La primera revolución de la diplomacia fue la de su nacimiento como institución. En realidad, el arte u oficio de las relaciones internacionales existe desde que se produjeron los primeros contactos entre pueblos diferentes, durante la más remota Antigüedad. Se sabe que, ya en el siglo XIV a.C., había algún tipo de relación formal entre egipcios y habitantes de la Mesopotamia. Pero fue el contacto estrecho entre las ciudades–estado de la Grecia clásica lo que dio origen a la diplomacia institucionalizada. Heraldos y un cierto código de conducta le otorgaron carta de naturaleza. Las relaciones diplomáticas de esta primera época tenían carácter puntual. A partir de entonces, paulatinamente, el poder político se fue centralizando y la comunicación entre las distintas entidades que lo albergaban se fue intensificando.
This paper discusses different views about what is wrong with the world, or as an economist would say, the principal distortions that are present. The intent is to clarify the logic behind the proposals for reforming the international financial architecture and provide a means of assessing them. (The actual assessment is performed in the companion paper "Getting it Right: What to Reform in International Financial Markets," Fernández–Arias and Hausmann, 2000.)
This paper provides an overview and assessment of reform initiatives, both those currently on the table and those that are not but we think should be. The intent is to clarify the logic behind these proposals and assess them from a Latin American perspective. Our discussion is based on the extent to which reform initiatives alleviate the problems we identified in the companion paper "What?s Wrong with International Financial Markets," (Fernández–Arias and Hausmann, 1999). The overall conclusion is that the current approach to reforming the international financial architecture is not appropriate for the task and a paradigm shift is required.
Gravity–based cross–sectional evidence indicates that currency unions stimulate trade; cross–sectional evidence indicates that trade stimulates output. This paper estimates the effect that currency union has, via trade, on output per capita. We use economic and geographic data for over 200 countries to quantify the implications of currency unions for trade and output, pursuing a two–state 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. Our estimates at the second stage suggest that every one percent increase in trade (relative to GDP) raises income per capita by roughly 1/3 of a percent over twenty years. We combine the two estimates to quantify the effect of currency union on output. Our results support the hypothesis that the beneficial effects of currency unions on economic performance come through the promotion of trade, rather than through a commitment to non–inflationary monetary policy, or other macroeconomic influences.
Globalization of trade and finance has gone a long way over the last –century. But it is less impressive than most non–economists think, judged either by the standard of 100 years ago or by the hypothetical standard of perfect international integration. The paper documents the extent of globalization, and some reasons for the barriers that remains. It then briefly considers the implications for economic growth and the implications for goals not measured by GDP equality and the environment. The conclusion is that globalization is not the primary obstacle to efforts to address such concerns.
We investigate how the number and size of local political jurisdictions in an area is determined. Our model focuses on the tradeoff between the benefits of economies of scale and the costs of a heterogeneous population. We consider heterogeneity in income, race, ethnicity, and religion, and we test the model using American school districts, school attendance areas, municipalities, and special districts. Using both cross–sectional and panel analysis, we find evidence of a significant tradeoff between economies of scale and racial heterogeneity. We find weaker tradeoffs between economies of scale and income or ethnic heterogeneity. That is, it appears that people are willing to sacrifice the most, in terms of economies of scale, in order to avoid racial heterogeneity in their jurisdiction.
The contemporary study of immigration has come a long a way — or at least so it seems to someone whose interests in the subject were first sparked in that prehistoric era we call the late 1970s. Others already knew better, but at the time it wasn't clear to me that there was a field to master, nor a subject that would live for long. Immigration had long since disappeared from the scholarly radar screen, and though it was quietly undergoing a renaissance, its rebirth was hard for this, admittedly obtuse, graduate student to discern. The older literature appeared truly antique. Yes, there was a relevant body of scholarship dating from the 1960s, but this seemed dated, and in any case, reeked of a melioristic liberalism so hopelessly passe that one couldn't take it seriously. It was also easy to succumb to the political correctness of the time: the authors of Beyond the Melting Pot were then at the height of their neo–conservative phase, making theirs the type of book one read only after having wrapped it in a brown, paper cover.
Our argument, in short, is that most of the risks being generated in modern industrialized societies are the product of technologically induced structural transformations inside na–tional labor markets. Increasing productivity, changing consumption patterns, and saturated demand for products from the traditional sectors of the economy are the main forces of change. It is these structural sources of risk that fuel demands for state compensation and risk sharing.
This paper looks again at the U.S. deficit debate of the 1980s, this time with the benefit of the Commerce Department's newly revised data for that period and also in light of the experience of the 1990s when sizeable budget surpluses replaced chronic large deficits. The familiar conclusion that sustained government deficits at full employment depress private capital formation has stood up well in both regards. By contrast, the more recent experience in particular has sharply contradicted any simple notion that the government balance and the current account balance move in parallel. Other relevant issues include the equilibrium (that is, noninflationary) unemployment rate, the response of private saving to government dissaving, and the role of debt and equity in financing private capital formation.
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.
This essay considers some prescriptions that are currently popular regarding exchange rate regimes: a general movement toward floating, a general movement toward fixing, or a general movement toward either extreme and away from the middle. The whole spectrum from fixed to floating is covered (including basket pegs, crawling pegs, and bands), with special attention to currency boards and dollarization. One overall theme is that the appropriate exchange rate regime varies depending on the specific circumstances of the country in question (which includes the classic optimum currency area criteria, as well as some newer criteria related to credibility) and depending on the circumstances of the time period in question (which includes the problem of successful exit strategies). Latin American interest rates are seen to be more sensitive to US interest rates when the country has a loose dollar peg than when it has a tight peg. It is also argued that such relevant country characteristics as income correlations and openness can vary over time, and that the optimum currency area criterion is accordingly endogenous.
This paper focuses on Thailand, partly because that is where the dramatic events started, to identify the problems in Thailand that gave rise to its crisis. Important details differ from country to country. Focussing on Thailand will give some flavor of what was happening, with some similarities with other countries.
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.
Ethnicity plays an ambiguous role in the great transformation. On the one hand, ethnicity creates: by providing incentives that organize the flow of resources across generations, it provides the capital for urban migration and the acquisition of skills for industrial employment. On the other hand, ethnicity destroys: ethnic conflict leads to costly acts of violence. Using data drawn largely from Africa, this paper explores the two faces of ethnicity. In so doing, it finds that the presumed link between ethnicity and violence is more complex and less threatening than most assume. Those who claim a straightforward link are making an elementary error in the reading of tabular data.
Working Paper 99–11, Weatherhead Center for International Affairs, Harvard University, October 1999.
This paper examines the regional distribution of public employment in Italy. It documents two sets of facts. The first is the use of public employment as a subsidy from the North to the less wealthy South. We calculate that about half of the wage bill in the South of Italy can be identified as a subsidy. Both the size of public employment and the level of wages are used as a redistributive device. The second set of facts concerns the effects of a subsidized public employment on individuals? attitudes toward job search, education, "risk taking" activities etc. Public employment discourages the development of market activities in the South.
During the past two decades or so, capital controls have been lifted, national capital markets have been liberalized and international capital markets have exploded among the advanced industrial economies and beyond. As major players with significant stakes in the smooth operation of international capital markets, the United States and Europe have common interests in the emergence of a regulatory framework that enhances market stability, minimizes systematic risks, and allows for the efficient operation of markets. Yet despite the growth in cross border capital movements, regulatory cooperation is at times plagued by differences in national approaches and preferences, difficulties coordinating rules where multiple regional or international organizations are involved, and regulators' reluctance to cooperate fully with foreign jurisdictions... A single chapter cannot do justice to the range of rules and agreements that have been made among the banking and securities regulators of Europe and America over the past decade. Rather than strive for exhaustiveness, this chapter selects three issue areas that illustrate particular dynamics of rule development: capital adequacy standards for internationally active banks; anti–money laundering efforts; and international accounting standards for foreign listings on local stock exchanges. There are two key dimensions that these cases illustrate: the problem of defection (which demands stronger rules of surveillance and sanction than mere coordination problems), and the issue of the scope of agreement (systematic problems demand multilateral solutions).
This paper investigates private–interest, public–interest, and political–institutional theories of regulatory change to analyze state–level deregulation of bank branching restrictions. Using a hazard model, we find that interest group factors related to the relative strength of potential winners (large banks and small, bank–dependent firms) and losers (small banks and the rival insurance firms) can explain the timing of branching deregulation across states during the last quarter century. The same factors also explain congressional voting on interstate branch–ing deregulation. While we find some support for each theory, the private interest approach provides the most compelling overall explanation of our results.
From the Quarterly Journal of Economics 114 (November 1999): 1437-67Download PDF
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.
This paper investigates the political determinants of government decisions that benefit special interests, and specifically government decisions to deal with banking crises. I find that governments make smaller fiscal transfers to the financial sector and are less likely to exercise forbearance in dealing with insolvent financial institutions the more informed are voters, the closer are elections, and the larger the number of political veto players (conditional on the costs to voters of these policy decisions). The results suggest that policies that might be appropriate in the U.S. context for mitigating the magnitude of banking crises may be less efficacious in settings with other institutional arrangements.