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.
We offer the first independent scholarly evaluation of the claims, forecasts, and causal inferences of the State Failure Task Force and their efforts to forecast when states will fail. State failure refers to the collapse of the authority of the central government to impose order, as in civil wars, revolutionary wars, genocides, politicides, and adverse or disruptive regime transitions. States that sponsor international terrorism or allow it to be organized from within their borders are all failed states. This task force, set up at the behest of Vice President Gore in 1994, has been led by a group of distinguished academics working as consultants to the U.S. Central Intelligence Agency. State Failure Task Force reports and publications have received attention in the media, in academia, and from public policy decision–makers. In this article, we identify several methodological errors in the task force work that cause their reported forecast probabilities of conflict to be too large, their causal inferences to be biased in unpredictable directions, and their claims of forecasting performance to be exaggerated. However, we also find that the task force has amassed the best and most carefully collected data on state failure in existence, and the required corrections which we provide, although very large in effect, are easy to implement. We also reanalyze their data with better statistical procedures and demonstrate how to improve forecasting performance to levels significantly greater than even corrected versions of their models. Although still a highly uncertain endeavor, we are as a consequence able to offer the first accurate forecasts of state failure, along with procedures and results that may be of practical use in informing foreign policy decision making. We also describe a number of strong empirical regularities that may help in ascertaining the causes of state failure. Forthcoming in World Politics. You may also be interested in the last state failure task force report, the state failure data we used to write this paper, or the related paper, Nathaniel Beck, Gary King, and Langche Zeng. "Improving Quantitative Studies of International Conflict: A Conjecture," American Political Science Review, Vol. 94, No. 1 (March, 2000): 21–36 [Abstract] (winner of the Gosnell Prize).
Samuel Huntington's controversial "clash of civilizations" thesis posits that, among other things, the extent of both international and domestic conflict between 'civilizations' will increase with the end of the Cold War. This is expected to be especially true of clashes involving the Western and Islamic civilizations and even more so for clashes between these two civilizations. In this article the author, using the Minorities at Risk dataset along with independently collected variables, tests these ethnic conflict propositions of Huntington's. The results from the author's analysis are examined from there perspectives: globally, from the perspective of the Islamic civilization, and from the perspective of the Western civilization. Globally, there has been little change in Islamic involvement in civilizational ethnic conflict since the end of the Cold War. However, from a Western perspective, the proportion of civilizational conflicts involving Western groups that are with Islamic groups increased dramatically after the end of the Cold War. Thus, the results show that if one focuses narrowly on the perspective of the Western civilization, there is some support for Huntington's claims regarding Islam, but not for a general increase in civilizational conflict. However, from the perspective of the Islamic civilization and from a broader global perspective, ther is little support for Huntington's argument.Journal of Peace Research, Vol. 38, no. 4(2001): 459-472.
This paper addresses the influence of foreign trade and investment on inequality or, more generally, on the distribution of income, with a focus on developing countries. There has been some scholarly debate on the influence on economic growth of economic openness to the rest of the world. Since growth affects the level of poverty and the distribution of income, the trade–growth nexus is also addressed."Distribution of income" has several quite different meanings, apart from the issue of the specific measurements that are used to describe it. Economic theory has mainly been concerned with the functional distribution of income, that is, with the returns to different identifiable factors of production and their respective shares in total income of a particular country, such as the share of labor income in national income. Popular and political discourse is more concerned with the size distribution of income, such as the fraction of national income accruing to the top ten percent, or the bottom decile, of residents of the country in question — and in particular on whether inequality has risen or declined. In recent years, concern with the size distribution of income has extended to the global distribution, where observations are on countries, grouped by per capita income, rather than on individuals. The two concepts of distribution are related by the ownership of the factors of production, especially land in a predominantly agrarian economy, capital in a modern economy. If ownership of land and capital were evenly distributed across a population, even significant changes in the functional distribution of income would have little impact on the size distribution of income.
Cooper, Richard. "Growth and Inequality: The Role of Foreign Trade and Investment." Working Paper 01–07, Weatherhead Center for International Affairs, Harvard University, 2001.
For much of Canadian history, particularly during the critical era of mass migration that straddled the decades of the turn of the century, the government may have welcomed immigrants with an open hand, but that same hand was also forcefully pressing immigrants into a narrowly–defined geographic and economic corner. Indeed, what distinguishes Canadian immigration history during the first half of this century, and makes it so different from that of the United States, is the degree to which Canadian immigration policy and practice was predicated on the notion that the place for non–English speaking immigrants, foreigners as they were commonly called, and for their Canadian–born children and children's children through the generations was in the Canadian hinterland, engaged in farming and extractive labor.
The central claim in this paper is that by explicitly introducing costs of international trade (narrowly, transport costs but more broadly, tariffs, nontariff barriers and other trade costs), one can go far toward explaining a great number of the main empirical puzzles that international macroeconomists have struggled with over twenty–five years. Our approach elucidates J. McCallum's home bias in trade puzzle, the Feldstein–Horioka saving–investment puzzle, the French–Poterba equity home bias puzzle, and the Backus–Kehoe– Kydland consumption correlations puzzle. That one simple alteration to an otherwise canonical international macroeconomic model can help substantially to explain such a broad arrange of empirical puzzles, including some that previously seemed intractable, suggests a rich area for future research. We also address a variety of international pricing puzzles, including the purchasing power parity puzzle emphasized by Rogoff, and what we term the exchange–rate disconnect puzzle.' The latter category of riddles includes both the Meese–Rogoff exchange rate forecasting puzzle and the Baxter–Stockman neutrality of exchange rate regime puzzle. Here although many elements need to be added to our extremely simple model, we can still show that trade costs play an essential role.
This paper responds to findings by Acemoglu, Johnson and Robinson (2000) that suggest weak institutions, but not physical geography and correlates like disease burden, explain current variation in levels of economic development across former colonies. Using similar data and expanding the sample of countries analyzed, our regression analysis shows that both institutions and geographically–related variables such as malaria incidence or life expectancy at birth are strongly linked to gross national product per capita. We argue that the evidence presented in Acemoglu, Johnson and Robinson is likely limited by the inherently small sample of ex–colonies and the limited geographic dispersion of those countries.
Most recent cross–country analyses of economic growth have neglected the importance of physical geography. This paper reviews the distinctive development challenges faced by economies situated in tropical climates. Using geographic information system (GIS) mapping, the paper presents evidence that production technology in the tropics has lagged behind temperate zone technology in the two critical areas of agriculture and health, and this in turn opened a substantial income gap between climate zones. The difficulty of mobilizing energy resources in tropical economies is emphasized as another significant contributor to the income gap. These factors have been amplified by geopolitical power imbalances and by the difficulty of applying temperate–zone technological advances in the tropical setting. The income gap has also been amplified because poor public health and weak agricultural technology in the tropics have combined to slow the demographic transition from high fertility and mortality rates to low fertility and mortality rates. The analysis suggests that economic development in tropical ecozones would benefit from a concerted international effort to develop health and agricultural technologies specific to the needs of the tropical economies.
It appears likely that the number of currencies in the world, having proliferated along with the number of countries over the past fifty 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 (1985) recommended? Building on Maurice Obstfeld and Kenneth Rogoff (2000b,d), I will argue here that the status quo arrangement among the dollar, yen and the 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.
The new agenda of global integration is built on shaky empirical ground and is seriously distorting policy makers? priorities. Making compliance with it the first order of business diverts human resources, administrative capabilities, and political capital away from more urgent development priorities such as education, public health, industrial capacity, and social cohesion. It undermines nascent democratic institutions by removing the choice of development strategy from public debate. World markets are a source of technology and capital; it would be silly for the developing world not to exploit these opportunities. But globalization is not a short cut to development.
This paper develops an explicitly stochastic new open economy macroeconomics' model, which can potentially be used to explore the qualitative and quantitative welfare differences between alternative exchange rate regimes. A crucial feature is that we do not simplify by assuming certainty equivalence for producer price setting behavior. Our framework also provides a sticky–price alternative to Lucas's (1982) exchage rate risk premium model. We show that the level risk premium' in the exchage rate is potentially quite large and may be an important missing fundamental in empirical exchange rate equations. As a byproduct analysis also suggests an intriguing possible explanation of the forward premium puzzle.
Malaysia recovered from the Asian financial crisis swiftly after the imposition of capital controls in September 1998. The fact that Korea and Thailand recovered in parallel has been interpreted as suggesting that capital controls did not play a significant role in facilitating Malaysia?s rebound. However, the financial crisis was deepening in Malaysia in the summer of 1998, while it had significantly eased up in Korea and Thailand. We employ a time–shifted differences–in–differences technique to exploit the differences in the timing of the crises. Compared to IMF programs, we find that the Malaysian policies produced faster economic recovery, smaller declines in employment and real wages, and more rapid turnaround in the stock market.
This research examines how the expansion of education, and its changing role in labor markets, has shaped employment experiences of newly–arriving immigrants to American and Canadian cities over the period 1970 to 1990. Earlier expansion of education levels in the U.S., particularly in immigrant–intensive cities, lowered the relative employment success of its immigrants compared to those in Canada in the 1970s, while the more recent rapid expansion of education in Canada has reduced this cross–national difference and fostered convergence. Three potential aspects of these effects are examined: (i) higher native–born educational levels create or increase an immigrant skills gap, (ii) the impact on immigrants is magnified by the lower relevance (actual or perceived) of their credentials to employers? requirements, and (iii) associated shifts toward knowledge–based or professionalized occupations alters the credential validation processes in ways which disadvantage immigrants. These effects are conditional upon labor market institutions and processes. Data are drawn from U.S. and Canadian census microdata files for 1980/81 and 1990/91. The impact of educational change on immigrants is shown in inter–temporal decomposition analysis.
Western US agriculture is an industry that has shaped and been shaped by a peculiar labor policy: the most numerous seasonal workers were assumed to be outsiders who would not remain employed in the industry or live in the community in which they worked for more than 10 to 20 years. Instead of integration policy, the emphasis of farm employers was on how to find new workers willing to accommodate themselves to seasonal employment.
This essay presents what we believe to be the consensus among political scientists with regard to the analysis of the politics of international economic relations. The review we present is not intended to be exhaustive. We do not, for example, attempt to include the work of scholars who challenge the positivist approach that is assumed here. We believe that this survey does, nonetheless, reflect the principal focuses of North American scholarship in IPE. Most scholarship published in the principal journals of the profession and the sub–discipline, and most graduate training and research, are within the range of the theoretical and empirical topics and approaches presented here.