On March 23, 2006, we published an article titled “The Israel Lobby” in the
London Review of Books. A slightly longer, fully documented version titled “The
Israel Lobby and U.S. Foreign Policy” was posted simultaneously on the Faculty
Working Paper website of Harvard’s John F. Kennedy School of Government.
In these two pieces, we argued that unconditional U.S. support for Israel could
not be justified on either strategic or moral grounds, and that it was primarily
due to the political effectiveness of the loose coalition of groups and individuals
that make up the “Israel lobby.” We also argued that the lobby had encouraged
the United States to adopt policies that were neither in the America’s national
interest nor in Israel’s long-term interest.
We knew that our article would be controversial, because it addressed a set
of important issues that few mainstream scholars or journalists had examined.
We also knew it would be criticized, because it challenged a number of powerful
individuals and organizations and cast doubt on a set of historical claims and
policy positions to which these individuals and organizations are strongly
committed. We also thought it likely that we would be personally attacked,
because we were critical of Israeli policy and of Washington’s unconditional
support for Israel, and we had observed what had happened to others who had
taken similar positions in the past.
We have followed the criticisms closely and have provided brief responses
to some of them in two letters to the London Review of Books (May 11 and May 25,
2006), a symposium on the Israel lobby in Foreign Policy (July/August 2006) and
a letter on that symposium in Foreign Policy (September/October 2006). We also
published a slightly revised version of the original Harvard Working Paper in
the Fall 2006 issue of the journal Middle East Policy. This clarified our position on
several points, but our main position was unaltered.
We live in a world where trade policies are liberal and immigration policies are
restrictive. Recent globalization discussions give the impression that this policy difference is a modern phenomenon (Wellisch and Walz 1998; Hillman and Weiss 1999), implying that trade policy was liberal and open a century ago. This conventional view is quite wrong. Instead, while most labor-scarce economies today have open trade and closed immigration policies, a century ago the labor-scarce economies had just the opposite, open immigration and closed trade policies. Thus, the inverse policy correlation has persisted over almost two centuries.
Why have policies towards the movement of labor and goods always been so different in labor-scarce economies? After all, importing labor-intensive products is pretty much like importing labor. So shouldn’t trade and migration policies reinforce each other? Consider for a moment the simple 2×2×2 model in which trade is driven by factor endowments. Furthermore, let us think about the country where labor is relatively scarce since that’s the country for which immigration policies matter. Suppose such a country puts up a tariff to protect the scarce factor, labor. In the absence of immigration, wages will increase. But if labor is allowed to move across borders, the tariff-induced wage increase will be undone by immigration (Mundell 1957). By the same logic, an immigration policy designed to protect domestic labor will be undone by free trade: the desired effect will only be achieved by restricting both trade and immigration. Simple theory predicts that immigration and import restriction should go together. In fact, they never have. Therein lies the policy paradox.
In the first global century before 1914, trade and especially migration had profound effects on
both low-wage, labor abundant Europe and the high-wage, labor scarce New World. Those global
forces contributed to a reduction in unskilled labor scarcity in the New World and to a rise in
unskilled labor scarcity in Europe. Thus, it contributed to rising inequality in overseas countries,
like the United States, and falling inequality in most of Europe. Falling unskilled labor scarcity
and rising skill scarcity contributed to the high school revolution in the US. Rising unskilled
scarcity also contributed to the primary schooling and literacy revolution in Europe. Under what
conditions would we expect the same responses to globalization in today’s world? This paper
argues that modern debates about inequality and schooling responses to globalization should pay
more attention to history.
Paper presented at the Conference on Migration, Trade and Development, Dallas (October
6, 2006). This paper draws from a recent book with Timothy J. Hatton,
Global Migration and the
World Economy: Two Centuries of Policy and Performance (MIT Press 2005). It has also been
influenced by participant’s comments at the Center for Global Development Workshop on
Emigration’s Impact on the Third World (September 11, 2006).
Download PDFThis paper offers empirical evidence that real exchange rate volatility can have a significant impact
on long-term rate of productivity growth, but the effect depends critically on a country’s level of
financial development. For countries with relatively low levels of financial development, exchange
rate volatility generally reduces growth, whereas for financially advanced countries, there is no
significant effect. Our empirical analysis is based on an 83 country data set spanning the years
1960-2000; our results appear robust to time window, alternative measures of financial development
and exchange rate volatility, and outliers. We also offer a simple monetary growth model in which
real exchange rate uncertainty exacerbates the negative investment effects of domestic credit market
constraints. Our approach delivers results that are in striking contrast to the vast existing empirical
exchange rate literature, which largely finds the effects of exchange rate volatility on real activity
to be relatively small and insignificant.
The literature on the benefits and costs of financial globalization for developing countries has
exploded in recent years, but along many disparate channels with a variety of apparently
conflicting results. There is still little robust evidence of the growth benefits of broad capital
account liberalization, but a number of recent papers in the finance literature report that
equity market liberalizations do significantly boost growth. Similarly, evidence based on
microeconomic (firm- or industry-level) data shows some benefits of financial integration
and the distortionary effects of capital controls, while the macroeconomic evidence remains
inconclusive. At the same time, some studies argue that financial globalization enhances
macroeconomic stability in developing countries, while others argue the opposite. We
attempt to provide a unified conceptual framework for organizing this vast and growing
literature, particularly emphasizing recent approaches to measuring the catalytic and indirect
benefits to financial globalization. Indeed, we argue that the indirect effects of financial
globalization on financial sector development, institutions, governance, and macroeconomic
stability are likely to be far more important than any direct impact via capital accumulation
or portfolio diversification. This perspective explains the failure of research based on crosscountry
growth regressions to find the expected positive effects of financial globalization and
points to newer approaches that are potentially more useful and convincing.
Revised version of International Monetary Fund, Working Paper WP/06/189, August 2006.
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