Paper abstracts

Author: David A. Lake (University of California, San Diego)

Paper Title: International Political Economy: A North American Perspective on an Emerging Interdiscipline

Abstract: International political economy began to emerge as a distinctive field of study in North America in the 1970s. This essay reviews the origins of the field, its major theoretical traditions, and the now dominant approach of open economy politics. After highlighting areas for new research prompted by the rise of China, it examines the strengths and weaknesses of the open economy politics model and offers suggestions for theoretical extensions and reform.

Authors: Kenneth Scheve (Yale University), Xiaobo Lu (Yale University), and Matthew Slaughter (Tuck School of Business at Dartmouth and NBER)

Paper Title: Protecting the Poor: Skill Bias in the International Distribution of Trade Protection

Abstract: In this paper we document and analyze a new puzzle in international political economy. For a broad sample of countries, we show that in the very large majority of cases it is unskilled-intensive industries that receive relatively high levels of trade protection.

What is especially puzzling is that this pattern of protection holds even in low-income countries in which less-skilled labor is likely to be the relatively abundant factor of production and therefore would be expected in many standard political-economy frameworks to receive relatively low, not high, levels of protection. We then explore possible explanations for why so many countries around the world implement trade protection with the same distributional implication of supporting the earnings of less-skilled workers.

Author: Joanne Gowa (Princeton University)

Paper Title: The Impact of the GATT/WTO on Postwar Trade

Abstract: In the first systematic empirical study of the impact of the GATT/WTO, Andrew Rose found that the postwar organization did not exert a significant impact on trade between its members. Based on their work in the GATT archives, Judith L. Goldstein, Douglas Rivers, and Michael Tomz argue that Rose incorrectly assigned to the base group a large number of member states. Expanding the membership roster accordingly, they report that the GATT had a large, positive, and significant impact on postwar trade. As Rose notes, their work implies that less-developed countries played a critical role in the GATT, leading him to express skepticism about their findings.

Using the most recent data that Goldstein, Rivers, and Tomz assembled to test the impact of the GATT, I show that Rose’s intuition is correct. The difference between his results and the GRT findings is due as much to the specification his critics use as to their changes in the GATT roster.

Authors: Gene M. Grossman and Esteban Rossi-Hansberg (Princeton University)

Paper Title: Trading Tasks: A Simple Theory of Offshoring

Abstract: We propose a theory of the global production process that focuses on tradable tasks and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods.

Authors: Zhengyi Wang (Peking University)

Paper Title: Understanding Transition in China: Domestic Tensions, Institutional Adjustment and International Forces

Abstract: One of the most striking in international political economy in 1980s and 1990s is that China went through three kinds of transitions smoothly, i.e. from a command economy to a market-oriented one; from a rural, agricultural society to an urban, industrial one; and from a non-WTO nation to a WTO one, without leading to catastrophic turmoil or collapse compared to former socialist countries in East Europe and the Soviet Union. China’s macroeconomic performance during 1980s and 1990s is even described as either “one of the few bright spots in the region” (Asian Development Bank, 2000) or “a true economic miracle” (Yu, 2001). Around China’s successful transition and its robust economic growth, there have appeared two opposite schools: one is convergence school, which views China’s economic growth as the natural consequences of its “reform and open door” policy aimed at ‘normal’ or ‘standard’ market economy by incremental institutional adaptation and adjustment; another is experimentalist school, which argues that China’s robust economic growth is one part of an unique process with deliberate institutional design, or with somewhat institutional innovations such as “two track price system”, although without clear and coherent target, sequencing and pace. In this paper, we try to seek linkages between domestic institutional adjustment and international forces to explain the roles of China’s government in managing its transition and maintaining its successive economic growth.

Author: Megumi Naoi (University of California, San Diego)

Paper Title: Public vs. Private Enforcement of Trade Agreements: Evidence from Chinese Trade

Abstract: What accounts for governments' choice among different mechanisms to enforce international economic agreements? This paper investigates this question with a focus on the Chinese government's choice of enforcement mechanisms for export restraint agreements with the United States, Japan, and South Korea since 1995. Contrary to the conventional wisdom that a government chooses an enforcement mechanism that maximizes political gains or minimizes retaliation risks, this paper demonstrates that the Chinese government's choices are driven by a different motive—to deter collusion between politically powerful industries and local-level governments. The government is more likely to use a transparent and private enforcement mechanism (i.e., the open quota bidding system) for politically powerful industries, and a discretional and public enforcement mechanism for industries with little political influence. To test this argument, the paper introduces a new commodity-level dataset that records the government's choice of enforcement mechanisms since 1995 along a combination of two dimensions: (i) multilateral vs. bilateral and (ii) public vs. private enforcement mechanisms (i.e., a government enforces the agreement vs. private firms participate in the enforcement process via open quota bidding). The results lend strong support to the argument about deterring domestic collusion.

Author: Tim Büthe (Duke University and UC Berkeley, 2007-09)

Paper Title: The Politics of International Standards: Conflict and Cooperation in Setting Standards for Global Product and Financial Markets

Abstract: Cross-national differences in product standards are considered to be among the most important non-tariff barriers to trade; cross-national differences in financial reporting standards one of the most important barriers to genuine integration of financial markets. Using international standards instead of domestic ones allows governments and private actors to reap the benefits of greater market integration while still achieving legitimate public policy objectives such as consumer safety or public health. But international standardization involves the harmonization of previous differing standards, products, and practices and thus creates adjustment costs. It therefore requires genuine international cooperation--largely in non-governmental settings, though arguably operating in the shadow of the international distribution of power among states. For a number of reasons, technical experts and organized interests from advanced industrialized countries have been the key play players in international standardization, and many of the most direct conflicts of interest have been between the U.S. and Europe, which therefore have been the primary focus of my prior work on international standard, including my joint work with Walter Mattli. Yet, international standardization also involves conflicts of interest between advanced industrialized and developing countries, and China among the latter exhibits a particularly puzzling pattern of behavior: Enthusiastic about international standards in the financial realm while reluctant and much less willing to adopt international standards for industrial products and processes. China's preference for developing and using product standards that differ from the international ones is particularly puzzling when compared with other larger fast-growing developing countries such as Brazil and India, which mostly rely upon international standards rather than use scarce scientific and engineering expertise to develop standards domestically. This paper summarizes the findings in my prior work on international standardization but also considers the actions by, and effects on, developing countries to ask more broadly: What determines the patterns of conflict and cooperation in setting international standards?

Who wins and who loses when standards-setting moves from the domestic to the international level? And what explains China's seemingly contradictory approach to international standards?

Authors: Mingxing Liu (Peking University), Zhigang Xu and Ran Tao (Chinese Academy of Science) and Fubing Su (Vassar College)

Paper Title: Rural Tax Reform and the Extractive Capacity of Local State in China

Abstract: As a central component of statecraft, taxation must be understood within a complicated institutional environment. Economic, social, and political institutions exert powerful influence over taxing authorities’ ability to extract revenues. We use rural tax burdens in contemporary China to highlight the power of this insight. We argue that three types of political and social institutions have checked the taxing power of local governments in rural China. The first is the power of the central state. The fiscal arrangement between the central and local governments matters. The other two institutions concerns local governments’ relationship with the local society. Local governments’ ability to solicit cooperation with peasants as well as villagers’ self-governing organizations also plays a major role. Based on a national survey of village governance in China, our empirical analysis confirms the impact of these institutions. This is the first systematic analysis of local taxation in China from an institutional perspective. The findings help to establish a baseline for the ongoing interest in peasants’ burdens and shed some light on one continuing debate among Chinese political economists. It also demonstrates the utility of the institutional approach in explaining taxation.

Authors: J. Lawrence Broz and Michael Plouffe, (University of California, San Diego)

Paper Title: The Effectiveness of Monetary Policy Anchors: Firm-Level Evidence

Abstract: Analyses of monetary policy posit that exchange-rate pegs, inflation targets, and central bank independence discipline monetary policy decision-making and serve as anchors for private sector inflation expectations. Yet there are few direct empirical tests of these arguments. We offer cross-national, micro-level evidence on the effectiveness of monetary anchors in controlling private sector inflation expectations. Using firm-level data from the World Bank’s World Business Environment Survey (81 countries, ~10,000 firms), we find that fixed exchange rate regimes reduce firm owners’ concerns about inflation, improve their assessments of economic policy predictability, and increase their regard for the quality of the central bank. By contrast, central bank independence and inflation targets are unrelated to firm owners' inflation concerns, perceptions of policy predictability, and ratings of central bank quality. Overall, our results suggest that private sector perceptions are sensitive only to the most transparent, constraining, and costly of monetary anchors: exchange rate pegs.

Authors: Axel Dreher (KOF Swiss Economic Institute), Jan-Egbert Sturm (KOF Swiss Economic Institute) and James Raymond Vreeland (Yale University)

Paper Title: Global Horse Trading: IMF Loans for Votes in the United Nations Security Council

Abstract: We investigate whether temporary members of the United Nations Security Council receive favorable treatment from the International Monetary Fund (IMF) using panel data for 197 countries over the period 1951 to 2004. Our results indicate a robust positive relationship between temporary Security Council membership and participation in IMF programs even after accounting for economic, political, and country-specific factors. There is also evidence that Security Council membership reduces the number of conditions included in IMF programs. IMF loans seem to be a mechanism by which the major shareholders of the Fund win favor with voting members of the Security Council.

Author: Jing Vivian Zhan (The Chinese University of Hong Kong)

Paper Title: The Political Economy of China’s Fiscal Reforms: A Game-Theoretic Analysis of Central-Local Interaction

Abstract: Fiscal reforms since the early 1980s have caused fluctuating distribution of fiscal power between the Chinese central and local governments. Why would the central government first initiate the decentralization of fiscal revenue and later reclaim the fiscal control? How could local governments gain more fiscal power under the constraint of central authority? This paper explains the central-local interactions in the reform era through a game-theoretic model. It argues that the central government controls the agenda of the budgetary system, while local governments took advantage of the extra-budgetary system to strategically respond to centrally initiated reforms.

Authors: Songying Fang (University of Minnesota) and Randall Stone (University of Rochester)

Paper Title: Inviting Wallflowers onto the Floor: International Institutions, Domestic Experts, and State Policies

Abstract: In this paper we develop a game-theoretic model to explain why international organizations appear to exert socializing effects, even on autocratic states such as China where there is no electoral pressure to conform to international norms. We argue that the existence of domestic experts, who share the preferences of the institutions in a large degree, provide a crucial link for international institutions to exert influence in such countries. We illustrate this argument with three cases drawn from China in the 1990s: the SARs outbreak and the effect of the WHO, the effect of accession to the WTO on bank regulation, and the effect of negotiations over the Kyoto Protocol over environmental policy.