International Political Economy: Perspectives on Global Power and Wealth

572 Pages·2017·23.11 MB·English

by  Jeffry A. Frieden, David A. Lake, J. Lawrence Broz

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
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CONTENTS
Preface ix
About the Editors xi
Introduction 1
CONTENDING PERSPECTIVES ON
I 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
CURRENT PROBLEMS IN
VIII 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