Table Of Content

SIXTH EDITION INTERNATIONAL POLITICAL ECONOMY Perspectives on Global Power and Wealth Jeffry A. Frieden HARVARD UNIVERSITY David A. Lake UNIVERSITY OF CALIFORNIA, SAN DIEGO J. Lawrence Broz UNIVERSITY OF CALIFORNIA, SAN DIEGO W. W. Norton & Company • New York • London W.W. Norton & Company has been independent since its founding in 1923, when William Warder Norton and Mary D. Herter Norton first published lectures delivered at the People's Institute, the adult education division of New York City's Cooper Union. The firm soon expanded its program beyond the Institute, publishing books by cele brated ac;ad~ics from Ame"rica and abroad. By midcentury, the two major pillars of •i • Norton's publishing program-trade books and college texts-were firmly established. In the 1950s, the Norton family transferred control of the company to its employees, and today-with a staff of four hundred and a comparable number of trade, college, and professional titles published each year-W. W. Norton & Company stands as the largest and oldest publishing house owned wholly by its employees. Copyright © 2017, 2010 by W. W. Norton & Company, Inc. All rights reserved. Printed in the United States of America. Sixth Edition. The text of this book is composed in New Aster with the display set in Akzidenz Grotesk Project supervised by Westchester Publishing Services I Susan Baker. Manufacturing by Sheridan Books-Ann Arbor, MI. Associate Director of Production, College: Benjamin Reynolds. ISBN 13: 978-0-393-60388-0 W.W. Norton & Company, Inc., 500 Fifth Avenue, New York, N.Y. 10110-0017 www.wwnorton.com W.W. Norton & Company Ltd., Castle House, 75/76 Wells Street, London WlT 3QT 1 2. 3 4 5 6 7 ,8 9 0 CONTENTS Preface ix About the Editors xi Introduction 1 I CONTENDING PERSPECTIVES ON INTERNATIONAL POLITICAL ECONOMY 18 1 Commerce and Coalitions: How Trade Affects Domestic Political Alignments 20 RONALD ROGOWSKI 2 The Political Economy of Adjustment and Rebalancing 30 JEFFRY A. FRIEDEN 3 State Power and the Structure of International Trade 43 STEPHEN D. KRASNER 4 International Institutions and Issue Linkage: Building Support for Agricultural Trade Liberalization 62 CHRISTINA L. DAVIS II HISTORICAL PERSPECTIVES 77 5 Free Trade: The Repeal of the Corn Laws 81 CHERYL SCHONHARDT-BAILEY 6 International Trade, Domestic Coalitions, and Liberty: Comparative Responses to the Crisis of 1873-1896 92 PETER ALEXIS GOUREVITCH 7 Root Causes: A Historical Approach to Assessing the Role of Institutions in Economic Development 113 DARON ACEMOGLU vi • Contents 8 The Institutional Roots of American Trade Policy: Politics, Coalitions, and International Trade 119 MICHAEL BAILEY, JUDITH GOLDSTEIN, AND BARRY R. WEINGAST m FOREIGN DIRECT INVESTMENT 140 9 The Multinational Enterprise as an Economic Organization 144 RICHARD E. CAVES 10 Labor Markets and Demand for Foreign Direct Investment 156 SONAL PANDYA 11 Bargaining over BITs, Arbitrating Awards: The Regime for Protection and Promotion of International Investment 167 BETH A. SIMMONS 12 Reversal of Fortunes: Democratic Institutions and Foreign Direct Investment Inflows to Developing Countries 184 QUAN LI AND ADAM RESNICK IV MONEY AND Fl NANCE 206 13 The Impossible Trinity (aka the Policy Trilemma) 211 JOSHUA AIZENMAN 14 Globalization and Exchange Rate Policy 221 JEFFRY A. FRIEDEN 15 Borrowing, Boom, and Bust: The Capital Flow Cycle 232 MENZIE D. CHINN AND JEFFRY A. FRIEDEN 16 The Political Economy of the Euro Crisis 252 MARK COPELOVITCH, JEFFRY A. FRIEDEN, AND STEFANIE WALTER 17 Political System Transparency and Monetary Commitment Regimes 267 J. LAWRENCE BROZ Contents• vii V TRADE 282 18 The Political Economy of the Smoot-Hawley Tariff 286 BARRY EICHENGREEN 19 Trade Policy, Economic Interests, and Party Politics in a Develop ing Country: The Political Economy of CAFTA-DR 297 RAYMOND HICKS, HELEN V. MILNER, AND DUSTIN TINGLEY 20 Who Wants to Globalize? Consumer Tastes and Labor Markets in a Theory of Trade Policy Beliefs 315 ANDY BAKER 21 Policymakers' Horizon and Trade Reforms: The Protectionist Effect of Elections 328 PAOLA CONCONI, GIOVANNI FACCHINI, AND MAURIZIO ZANARDI 22 The World Trade Organization and the Future of Multilateralism 339 RICHARD BALDWIN VI MIGRATION 357 23 Political Economy and Migration Policy 359 GARY P. FREEMAN AND ALAN K. KESSLER 24 Open Trade, Closed Borders: Immigration in the Era of Globalization 378 MARGARET E. PETERS , 25 Do Interest Groups Affect U.S. Immigration Policy? 394 GIOVANNI FACCHINI, ANNA MARIA MAYDA, AND PRACHI MISHRA VII ECONOMIES IN DEVELOPMENT 413 26 Global Income Inequality in Numbers: In History and Now 416 BRANKO MILANOVIC 27 The Past, Present, and Future of Economic Growth 428 DANIRODRIK 28 History Lessons: Institutions, Factor Endowments, and Paths of Development in the New World 449 KENNETH L. SOKOLOFF AND STANLEY L. ENGERMAN viii • Contents VIII CURRENT PROBLEMS IN INTERNATIONAL POLITI CAL ECONOMY 459 29 Globalization and the Environment 461 JEFFREY A. FRANKEL 30 The Fair Trade Challenge to Embedded Liberalism 489 SEAN D. EHRLICH 31 Cooperation and Discord in Global Climate Policy 506 ROBERT 0. KEOHANE AND DAVID G. VICTOR 32 The Governance of International Finance 518 JEFFRY A. FRIEDEN 33 US versus Them: Mass Attitudes toward Offshore Outsourcing 535 EDWARD D. MANSFIELD AND DIANA C. MUTZ PREFACE The readings in International Political Economy: Perspectives on Global Power and Wealth are primarily intended to introduce the study of international political economy to those with little or no prior knowledge of it. The book is designed for use in courses in international political economy, international relations, and international economics. The selections present both clear and identifiable theoretical arguments and important substantive material. Twenty two of the thirty-three articles are new to this sixth edition of our book. Although the selections can be read in any order, they are grouped into eight parts that reflect some of the more common organizing principles used in international political economy courses. Each part begins with an introduc tion by the editors that provides background information and highlights issues raised in the readings. Each reading is preceded by an abstract summarizing its specific arguments and contributions. The readings have been edited to eliminate extraneous or dated information, and most footnotes were removed. The introduction defines the study of international political economy, sum marizes major analytical frameworks in the field, and identifies several cur rent debates. To capture the most important work and current debates in the international political economy, we highlight the three analytic tools common to virtually all explanations: interests, interactions, and institutions. We then present an integrated framework using these tools that starts with individuals or corporate groups pursuing their interests and interacting within domestic political institutions, and then bargaining with other states possibly within international institutions. We also show, however, that while interests, inter actions, and institutions are all necessary for any complete explanation, dif ferent authors may choose to focus on one or the other of these tools. We also provide a brief overview of the various paradigms that have informed schol arship on international political economy in the past. Part I presents examples of research that focus more or less heavily on the interests, interactions, and institutions in the formulation of policy and inter national outcomes. The readings in this part are intended to suggest the under lying logic and types of arguments used by those who emphasize a particular tool. Although they are representative of their respective approach, they do not necessarily capture the wide range of opinion within each. Part II, which reviews the history of the international economy since the nineteenth century and provides the background and perspective necessary to ix x• Preface understand the contemporary international political economy. The selections describe the major developments in the history of the modern international economy from a variety of different theoretical viewpoints. The remainder of the book is devoted to the modern international political economy. Separate sections on production, money and finance, trade, and migration look at the principal issue areas associated with the politics of inter national economic relations. Part VII focuses on the particular political and economic problems of developing economies. Finally, Part VIII examines cur rent problems in the politics of international economics. The selections in this volume have been used successfully in our courses on international political economy at Harvard University and the University of California, San Diego. In our own research, we approach the study of inter national political economy from very different perspectives. Yet, we find that this set of readings accommodates our individual approaches to the subject matter while simultaneously covering the major questions of the field. For this edition, we thank Ann Shin, our editor at W. W. Norton & Com pany, for helping prepare the manuscript for publication. We also thank our respective spouses, Anabela Costa, Wendy K. Lake, and Rebecca L. Webb, for their continuing encouragement. JEFFRY A. FRIEDEN DAVID A. LAKE J. LAWRENCE BROZ ABOUT THE EDITORS J E F FRY A. F R I E D E N (Ph.D., Columbia University) is professor of government at Harvard University. He specializes in the political economy of international monetary and financial relations. His book publications include Currency Politics: The Political Economy of Exchange Rate Policy (2015), Lost Decades: The Making of America's Debt Crisis and the Long Recovery (with Men zie Chinn, 2011), Global Capitalism: Its Fall and Rise in the Twentieth Century (2006), Debt, Development, and Democracy: Modern Political Economy and Latin America, 1965-1985 (1991), and Banking on the· World: The Politics of American International Finance (1987). DAV I D A. LAKE (Ph.D., Cornell University) is the Gerri-Ann and Gary E. Jacobs professor of social sciences and distinguished professor of political science at the University of California, San Diego. He has published widely in the field of international relations and international political economy. His principal book publications include The Statebuilder's Dilemma: On the Limits of External Intervention (2016), Hierarchy in International Relations (2009), Entangling Relations: American Foreign Policy in Its Century (1999), and Power, Protection, and Free Trade: International Sources of U.S. Commercial Strategy, 1887-1939 (1988). J • LAW R E N CE B ROZ (Ph.D., University of California, Los Angeles) is professor of political science at the University of California, San Diego. He studies the institutions that regulate national and international monetary and financial relations: central banks, exchange rate regimes, and international financial institutions. He is the author of International Origins of the Federal Reserve System (1997) and a series of articles on the congressional politics of financing the International Monetary Fund. xi INTRODUCTION International Politics and International Economics International political economy is the study of the interplay of economics and politics in the world arena. In the most general sense, the economy can be defined as the system of producing, distributing, and using wealth; politics is the struggle between actors with divergent interests to make collective deci sions, whether inside or outside of formal governments. Political economy has a variety of meanings. For some, it refers primarily to the study of the politi cal basis of economic actions-the ways that government policies affect mar ket operations. For others, the principal preoccupation is the economic basis of political action-the ways that economic forces mold government policies. The two focuses are, in a sense, complementary, for politics and markets are in a constant state of mutual interaction. Most markets are governed by certain fundamental laws that operate more or less independently of the will of firms and individuals. Any shopkeeper knows that an attempt to raise the price of a readily available and standard ized product-a pencil, for example-above that charged by nearby and com peting shopkeepers will rapidly cause customers to stop buying pencils at the higher-price. Unless the shopkeeper wants to be left with piles of unsold pen, cils, he or she will have to bring the price back into line with "what the mar ket will bear." The shopkeeper will have learned a microcosmic lesson in what economists calLmarket-clearing equilibrium, the price at which the number of goods supplied equals the number demanded-the point at which supply and demand curves intersect. At the base of all modern economics is the general assertion that, within certain carefully specified parameters, markets operate in and of themselves to maintain balance between supply and demand. Other .things being equal, if the supply of a good increases far .b. eyond the demand for it, the good's price will be driven down until demand rises to meet supply, supply falls to meet demand, and market-clearing equilibrium is restored. By the same token, if demand exceeds supply, the good's price will rise, thus causing demand to decline and supply to increase until the two are in balance. If the international and domestic economies functioned as perfectly com petitive markets, they would be relatively easy to describe and comprehend. But such markets are only highly stylized or abstract models, which are rarely reproduced in the real world. A variety of factors influence the workings of 1