This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. We find a sizeable negative effect of public spending – and in particular of its wage component – on profits and on business investment. This result is consistent with models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than those of taxes. Our results can explain the so called "non–Keynesian" (i.e. expansionary) effects of fiscal adjustments.
This study argues that the states of Southeastern Europe must devote special emphasis to the promotion of an arms control regime in the region which will aim at achieving three particular goals, i) conflict prevention, ii) crisis stability and iii) arms race stability. To this end a hypothetical, yet necessary, political framework for organizing arms control efforts in the peninsula will be described. The study is divided into three parts. Firstly, an account of the trends and characteristics of the post–Cold War Southeast European security environment is given. In addition, the current status of the arms control enterpise with respect to both intra–state (i.e., the arrangements entailed in the Dayton Peace Accord) and inter–state conflict (i.e., the agreeements concluded and implemented by Southeast European states on bilateral and multilateral level) is presented. Particular reference is made to the Greek–Turkish arms race and its consequences for the region?s stability.
The past decade has witnessed a growing controversy over the status of formal approaches in political science, and especially the growing prominence of formal rational choice theory. Rational choice models have been an accepted part of the academic study of politics since the 1950s, but their popularity has grown significantly in recent years. Elite academic departments are now expected to include game theorists and other formal modelers in order to be regarded as "up to date," graduate students increasingly view the use of formal rational choice models as a prerequisite for professional advancement, and research employing rational choice methods is becoming more widespread throughout the discipline. Is the increased prominence of formal rational choice theory necessary, inevitable, and desirable?
A conventional wisdom holds that the European and American economies represent different ways of organising the generation and distribution of wealth to produce similar outcomes in terms of economic performance. Around a common long–run growth rate of 2.5% per annum, the United States has opted for slow productivity growth, more employment and an army of working poor while Europe has opted for higher productivity growth, more unemployment and a much tighter distribution of incomes. Recently this wisdom has come under attack as growing evidence of superior US performance in growth and improved performance on productivity along with very low unemployment has constrasted with anemic European growth and a very poor employment performance. Under this new scenario, rigidities in European product and particularly labour markets are undermining recovery and leading to jobless growth of modest proportions.
The paper develops a simple stochastic new open economy macroeconomic model based on sticky nominal wages. Explicit solution of the wage–setting problem under uncertainty allows one to analyze the effects of the monetary regime on welfare, expected output, and the expected terms of trade. Despite the potential interplay between imperfections due to sticky wages and monopoly, the optimal monetary policy rule has a closed–form solution. To motivate our model, we show that observed correlations between terms of trade and exchange rates are more consistent with our traditional assumptions about nominal rigidities than with a popular alternative based on local–currency pricing.
One of China's chief problems at this point is that, in its desire to bring about economic development while retaining political control, Party leaders are not sure how tolerant they can be, while the Chinese people, on the other hand, do not know what individual activities are accepted at a any given time. Since 1978 and throughout China=s opening to the West, Chinese leaders have encouraged the people to achieve economic prosperity and have even promoted private ownership, whereas social activities have been suppressed. The latest confrontation in China occurred in late 1998, when President Jiang Zemin denounced attempts to found an opposition party and made clear that AEconomic reforms were not a prelude to Western style multiparty democracy.@5 Also the Tiananmen Square incident in 1989 destroyed much of the internal and international trust that had been created during the previous ten years. This kind of rough handling is contrary to the people=s standpoint; many of them, especially those educated abroad, can compare both the political atmosphere and the Party's promises about "socialistic freedom" with their experiences in other countries.
Failure to cooperate for mutual benefit does not necessarily signal ignorance or irrationality or even malevolence, as philosophers since Hobbes have underscored. Social scientists have lately analyzed this fundamental predicament in a variety of guises: the tragedy of the commons; the logic of collective action; public goods; the prisoners' dilemma. In all these situations everyone would be better off if everyone could cooperate. In the absence of coordination and credible mutual commitment, however, everyone defects, ruefully but rationally, confirming one another's melancholy expectations.
It is nearly a decade since most African countries embarked on what Samuel Huntington has popularized as the "third wave of democracy". The proliferation of political institutions, the liberalization of the economic and political landscapes, the regularity of elections hitherto unheard of in certain African countries, and a decline in military coups in the 1990s, have all signaled that a momentum towards democratic consolidation on the continent is on the increase. Yet, these formalisms of procedural democracy have also concealed a much more profound pattern of declining press freedom on the continent, as African governments, under the guise of constitutional rule, have resorted to the enactment of suppressive laws against an increasingly critical media. In most of the new democracies, as this paper attempts to show, new parliamentary bills that are hostile to the media, are increasingly being promulgated, and this includes countries that have traditionally been considered democratic. This paper posits the question that, given this evolving trend, and considering that the media is the mirror of society?s freedom, can we authoritatively conclude that democracy is gaining momentum in Africa?
Transitory food insecurity in poor countries is not directly or significantly linked to changing conditions in world grain markets. Per capita grain consumption in the developing countries did not generally worsen when grain export prices increased in 1973–74, or when they increased again briefly in 1995–96, and consumption generally grew more rapidly during the decade of the 1970s (when prices were high) than during the decade of the 1980s (when prices were low). This is partly because reliance on grain imports by genuinely poor developing countries is low, and lower today than several decades ago even when food aid is taken into account. This low dependence cannot be explained as a response to the instability of world grain markets or as a justifiable response to unreliable supplier concerns; it reflects instead a more general aversion by poor countries to all freely operating food markets, domestic as well as foreign. Transitory food insecurity thus seldom results from the malfunction of food markets. Its most conspicuous cause is violent internal conflict, plus non–accountable governments and natural disasters such as drought.
Working Paper 99–06, Weatherhead Center for International Affairs, Harvard University, April 1999. Download PDF
In "Rigor or Rigor Mortis: Rational Choice and Security Studies," Stephen Walt warns of the dangers to the field of security studies that are in store "[i]f formal theory were to dominate security studies as it has other fields of political science." He backs up these warnings by evaluating published formal work in the field according to seemingly reasonable criteria, finding that the gain in rigor inherent in formal work is not sufficient to offset its empirical, creative, and policy–relevance weaknesses. While Walt ends with a plea for diversity, the overall structure of the argument puts rational choice on trial, finds it lacking but threatening to become dominant, and does little to serve the purpose of encouraging pluralism.
The movement toward institutionalization has not escaped the notice of international relations theory. Some of the major theoretical debates in international relations over the last two decades have involved new attempts to understand why states turn to institutions, and what effects these institutions have on patterns of state behavior. The first section of this paper reviews rationalist theories of international institutions, an approach that has its roots in liberal theory but has developed a genuinely new perspective on the role of institutions in world politics. Next, the paper turns to considering some of the major research puzzles in the study of international institutions. While we observe institutionalization, many aspects of this process remain highly puzzling and demand better integration into our explanatory frameworks.
We develop a new typology for examination of the effects of international institutions on member states’ behavior. Some institutions lead to convergence of members’ practices, while others result, often for unintended reasons, in divergence. We hypothesize that the observed effect of institutions depends on the level of externalities to state behavior; the design of the institution; and variation in the organization and access of private interests that share the goals of the institution. We illustrate these propositions with examples drawn from international institutions for development assistance; protection of the ozone layer; and completion of the European Union’s internal market. We find that significant externalities and appropriately–designed institutions lead to convergence of state behavior, while divergence can result from the absence of these conditions and the presence of heterogeneity in domestic politics.
Martin, Lisa L. "Institutional Effects on State Behavior: Typology and Hypotheses." Working Paper 99–05, Weatherhead Center for International Affairs, Harvard University, 1999.
A generation ago, Imre Lakatos (1970) expounded a theory of scientific progress in the natural sciences. Whether he meant his theory to apply to social science or not, it can be employed to help social scientists understand whether their own research programs are progressive. Theories of international relations may never meet Lakatos' rigorous standards, but his criteria for progressiveness provide "clear and sensible criteria for the evaluation of scientific traditions" (Keohane 1983/1986: 161). As other essays for this conference have detailed, Lakatos argued that theories are embedded in research programs, which contain inviolable assumptions (the "negative heuristic," or "hard core"), along with observational hypotheses and scope conditions. Research programs also contain positive heuristics—which suggest to scientists what sorts of hypotheses to pursue.
Working Paper 99–07, Weatherhead Center for International Affairs, Harvard University, 1999.
We present a model of the effects of legal protection of minority shareholders and of cash flow ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 371 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders, and weaker evidence of the benefits of higher cash flow ownership by controlling shareholders for corporate valuation.
This paper juxtaposes and examines two structural conceptions of benign hegemony. It begins with a critique of the prevailing conception of hegemony in the mainstream study of international relations (IR), by focusing specifically on Kenneth N. Waltz'a brand of neorealism, or "structural neorealism." It suggests that this conception is inadequate for comprehending hegemony as a political phenomenon in international politics. To the extent that this shortfall may have profound implications for the post–Cold War world, it must be remedied. Accordingly, the paper suggests that the prevailing conception must fist be stripped-down of its normative contents and reduced to its structural barebones. An attempt is then made to rebuild a unified conception of hegemony in a binary and comparative mode. A more "scientific" conception, the paper argues, must represent and incorporate two dichotomous or structural approaches to hegemony in international politics. The paper then analyzes the general contours of this "corrected" conception of hegemony, its basic properties, and some dependent variables. It closes by probing some of the strategic implications of this study for the post-Cold War security environment.
Terrorism is a significant threat to U.S. national interests. To counter this threat U.S. policymakers have used a variety of options over the past thirty years, including political–diplomatic measures, economic sanctions, a sustained law enforcement effort, and the periodic use of military force. Of all the tools available to the U.S. in its struggle against terrorism, none has been as controversial as military force, due to the potential for deaths to innocent civilians and other collateral damage, casualties to U.S. servicemen, and other potential political risks. Mindful of these risks, this paper examines the utility of using military force against terrorism based on an analysis of three case studies: U.S. air strikes against Libya in 1986, U.S. cruise missile strike against Iraq in 1993, and cruise missile strikes against Sudan and Afghanistan in 1998. This analysis examines the military, political, and strategic results from each of the cases, and based on this analysis, concludes that military force is an essential and productive component of the U.S. strategy to contain terrorism.
I want to take advantage of some of the gaps in the literature to propose an argument about realpolitik–as–ideology that explores variation in the intensity or hardness of realpolitik as a function of variation in the requirements for the legitimation of power inside a social group. Specifically, I want to make the following related arguments, moving from least to most controversial: ? Regime legitimation involves, among other things, the construction of a ?national identity? among the members of a society. ? Identity construction rests on establishing and perpetuating differences between the ingroup and all other outgroups. ? Foreign policy is a process in which differences between a sovereign nation–state ingroup and a sovereign nation state outgroup are (re)created. ? Foreign policy, therefore, is critical for identity construction and thus for legitimation. ? When state elites come to believe their legitimacy is declining or under challenge foreign policy will be a key tool/process used to intensify ingroup identity inside the nation state. ? Foreign policy strategies will be both positive (e.g. designed to cue pride and superiority in being a member of the ingroup) and negative (e.g. designed to cue fear and disdain towards outgroups). ? The specific content of these positive and negative strategies will depend on the specific, contingent contents of national identity.