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Diversified business groups play a major role in the economies of many developing countries. Business group members, often from the same communal, ethnic, or tribal group, have or develop interpersonal relations that make it easier to obtain information and monitor compliance related to transactions that require a strong measure of trust. This in-group cohesion facilitates profitable and productive economic activity. However, it can create resentment among other members of society who are barred from membership in a group that is, of necessity, exclusive. This envy can fuel a self-reinforcing cycle of societal hostility and group protectiveness that can deprive society of the economic benefits the groups can provide. There are several possible reactions such as “affirmative action” programs that can slow or stop the cycle of envy and group vulnerability.

European support for integration is shaped by a range of economic, cultural, and political factors. However, in recent decades, scholars have argued that utilitarian calculations have become less important as European integration has advanced, and political entrepreneurs have mobilized nationalist identities. We analyze 24 years of responses to the Eurobarometer (1995–2018) to assess the influence of economic factors on public attitudes toward European integration. We find strong evidence that utilitarian factors are important across the entire panel. The performance of the macro-economy, as measured by unemployment, and an individual’s position in the labor market, are consistent predictors of public support for and satisfaction with the European Union. Collective identity is also associated with attitudes toward the European Union. However, an individual’s identity is also shaped by economic circumstances.

Few propositions in economics are as widely accepted as the theory of comparative advantage: If two countries have a comparative advantage in the production of different goods and services, trade can be welfare-enhancing for both. But trade policy has always been controversial in Latin America, as it is not made by academic economists but by politicians who need to gather and maintain the support of constituents who in some cases have much to lose or gain from different trade policies. This book walks the reader through a complex thicket of contending interests and disparate political institutions to analyze why Latin American governments make the trade policies they do. Its chapters show how an array of different governments have attempted to navigate frequently conflicting interests and ideas, and how different institutional arrangements impinge on trade policy design and outcomes. It is to be hoped that the experiences analyzed here can inform the making of future policy and, perhaps, help improve it.

Why do some societies embrace innovative technologies, policies, and ideas, while others are slow to adopt, or even resist, them? We focus on features of an innovation that are expected to affect the incumbent elite's economic activities, and hence the elite's reaction. The elite can choose whether to appropriate the innovation for itself; encourage its adoption; tax, regulate, or limit or block it. Six features of the innovation affect the elite response: i) whether it is easy to replicate; ii) whether it complements or competes with the elite's sources of income; iii) whether its impact is broad or narrow; iv) whether it is loca- tion-dependent, and v) concealable; vi) whether it requires large xed costs. Some of these factors have been considered in other work; here we assess them together. We provide illustrative evidence of the relevance and generality of the model to understand the fate of a variety of innovations.

For much of the post-World War Two period, the world seemed on a path of ever-greater collaboration among the principal economic centers. In the past decade, economic and political trends have called this upward tendency into question. Within both advanced industrial and developing nations, there has been an upsurge in “populist” sentiment with an economically nationalistic tenor and an explicit hostility to “globalist” approaches to economic cooperation. What is the future of international economic cooperation in a world in which domestic political pressures appear to be pushing the major powers apart, rather than together?

A populist backlash to globalization has ushered in nationalist governments and challenged core features of the Liberal International Order. Although startling in scope and urgency, the populist wave has been developing in declining regions of wealthy countries for some time. Trade, offshoring, and automation have steadily reduced the number of available jobs and the wages of industrial workers since at least the 1970s. The decline in manufacturing employment initiated the deterioration of social and economic conditions in affected communities, exacerbating inequalities between depressed rural areas and small cities and towns, on the one hand, and thriving cities, on the other. The global financial crisis of 2008 catalyzed these divisions, as communities already in decline suffered deeper and longer economic downturns than metropolitan areas, where superstar knowledge, technology, and service-oriented firms agglomerate. We document many of these trends across the United States and Europe, and demonstrate that populist support is strongest in communities that experienced long-term economic and social decline. Institutional differences in labor markets and electoral rules across developed democracies may explain some of the variation in populists’ electoral success. Renewed support for the Liberal International Order may require a rejuvenation of distressed communities and a reduction of stark regional inequalities.

Analyzing international negotiations among the member states of the European Union raises a number of analytical issues, especially in unusual circumstances such as the Eurozone crisis. Our article discusses these issues in the light of existing theory and informed by the empirical analyses assembled in this special issue. ‘National preferences’ or ideal points of the governments involved are driven by their domestic socio-economic and political conditions and institutions, the dimensionality of the negotiations, and strategic considerations. We then discuss how national preferences, states’ bargaining power, the strategic and institutional bargaining context, and the bargaining dynamics jointly influence the bargaining outcome. Examples from European negotiations in the context of the Eurozone crisis illustrate both the complexity of the process and the value of serious, theoretically informed, empirical analysis.

The principal challenge facing the world economy is the risk of recurrent financial crises. Global macroeconomic imbalances create the conditions for boom-and-bust cycles that are extremely costly for the countries that experience them, and that can affect other nations and the entire world economy as well. The G20 recognizes the importance of these trends, and has committed itself to cooperative measures to reduce imbalances. However, progress has been limited and halting. There are major political obstacles to global macroeconomic policy cooperation, both within countries and among countries. China's attempts to rebalance its economy are crucial to broader international financial stability. Its G20 presidency gives China the opportunity to demonstrate that it is willing and able to advance its cooperation with economic partners, and to help lead the rest of the world in this direction.

Les crises financieres sont a notre epoque une caracteristique durable de l’environnement economique international. Ces crises ont deux caracteristiques communes. Premierement, elles sont associees a des flux financiers tres importants. Deuxiemement, elles sont declenchees par des differences relativement mineures de la situation macroeconomique qui encouragent l’entree de flux financiers, ce qui accroit les divergences macroeconomiques. Il en resulte une serie de cycles d’expansion et de ralentissement pour les flux de capitaux. Les crises qui en decoulent sont devastatrices. Les experiences de ces vingt-cinq dernieres annees montrent qu’il serait souhaitable de mettre en place une forme de coordination internationale des politiques macroeconomiques pour eviter la repetition de ces crises si affaiblissantes.Classification JEL : E32, E61, F31, F32, F42, G01.

Contemporary international finance raises important questions about whether, and how, it might be overseen by national governments and international institutions. Inasmuch as global financial stability is a global public good, there is a normative case for governance structures to try to achieve this goal—whether they take the form of interstate cooperation or international institutions. This, however, does not mean that national states will necessarily be willing or able to work together to provide this global public good, as the incentives to free-ride are enormous. Nonetheless, the past 25 years do indicate that there has been some movement toward the provision of such global public goods as financial harmonization and a semblance of global lender-of-last-resort facilities. The record is spotty, but the trend appears to be in the direction of more global governance of global finance.

This article introduces the special issue on the political economy of the Euro crisis, which aims to improve our understanding of the causes, consequences, and implications of the highly unusual nature of this crisis: a financial crisis among developed countries within a supranational monetary union. The article provides a brief chronology of the crisis, discusses its underlying causes, and reviews the ways in which comparative and international political economy can help us understand the crisis. The article then discusses the individual and collective contributions of the articles in the special issue and discusses possible future research paths on the political economy of the Euro crisis. We conclude with a brief discussion of how a political economy perspective informs our understanding of the long-term prospects for the Eurozone and European integration.

A backlash against globalization has led to widespread political movements hostile both to economic integration and to existing political institutions throughout the advanced industrial world. Openness to the movement of goods, capital, and people has had important distributional effects. These effects have been particularly marked in communities dependent upon traditional manufacturing, some of which have experienced a downward spiral from the direct economic effects of foreign competition through broader economic decline to serious social problems. Those harmed by globalization have lashed out both at economic integration, and at the elites they hold responsible for their troubles. Political discontent is in part due to failures of compensation – insufficient provision of social safety nets for those harmed by economic trends. It is also due to failures of representation – the belief that prevailing political parties and politicians have not paid adequate attention to the problems faced by large groups of voters. Countries vary on both dimensions, as do national experiences with the populist upsurge. Previously dominant socio-economic interests and political actors may act to try to address this dissatisfaction, but the path faces serious economic and political obstacles.

Debt and balance of payments crises are politically controversial. In the aftermath of such crises, conflict typically breaks out over how the burden of adjustment will be distributed. There is international conflict, between debtor nations and creditor nations, over how outstanding debts will be resolved. And there is conflict within nations, over who will make the sacrifices necessary to get economies back on track. These political conflicts often become so bitter and protracted that they impede productive bargaining over the adjustment process. The characteristics of socio-economic and political divisions within societies affect the battles over economic adjustment, as well as who will emerge victorious from these battles, and how difficult it may be to arrive at a productive resolution of the crisis.

Europeans’ confidence in political institutions has dropped precipitously since the onset of the Euro-crisis in 2010. However, the decline in public trust in government varies tremendously across countries and occupational and educational groups. Analyzing more than 600,000 responses from 23 waves of the Eurobarometer conducted from 2004-2015, we find that economic factors explain much of the cross-national and over-time variation. The baseline level of trust is influenced greatly by a person’s position in the labor market: across European countries, citizens with more education and higher levels of skills express more trust in government than those educational and occupational groups that have benefited less from European integration. The acute decline in the level of public trust in the past decade also has strong economic foundations. Residents of debtor countries that have seen unemployment rates skyrocket in recent years are now much less likely to trust national government than those in creditor countries that have fared better during the economic crisis, while the unemployed have lost faith in government to a greater degree than other parts of the population. Cultural, ideational, and political factors remain important for baseline levels of trust, but on their own they cannot explain the acute, asymmetrical decline in citizen trust observed over the last decade.

La reprise au sortir de la Grande Récession a été semée d’embûches. Cette reprise économique diffère des reprises cycliques précédentes. La raison en est simple : nous sommes en pleine crise de la dette. Ces crises présentent des particularités économiques et politiques. Sur le plan politique, elles entraînent des conflits sur la répartition du fardeau de l’ajustement, qui peuvent retarder sensiblement l’adoption des mesures nécessaires pour atténuer leurs effets – ce qui aggrave les problèmes de tout le monde. La théorie et l’histoire mettent en évidence divers facteurs qui favorisent ce type de conflit contre-productif et ces retards ; elles proposent également des moyens pour limiter ces conflits et leurs coûts sociaux., Recovery from the Great Recession has been fraught with problems. The recovery has not been behaving like the aftermath of a typical cyclical recession, and this is because we are instead in the midst of an ongoing debt crisis. Debt crises are different, both economically and politically. Politically, debt crises lead to conflict over how the burden of adjustment will be distributed. And this conflict can seriously delay measures to alleviate the impact of the crisis – making everyone involved worse off. Theory and history suggest a variety of factors that make this sort of counter-productive conflict and delay more likely ; and they also suggest possible ways to reduce both the conflict and the social cost of its consequences., La recuperación luego de la Gran depresión estuvo plagada de problemas. Dicho proceso difiere de otras recuperaciones de un ciclo de recesión típico y ello es porque se estaba en una crisis de la deuda. Este tipo de crisis son diferentes tanto económica como políticamente. En lo político, lo característico es que traen aparejado un conflicto en cuanto a cómo repartir el ajuste, lo que puede retardar sensiblemente la adopción de medidas necesarias para atenuar los efectos de la crisis, agravando así la situación de todos los implicados. La teoría y la historia señalan, por un lado, una serie de factores que favorecen este tipo de conflictos contra-productivos y sus contratiempos, y por otro lado, los medios para limitar dichos conflictos y sus costos sociales.

This chapter surveys US currency policy from the Civil War until the country returned to the gold standard in 1879. It shows that economic interests played a major role in the politics of US currency policy in this period. In particular, they appear consistent with the idea that those most likely to benefit from a weak dollar—farmers producing tradable crops and manufacturers facing import competition—were strong supporters of either staying off the gold standard or going to a depreciated silver standard. There is no question that the data are of questionable quality, and the evaluations of the arguments are indirect. Nevertheless, the results seem consistent over a series of votes that took place over a period of about ten years. And they served as a precursor to an even more striking and much better-known US debate over the gold standard in the 1890s.

This chapter surveys US currency policy in the 1890s. The United States was on the gold standard from 1879 until 1933. For almost all that time, US currency policy was politically controversial. The controversy became particularly heated during periods of economic distress, especially in the 1890s. In what is perhaps the most famous modern political conflict over exchange rate policy, the Populist movement launched a concerted attack on the gold standard, which led up to a presidential election fought largely over gold. The rise of the Populist movement came at a pivotal time as the country had matured industrially while remaining predominantly agrarian. The battle of the standards was also a fight over whose vision of society would dominate: the big cities with their booming finance, commerce, and industries, or the countryside with its thriving cotton, tobacco, and wheat farms whose products dominated world markets.

The Great Recession of 2008 hit the international economy harder than any other peacetime recession since the Great Contraction after 1929. Soon enough, analogies with the Great Depression were presented, and conclusions were drawn regarding the political response to the slump. This paper is an attempt to sort out real and false analogies and to present conclusions for policy. Its main hypothesis is that the Great Recession resembles the final phase of the Great Contraction between 1931 and 1933, characterized by a fast spreading global financial crisis and the breakdown of the international Gold Standard. The same is also true of the political responses to the banking problems occurring in both crises. The analogy seems less robust for the initial phase of the Great Depression after 1929. The monetary policy response to the Great Recession largely seems to be informed by the monetary interpretation of the Great Depression, but less so by the lessons from the interwar financial crises. As in the Great Depression, policy appears to be on a learning curve, moving away from a mostly monetary response toward mitigating counterpart risk and minimizing interbank contagion.

We show that political economy factors play an important role in shaping the exchange rate policies of transition economies. We argue, among other things, that tradables producers prefer a floating rate to allow active exchange rate policy to affect their competitiveness, while internationally exposed sectors prefer a fixed rate to provide currency stability. We carry out a quantitative analysis of the de facto exchange rate behavior of 21 countries over the period 1992-2004. We find support for our arguments, along with some counter-intuitive results, for example associating democracy with a pegged currency and trade concentration with a floating currency. Our empirical results serve as the basis for predictions regarding the adoption of the euro in the EU accession countries and other countries in Central and Eastern Europe.

Analyses of the political economy of exchange rate policy posit that firms and individuals in different sectors of the economy have distinct policy attitudes toward the level and stability of the exchange rate. Most such approaches hypothesize that internationally exposed firms prefer more stable currencies and that producers of tradables prefer a relatively depreciated real exchange rate. As sensible as such expectations may be, there are few direct empirical tests of them. This paper offers micro-level, cross-national evidence on sectoral attitudes about the exchange rate. Using firm-level data from the World Bank's World Business Environment Survey, we find systematic patterns linking sector of economic activity to exchange rate policy positions. Owners and managers of firms producing tradable goods prefer greater stability of the exchange rate: in countries with a floating currency, manufacturers are more likely to report that the exchange rate causes problems for their business. With respect to the level of the exchange rate, we find that tradables producers—particularly manufacturers and export producers—are more likely to be unhappy following an appreciation of the real exchange rate than are firms in nontradable sectors (services and construction). These findings confirm theoretical expectations about the relationship between economic position and currency policy preferences. IMF Staff Papers (2008) 55, 417–444. doi:10.1057/imfsp.2008.16; published online 17 June 2008

Governments have a number of policy tools that can be used to address pressure on the balance of payments. When market pressure leads to an unsustainable decline in the relative value of the domestic currency, authorities can: (1) sell reserves, (2) raise interest rates, (3) impose capital controls, (4) apply trade restrictions, or (5) depreciate the currency. While researchers typically analyze these policies in isolation from one another, we treat them as a menu of options available to election-minded politicians. We construct a new dataset that documents patterns in the use of these five policy responses to payments difficulties for a large sample of countries since the early 1970s. We argue that governments try to minimize political costs by adopting less transparent policies first and only moving to more visible policies if necessary, delaying the most visible and politically-costly policies until after elections. These claims are consistent with our findings: governments are more likely to draw down reserves and impose capital controls before other options. If these policies do not succeed, they tend to raise interest rates. If further action is needed, they delay devaluations and trade protection until after elections.

Progress in the study of international politics depends on systematic, rigorous theory and empirical testing. International Relations is most useful when scholars can identify with some confidence the causal forces that drive foreign policy and international interactions, not when they use their detailed empirical knowledge to offer opinions, however intelligent and well informed. Deterrence theory, the democratic peace research program, and the political economy of trade policy demonstrate the importance of both theory and empirical research in enhancing the understanding of international relations. The bargaining theory of war and open economy politics are the current frontiers of research on international relations and promise even greater understanding in the future.

Government exchange rate regime choice is constrained by both political and economic factors. One political factor is the role of special interests: the larger the tradable sectors exposed to international competition, the less likely is the maintenance of a fixed exchange rate regime. Another political factor is electoral: as an election approaches, the probability of the maintenance of a fixed exchange rate increases. We test these arguments with hazard models to analyze the duration dependence of Latin American exchange rate arrangements from 1960 to 1999. We find substantial empirical evidence for these propositions. Results are robust to the inclusion of a variety of other economic and political variables, to different time and country samples, and to different definitions of regime arrangement. Controlling for economic factors, a one percentage point increase in the size of the manufacturing sector is associated with a reduction of six months in the longevity of a country’s currency peg. An im pending election increases the conditional likelihood of staying on a peg by about 8 percent, while the aftershock of an election conversely increases the conditional probability of going off a peg by 4 percent.

Many Europeans support common European Union (EU) representation in international institutions. But such a pooling of international political influence raises complex and controversial issues. A common European foreign policy position implies compromise among EU members. The pooling of international representation thus requires, as with many internal EU policies, that member states weigh the potential benefits of a common policy against the potential costs of a policy not to their liking. There can be a tradeoff between the advantages of scale and the disadvantages of overriding heterogeneous preferences. Simple spatial models help to make this point, to clarify the circumstances in which a common European international representation is most likely, and to explain who is most likely to support or oppose a pooling of European foreign policies.

In the thirty years before Economic and Monetary Union was achieved, European currency policies varied widely among countries and over time. In this article, I argue that the sectoral impact of regional exchange-rate arrangements, in particular their expected real effects on European trade and investment, exerted a powerful influence on the course of European monetary integration. The principal benefit of fixing European exchange rates was facilitation of cross-border trade and investment within the European Union (EU); the principal cost of fixed rates was the loss of national governments' ability to use currency policy to improve their producers' competitive position. Empirical results indeed indicate that a stronger and more stable currency was associated with greater importance of manufactured exports to the EU's hard-currency core, while depreciations were associated with an increase in the net import competition faced by the country's producers. This suggests a powerful impact of real factors related to trade and investment, and of private interests concerned about these factors, in determining national currency policies.

▪ Abstract The structure of international monetary relations has gained increasing prominence over the past two decades. Both national exchange rate policy and the character of the international monetary system require explanation. At the national level, the choice of exchange rate regime and the desired level of the exchange rate involve distributionally relevant tradeoffs. Interest group and partisan pressures, the structure of political institutions, and the electoral incentives of politicians therefore influence exchange rate regime and level decisions. At the international level, the character of the international monetary system depends on strategic interaction among governments, driven by their national concerns and constrained by the international environment. A global or regional fixed-rate currency regime, in particular, requires at least coordination and often explicit cooperation among national governments.

A comment on Lars Jonung and Eoin Drea's (2010) article, "It Can't Happen, It's a Bad Idea, It Won't Last: U.S. Economists on the EMU and the Euro, 1989-2002." _Econ Journal Watch_ 7(1):4-52. Link