteristics of these organizations that made them attractive to outside funders.

Frankel, Jeffrey. 2000. “Verifiability and the Vanishing Intermediate Exchange Rate Regime”.Abstract

The corners hypothesis holds that intermediate exchange rate regimes are vanishing, or should be. Surprisingly for a new conventional wisdom, this hypothesis so far lacks analytic foundations. In part, the generalization is overdone. We nevertheless offer one possible theoretical rationale, a contribution to the list of arguments against intermediate regimes: they lack verifiability, needed for credibility. Central banks announce intermediate targets such as exchange rates, so that the public can judge from observed data whether they are following the policy announced. Our general point is that simple regimes are more verifiable by market participants than complicated ones. Of the various intermediate regimes (managed float, peg with escape clause, etc.), we focus on basket pegs, with bands. Statistically, it takes a surprisingly long span of data to distinguish such a regime from a floating exchange rate. We apply the econometrics, first, to the example of Chile and, second, by performing Monte Carlo simulations. The amount of data required to verify the declared regime may exceed the length of time during which the regime is maintained. The amount of information necessary increases with the complexity of the regime, including the width of the band and the number of currencies in the basket.

Caselli, Francesco, and Jaume Ventura. 2000. “A Representative Consumer Theory of Distribution (Published in American Economic Review)”.Abstract
This paper introduces various sources of consumer heterogeneity in one-sector representative-consumer growth models and develops tools to study the evolution of the distribution of consumptions, assets and incomes. These tools are applied to the Ramsey-Cass-Koopmans model of optimal savings and the Arrow-Romer model of productive spillovers. The RC property per se places very few restrictions on the nature of observed distributions, and a wide range of distributive dynamics and income mobility patterns can arise as the equilibrium outcome. An example illustates how to use these tools to generate quantitative predictions and compare them to the data.
Alesina, Alberto. 2000. “Currency Unions”.Abstract

What is the optimal number of currencies in the world? Common currencies aspect trading costs and, thereby, the amounts of trade, output, and consumption. From the perspective of monetary policy, the adoption of another country?s currency trades offers the benefits of commitment to price stability against the loss of an independent stabilization policy. The nature of the trade depends on coñmovements of disturbances, on distance, trading costs, and on institutional arrangements such as the willingness of anchor countries to accommodate to the interests of clients.

Rodrik, Dani. 2000. “Comments on "Estimating the Effects of Currency Unions on Trade and Output," by J. Frankel and A. Rose”.Abstract
Comments on "Estimating the Effects of Currency Unions on Trade and Output," by J. Frankel and A. Rose
Simmons, Beth A. 2000. “International Efforts Against Money Laundering”.Abstract

In Dinah Shelton (ed.) Commitment and Compliance: The Role of Non–binding Norms in the International Legal System. Oxford University Press, 2000, 244–263

The explosion of international financial activity over the last decade has been a central fact of international economic life. Balance of payments statistics indicate that cross–border transactions in bonds and equities for the G–9 states rose from less than 10 percent of gross domestic product in 1980 to over 140 percent in 1995. International bond markets have reached staggering proportions: by the end of 1995, some US$2.803 trillion of international debt securities were outstanding worldwide. Capital flows to developing countries and countries in transition grew from US$57 billion in 1990 to over US$211 billion in 1995. Foreign lending in form of international syndicated credit facilities has surged since the 1980s, to over US$320 billion at the end of 1995. Foreign exchange transactions – which represent the world?s largest market – reached an estimated average daily turnover of nearly US$1.2 trillion in 1995 compared to US$590 billion daily turnover in 1989.

Frieden, Jeffry. 2000. “Politics and Exchange Rates: A Cross-Country Approach to Latin America”.
Rodrik, Dani. 2000. “Comments on "Trade, Growth, and Poverty," by D. Dollar and A. Kraay”.Abstract

The paper poses an interesting and important question: Have post–1980 "globalizers" performed better than "non-globalizers"? The authors answer the question affirmatively, but only by applying a suitably arbitrary set of selection criteria to their sample of countries.

Martin, Lisa L. 2000. “Agency and Delegation in IMF Conditionality”.Abstract

I address the issue principal–agent relationships in the IMF from the perspective of attempting to understand the IMF as an international institution. However, this issue is also vital in current policy debates about reform of the IMF. Participants in these debates seem torn between calling the IMF a "runaway agency" and a "U.S. pawn" (Sanger 1998). The Economist reports that "the institution is widely viewed as the handmaiden of America?s Treasury Department" (Economist, 29 July 2000, 66). The report of the U.S. IFI Advisory Commission argues that if "the G–7 finance ministers can agree on a policy that they wish to pursue, for whatever reason, they can use the IMF as the instrument of that policy." Jeffrey Sachs, one of the members of that commission and a supporter of its conclusions, argues that the IMF is the instrument of a few rich governments (Financial Times, 25 September 2000). But in his statements as part of the IFI Advisory Commission, Sachs repeatedly raised questions about the public scrutiny and democratic accountability of the Fund, implying that the Fund bureaucracy acts without adequate political oversight. Clearly, both viewpoints cannot be correct – the Fund cannot simultaneously be an out–of–control bureaucracy and slave to its political masters. Only careful consideration of actual principal–agent relationships will bring clarity to this debate.