In a comparative study of Japanese and European trade policy, this paper explains how the institutional context of negotiations affects political outcomes. I examine two pathways by which negotiation structure promotes liberalization: issue linkage and legal framing. Broadening stakes through issue linkage mobilizes domestic lobbying for liberalization. Use of GATT/WTO trade law in dispute settlement legitimizes arguments favoring liberalization. This study on international institutions addresses the theoretical debates in the field regarding how interdependence and the legalization of international affairs change the nature of state interaction. I test my argument in the sensitive area of agricultural trade policy. Statistical analysis of U.S. negotiations with Japan and the EU from 1970 to 1999 indicates that an institutionalized issue linkage makes liberalization more likely for both Japan and Europe. This is the most important source of leverage for bringing major policy reform. However, the effect of GATT/WTO legal pressure interacts with the political context. I conclude that domestic political processes make Japan more responsive to pressure from trade rules than the European Union.
Davis, Christina. "Linkage and Legalism in Institutions: Evidence From Agricultural Trade Negotiations." Working Paper 01–01, Weatherhead Center for International Affairs, Harvard University, February 2001.Download PDF
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.
This article introduces a theory of ethnic war. It argues that the likelihood of ethnic violence is largely a function of how the principal antagonists—a state and its dissatisfied ethnic minority—think about territory. Attempts to negotiate a resolution short of war will fail when: (1) the ethnic minority demands sovereignty over the territory it occupies, and (2) the state views that territory as indivisible. Ethnic war is less likely to break out if only one of these conditions is met, and very unlikely if neither condition is met. The article first introduces a theory to explain ethnic war. It then presents a statistical analysis of the theory's key variables and tests the theory's causal logic by comparing Moscow's interactions with Tatarstan and with Chechnya. The article concludes with three implications: ethnic groups are rational; that certain settlement patterns will not be amenable to outside intervention; and partition may not be a good policy option to end violence.
Toft, Monica Duffy. "Indivisible Territory and Ethnic War." Working Paper 01–08, Weatherhead Center for International Affairs, Harvard University, December 2001.Download PDF
A straightforward extension of the standard Stigler–Peltzman model of regulation, coupled with the Taagepera–Shugart analysis of electoral–system effects, suggests: (a) that the greater the seat–vote elasticities of majoritarian electoral systems will tilt policy in favor of consumers, while proportional systems should strengthen producers; and (b)that the pro–consumer bias of majoritarian systems should be manifested in systematically lower prices. Empirical tests, controlling for structural determinants of national price levels established in the earlier "law of one price" literature, establish majoritarian electoral systems as a significant and robust predictor, lowering national price levels in the mean OECD country by between ten and seventeen percent.
In overlapping–generations models of public goods provision, in which the contribution decision is binary and lifetimes are finite, the set of symmetric subgame–perfect equilibria can be categorized into three types: seniority equilibria in which players contribute (effort) until a predetermined age and then shirk thereafter; dependency equilibria in which players initially shirk, then contribute for a set number of periods, then shirk for the remainder of their lives; and sabbatical equilibria in which players alternately contribute and shirk for periods of varying length before entering a final stage of shirking. In a world without discounting we establish conditions for equilibrium and demonstrate that for any dependency equilibrium there is a seniority equilibrium that Pareto–dominates it ex ante. We proceed to characterize generational preferences over alternative seniority equilibria. We explore the aggregation of these preferences by embedding the public goods provision game in a voting framework and solving for the majority–rule equilibria. In this way we can think of political processes as providing one natural framework for equilibrium selection in the original public–goods provision game.
How are constitutional rules sustained? The general problem concerns how to structure the political game so that all the players – elected officials, the military, economic actors, and citizens – have incentives to respect the rules. In this paper, we investigate this problem in the context of how the institutions of federalism are sustained. A central design problem of federalism is how to create institutions that at once grant the central government enough authority to provide central goods and police the sub–units, but not so much that it usurps all of public authority. Using a game theoretic model of institutional choice, we show that, to survive, federal structures must be self–enforcing: the center and the states must have incentives to fulfill their obligations within the limits of federal bargains. Our model investigates the tradeoffs among the benefits from central goods provision, the ability of the center to impose penalties for non–compliance, and the costs of states to exit. We also show that federal constitutions can act as coordinating devices or focal solutions that allow the units to coordinate on trigger strategies in order to police the center. We apply our approach to a range of federations, including the United States under the Articles and the Constitution, modern China, and Russia.
Market exchange rates can move around a lot, particularly but not only around currency crises. For this reason, they can properly be averaged over several years for international comparisons. However, the Chinese yuan has been fixed at roughly 8.3/dollar since 1994. In my view it is modestly undervalued, as evidenced by the steady growth of China's foreign exchange reserves, the result of central bank market intervention to keep the yuan from appreciating. China has also had a significant trade surplus in recent years. However, it still maintains controls on outflows of domestic capital. And it is about the enter the WTO, following which under the access agreements China must reduce its import barriers much more than its trading partners do. Many Chinese are fearful of withering foreign competition. If these fears prove to be valid and widespread, the yuan might have to depreciate over the next five years, although my guess is the required depreciation will be modest, e.g. 10-15 percent. Moreover, WTO membership may result in more inbound foreign investment, thus mitigating the required depreciation or even eliminating it altogether. The bottom line is this: the market exchange rate provides a much better basis for converting Chinese GDP into dollars than does some artificially constructed ppp rate. Following the pattern of Japan and Korea, the real exchange rate of the rmb might appreciate over time, as China develops, but that process will occur at a modest rate, over decades.
Paper presented at Congress public hearing "Chinese Budget Issues and the Role of the PLA in the Economy," December 7, 2001.Download PDF
The "new economy" has become a buzzword to characterize the American economy, with positive connotations but imprecise meaning. Sometimes it is used to refer only to selected high technology sectors, specifically computers, semiconductors, software, and telecommunications. But usually the term implies significant changes in the US economy as a whole. At its most dramatic, the term suggested that the traditional business cycle has been banished, inflation and unemployment have been brought forever under control, US long–term growth rates have increased significantly, and the high–value stock market was not over–valued and indeed would continue to rise. More modestly, it suggests that the structure of the US economy has changed fundamentally, with the implication, inter alia, that monetary and fiscal measures affect the economy differently from the way they did in the past. Finally, it suggests that US productivity growth has returned to, or at least toward, the high levels it enjoyed in earlier years, before the slowdown of the mid–1970s. This paper will discuss the factual bases for conjecturing that the United States might indeed have a "new economy," review the controversies and evidence surrounding that claim, and suggest how the emergence of a "new economy," if indeed there is one, might affect economies elsewhere in the world, including the Asia–Pacific region.
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.
The literature on the role of religious institutions in ethnic conflict does not answer the question of whether these institutions support violence or the status quo. From a resource mobilization perspective, religious institutions generally have the organizational resources to facilitate opposition to the status quo. However, it is also clear that most religions at different times have supported both violence and the status quo. An analysis of 105 ethno–religious minorities using data from the Minorities at Risk project shows that religious institutions tend to inhibit peaceful opposition unless there is a sufficient level of perceived threat to the religious institutions or the religion itself, in which case religious institutions tend to facilitate political opposi–tion among ethno–religious minorities. However, the decision to violently oppose a regime is based mostly on secular factors including the desire for some form of autonomy or independence and political discrimination against the ethno–religious minority.Studies in Conflict and Terrorism, Vol. 22, Iss. 2 (1999): 119-139.
European countries are much more generous to the poor relative to the US level of generosity. Economic models suggest that redistribution is a function of the variance and skewness of the pre–tax income distribution, the volatility of income (perhaps because of trade shocks), the social costs of taxation and the expected income mobility of the median voter. None of these factors appear to explain the differences between the US and Europe. Instead, the differences appear to be the result of racial heterogeneity in the US and American political institutions. Racial animosity in the US makes redistribution to the poor, who are disproportionately black, unappealing to many voters. American political institutions limited the growth of a socialist party, and more generally limited the political power of the poor.
The poor favor redistribution and the rich oppose it, but that is not all. Social mobility may make some of today's poor into tomorrow's rich and since redistributive policies do not change often, individual preferences for redistribution should depend on the extent and the nature of social mobility. We estimate the determinants of preferences for redistribution using individual level data from the US, and we find that individual support for redistribution is negatively affected by social mobility. Furthermore, the impact of mobility on attitudes towards redistribution is affected by individual perceptions of fairness in the mobility process. People who believe that the American society offers equal opportunities to all are more averse to redistribution in the face of increased mobility. On the other hand, those who see the social rat race as a biased process do not see social mobility as an alternative to redistributive policies.
To what extent has globalization been a factor in Indonesia's economic turmoil? This essay addresses the question by reviewing the experience of the Indonesian economy as it evolved in the decade before the crisis and since the crisis hit. It starts by reviewing the policies adopted by the Indonesian government as it sought to integrate the economy more closely into the global market place and reviews the outcome of this earlier policy shift. The paper then turns to assess the impact of the Asian financial crisis but broadens the scope to include a review of domestic political and social stability. It traces the country's slow and halting movement towards recovery highlighting the major reasons why the economic collapse was so severe and why the recovery process has been slower than in neighboring countries. It also briefly reviews "pro" and "con" globalization arguments, and assesses the role globalization played in Indonesia's economic collapse, before concluding with lessons that can be drawn from the Indonesian experience. The author also looks at the role of the IMF in managing the crisis drawing upon his own role negotiating with the IMF during the critical period in Indonesia's economic and political history.
Kartasasmita, Ginandjar. "Globalization and the Economic Crisis: The Indonesian Story." Working Paper 01–03, Weatherhead Center for International Affairs, Harvard University, 2001.Download PDF
We study the organization of federations – or international unions – which decide together the provision of certain public goods. The benefit of centralization depends on the internalization of the spillovers, that of decentralization on the adaptability to local differences. We individuate as an optimal institutional design a form of fiscal federalism based on decentralization of expenditures and a system of subsidies and transfers between countries. Since this solution can be politically unfeasible, we study institutional compromises between a centralized federation and a decentralized one. "Flexible unions" and federal mandates in which both the state and federal levels are involved in providing public goods are typically superior to complete centralization and politically feasible. Finally, we study the effects of a qualified majority voting rule in a centralized system: we find that it can be a useful device to correct a bias toward "excessive" union–level activism.
We construct a set of indicators to measure the policy–making role of the European Union (European Council, Parliament, Commission, Court of Justice, etc.), in a selected number of policy domains. Our goal is to examine the division of prerogatives between European institutions and national ones, in light of the implications of normative models and in relation to the preferences of European citizens. Our data confirm that the extent and the intensity of policy–making by the EU have increased sharply over the last 30 years. Such increase has taken place at different speeds, and to different degrees, across policy domains. In recent times the areas that have expanded most are the most remote from the EEC's original mission of establishing a free market zone with common external trade policy. We conjecture that the resulting allocation may be partly inconsistent with normative criteria concerning the assignment of policies at different government levels, as laid out in the theoretical literature.