Who Can Reform the Labor Market? IMF Conditionality,Partisanship, and Labor Unions

Labor market reforms are critical for economic growth. Yet, they are politically contentious, and governments, more often than not, are faced with strong opposition from interest groups. Scholarly work shows that governments often rely on external intervention to implement politically difficult reforms. This is the case with the International Monetary Fund (IMF) that typically conditions its financing on the implementation of required reforms. Do borrowing governments benefit from IMF programs to overcome domestic opposition to reform by organized interests? Utilizing a unique new data set on IMF conditionality, I show that partisan and electoral concerns and domestic alliances strongly affect the implementation of labor market reforms, even when the IMF imposes them. When faced with increasing number of strikes, left-wing governments are more likely to implement labor market reforms than center/right-wing governments. However, the left is less likely than the center/right to fulfill its international commitments during election years when labor groups are militant. These findings highlight the left’s unique ability to form pro-reform coalitions and the IMF’s conditional role in removing domestic political opposition to reform. Counter-intuitively, right-wing governments still struggle to reform the labor market, even during economic crises and under IMF programs.     

IMF program compliance: Aggregate index versus policy specific research strategies

Consensus has grown that the economic reform programs of the International Monetary Fund (IMF) have failed to promote economic development. There is little consensus about how IMF programs should be reformed, however, because we do not understand why IMF programs have failed. Some critics contend that the IMF’s austere policy conditions are inappropriate for most program-countries and cause economic crises to deepen. Other critics argue that the policy conditions are actually ignored, and the IMF program loan ends up subsidizing the bad policies that caused the economic crises in the first place. This debate begs the compliance question. Unfortunately, the study of IMF compliance is not straightforward. IMF agreements span many dimensions, and the dimensions vary from agreement to agreement. Even along one dimension, governments are not held to the same standard. Rather than look at aggregate measures of compliance, this article proposes a return to studying specific conditions as was done in the earliest studies on IMF compliance.      

The Effect of IMF Programs on Women’s Economic and Political Rights

Though much research has been devoted to the socioeconomic and political consequences of International Monetary Fund (IMF) programs for recipient countries, little is known about the impacts of these programs on the level of respect for women’s rights. We postulate that IMF-induced policy reforms of privatization and public spending cuts, and the growing political repression and instability following the implementation of IMF programs, undermine the government’s ability and willingness to protect women’s economic and political rights. To substantiate the theoretical claims, we combine data on women’s political and economic rights with data on IMF programs for the years 1981–2004. Our findings suggest that IMF involvement is likely to deteriorate the level of respect for women’s economic rights while having no discernible effect on women’s political rights. The results further indicate that the effect of these programs is not conditioned by political regime type and economic wealth of recipient countries. One major policy implication of our findings is that the IMF should start to recognize that the conditions attached to lending programs might be implemented at the expense of women’s economic rights and that more explicit protections of women’s rights need to be included in program negotiations.     

Economic Competitiveness and Social Policy in Open Economies

While many studies have shown that greater trade openness affects the overall size of social spending, this study emphasizes that it also affects types of social policies that a government prioritizes. When faced with deepening trade competition, governments tend to use different policy measures to address the opportunities and challenges stemming from their economic competitiveness in the international market. Policy makers in countries with high relative labor costs are likely to privilege social insurances and income transfer. This is because as high labor costs make their workers more vulnerable in the trade competition, governments seek to protect skilled labor in order to maintain their economic advantage in advanced industries. In contrast, when relative labor costs are low, human capital investment programs are likely to be emphasized to enhance productivity and the quality of labor to capitalize the cost competitiveness of a country’s workers. The findings from empirical analyzes of 26 OECD economies from 1991 to 2012 support these arguments.     

The effects of the IMF on expropriation of foreign firms

This paper seeks to explain the determinants of foreign expropriation in the developing world. We argue that the International Monetary Fund (IMF) helps to reduce the likelihood of nationalization because of the direct leverage the Fund holds over borrowers, especially as expropriation is a blatant violation of international property rights. Using expropriation data from 1961 to 2006, and several different measures for the Fund, we find that countries under IMF agreements are less likely to nationalize foreign firms. We also show that the Fund’s influence is greatest when the IMF loan represents a larger share of the borrower country’s gross domestic product (GDP) as well as in countries with weaker political institutions. The takeaway is that IMF continues to influence policy choices in the developing world.     

Economic Sanctions and the Politics of IMF Lending

What effect do economic sanctions have on the IMF lending decisions? Though countries under economic sanctions often face significant economic and financial difficulties, no comprehensive research to date has explored whether the IMF as a de facto lender of last resort intervenes in those countries in need. We posit that economic coercion is likely to hinder the target’s access to IMF credits as sanctioning (sender) countries are likely to use their political influence in the IMF to deny funds to the destabilized target economies. To assess the empirical merits of the hypothesis, we combine data on the IMF lending with the economic sanctions data for 120 emerging market economies from 1975 to 2005. Results indicate that target countries are less likely to receive IMF funds, especially when under sanctions by the United States and international institutions. Our findings contradict the conventional wisdom that the IMF is tasked with providing lifelines to member governments in need of help to ease their short-term balance of payment problems. Further, as much as IMF loans can be used as positive inducements to acquire a country’s strategic cooperation, we show that they might also be used by sender countries as a punishment tool against target countries to amplify the impact of sanctions regimes.     

Transnational Terror and Human Rights

Do terrorist attacks by transnational groups lead governments to restrict human rights? Conventional wisdom holds that governments restrict rights to forestall additional attacks, to more effectively pursue suspected terrorists, and as an excuse to suppress their political opponents. But the logic connecting terrorist attacks to subsequent repression and the empirical research that addresses this issue suffer from important flaws. We analyze pooled data on the human rights behavior of governments from 1981 to 2003. Our key independent variable of interest is transnational terrorist attacks, and the analysis also controls for factors that existing studies have found influence respect for human rights. Repeated terrorist attacks lead governments to engage in more extrajudicial killings and disappearances, but have no discernable influence on government use of torture and of political imprisonment or on empowerment rights such as freedom of speech, assembly, and religion. This finding has important implications for how we think about the effects of terrorism and the policy responses of states, non-governmental organizations, and international institutions interested in protecting human rights.     

What Kinds of Trade Liberalization Agreements Do People in Developing Countries Want?

One of the most striking developments in the global economy in the past decades is the rapid proliferation of preferential trade agreements (PTAs), with many of them concluded among or with participation of developing countries. On the presumption that current popular debates on trade policy are not so much about whether citizens want free trade but rather what kinds of trade liberalization they want, we examine individual trade policy preferences with regard to PTAs that can vary in content along several dimensions. To that end we carried out conjoint choice experiments embedded in representative surveys in three developing countries that differ strongly in income levels, political system, and trade liberalization history: Costa Rica, Nicaragua, and Vietnam. We conceptualize trade policy preferences as preferences over the scale and scope of trade liberalization, environmental and labor standards, and labor market access (migration). Two main findings emerge. First, non-economic considerations, such as sympathy/antipathy toward particular countries and environmental and labor rights concerns influence citizens’ preferences at least as much as factors based on standard economic logic. Second, preferences over particular facets (attributes) of trade liberalization, that is PTA content, are surprisingly consistent across countries, despite strong differences in macro-economic and political context.     

The effects of IMF programs on U.S. foreign direct investment in the developing world

Given the popular wisdom that the U.S. government influences IMF policies and tends to support the business community, it might be expected that IMF programs benefit U.S. firms abroad and thus borrower nations are attractive destinations for U.S. foreign direct investment (FDI). Surprisingly, no study has tested the impact of IMF loans on U.S. FDI. Controlling for common explanations in the literature, we use a treatment effects model and interviews with IMF staff researchers to investigate whether countries under different kinds of IMF programs receive more U.S. FDI than countries not under IMF arrangements. Using panel data for 126 developing countries from 1980 to 2003, we find that IMF borrowers tend to be more attractive to U.S. investors but not all IMF programs have the same effect. Our findings suggest that differences in loan duration, the extent of borrower input in policy decisions, and loan amounts affect borrowers’ leverage with the Fund and the U.S.     

Labor Diplomacy: A Revitalized Aspect of U.S. Foreign Policy in the Era of Globalization

This article analyzes how and why labor diplomacy has become an important element of American foreign policy in recent years. "Labor diplomacy"—a term coined by practitioners in the Department of State—refers to the work performed principally by labor officers (also called labor attachés) at American embassies around the world and, more specifically, the advocacy and promotion of core labor standards within the context of U.S. human rights and international trade policy. The five internationally recognized core labor standards, as developed by the International Labor Organization (ILO), are: freedom of association; the right of collective bargaining; the elimination of forced labor; the effective abolition of child labor; and the elimination of discrimination in employment and occupation. The article explores the economic, political, and bureaucratic factors that contributed to the revitalization of labor diplomacy during the 1990s. These include: a growing appreciation for the linkage between labor standards and trade in the globalized economy; the Clinton administration's decision to pursue a closer relationship with the AFL-CIO, particularly after the 1997 "fast-track" debacle; and the changing bureaucratic dynammics within the Department of State. The article also reviews U.S. initiatives, both through the ILO and unilaterally, to strengthen respect for core labor standards around the world, and how these efforts have helped shape American policy toward the World Trade Organization. The article concludes with an analysis of the outcome of the recent WTO Ministerial Meeting in Seattle and a prognosis on the future of labor diplomacy.     

Worker Influence on Capital Account Policy: Inflow Liberalization and Outflow Restrictions

How do workers impact openness to international investment flows? This article distinguishes between two types of openness: openness to inflows and openness to outflows of investment. Workers benefit from inflow openness due to increases in wages, productivity, and efficiency and due to reductions in borrowing costs, which are associated with investment inflows. Workers are hurt by outflow openness, as investors gain investment options, and therefore bargaining power, when outflows are permitted. Labor rights help workers overcome collective action problems, and democratic institutions increase policymakers’ responsiveness to labor organizations and make their commitment to labor rights credible. The theory thus predicts that, particularly under democratic institutions, labor rights are positively correlated with inflow openness and negatively correlated with outflow openness. Evidence from time-series, cross-sectional data is consistent with the theoretical expectations.     

The Catalytic Effect of IMF Lending: Evidence from Sectoral FDI Data

Our study contributes to the search for the elusive catalytic effect of International Monetary Fund (IMF) lending on inflows of foreign direct investment (FDI). Recent scholarship has found that the catalytic effect is conditional on political regime and program stringency. We contribute to this literature by developing and testing a theory which describes how the catalytic effect also varies by economic sector. This is a departure from existing studies, which have tended to focus on aggregate FDI flows after crises. Our findings corroborate previous research, which finds that in general IMF lending has a substantial and negative effect on FDI. However, we find that the negative effect is concentrated in sectors that are highly dependent on external capital and have low sunk costs in the host country. Our findings are robust to several alternative explanations common in IMF literature, namely the importance of IMF program design and the ability of governments to make credible commitments to reform. Substantively, our findings suggest that investors are more likely to use IMF lending as an escape hatch in countries where FDI is dependent on external capital and has low sunk costs.     

Foreign aid and political conditionality: Issues of effectiveness and consistency

This article examines the implementation of political conditionality by four official aid donors in the 1990s. It explores the aid sanctions taken globally to leverage improvements in respect of human rights and democratic principles, and assesses donor policy practice along two lines of investigation ‐ effectiveness and consistency. A main finding is the ineffectiveness of aid restrictions in contributing to political reforms in recipient countries. This is accounted for more by the weakness of measures imposed than by the strength of recipient governments, questioning the seriousness of donor intent in many cases. Regarding consistency, a pattern of selective and inconsistent policy application is revealed. The increased rhetorical support for democracy and human rights by northern governments post‐cold war has not led to a corresponding change towards the fair and equal treatment of all nations. The continued subordination of human rights and democracy to other foreign policy concerns, notably economic self‐interest, not only undermines policy credibility and legitimacy, but also limits impact and effectiveness. Donors themselves have introduced a normative dimension to aid policy. Yet if their own commitment to the principles of human rights and democracy is at best partial, they can hardly require development partners to abide by them in a manner that commands respect.     

Financial Markets Matter More than Fiscal Institutions for the Success of the Euro

Many argue that the euro is handicapped as a currency because European governments are unwilling to pool responsibility for fiscal policy in common institutions. This argument is derived from the theory of optimum currency areas and fuelled by analogy with US experience. It is mistaken. A monetary union does not need a fiscal union to work. Worse, efforts to build European fiscal institutions are likely to distract European policymakers from a more important agenda. Europe needs a fully functioning banking union with a common risk-free asset if Europeans want to stabilise the euro as a common currency. Moreover, it would need these things even if the euro did not exist and all it had was the common market. Financial stability – and not fiscal federalism – is the key to Europe's future. European policymakers should focus their efforts on building the necessary institutions.     

Master or Servant? Common Agency and the Political Economy of IMF Lending

What explains the substantial variation in the International Monetary Fund's (IMF) lending policies over time and across cases? Some scholars argue that the IMF is the servant of the United States and other powerful member-states, while others contend that the Fund's professional staff acts independently in pursuit of its own bureaucratic interests. I argue that neither of these perspectives, on its own, fully and accurately explains IMF lending behavior. Rather, I propose a "common agency" theory of IMF policymaking, in which the Fund's largest shareholders—the G5 countries that exercise de facto control over the Executive Board (EB)—act collectively as its political principal. Using this framework, I argue that preference heterogeneity among G5 governments is a key determinant of variation in IMF loan size and conditionality. Under certain conditions, preference heterogeneity leads to either conflict or "logrolling" within the EB among the Fund's largest shareholders, while in others it creates scope for the IMF staff to exploit "agency slack" and increase its autonomy. Statistical analysis of an original data set of 197 nonconcessional IMF loans to 47 countries from 1984 to 2003 yields strong support for this framework and its empirical predictions. In clarifying the politics of IMF lending, the article sheds light on the merits of recent policy proposals to reform the Fund and its decision-making rules. More broadly, it furthers our understanding of delegation, agency, and the dynamics of policymaking within international organizations.     

The impact of bilateral investment treaties (BITs) on collective labor rights in developing countries

The Review of International Organizations - Do bilateral investment treaties (BITs) affect collective labor rights in developing countries? BITs lock in pre-existing low labor standards that are...     

Projecting macroeconomic outcomes: Evidence from the IMF

In the process of designing IMF-supported programs, IMF staff members prepare projections of the evolution of key macroeconomic variables for the participating country. These projections are based on countries?? initial situations, and are conditioned on the implementation of reforms and policy measures agreed in the context of programs. In this paper, we examine the accuracy of projections in 291 programs approved in the period 1993?C2009. We focus on the projections of three macroeconomic variables (the ratios of the fiscal surplus to GDP and of external current account surplus to GDP, and real GDP growth) during the years immediately following the initiation of an IMF-supported program. We identify several potential reasons for divergence of projected from actual values: (i) mismeasured data on initial conditions; (ii) country-specific differences in forming projections, (iii) projections that do not reflect the dynamic time-series process of the actual data; (iv) policy forecast error; and (v) random errors in the actual data. Our data analysis suggests that the incomplete information on initial conditions and the country-specific differences in projection error are the largest contributors to discrepancies between projection and actual. We also consider whether the IMF??s forecasts have gotten more accurate in recent years; there is evidence that they have for the shortest horizons, but the quantitative impact on forecast error is small.     

Labor migration numbers and rights: do they trade off or advance together?

This article reconsiders the argument that as labor immigration policy opens, it must also become more restrictive in terms of immigrant rights. After discussing this tradeoff logic, positing a negative relationship between external (numbers) and internal (rights) labor migration policy, it then extends the underlying political model to show that when accounting for the lobbying pressure of firms seeking high skill labor, a very different expectation emerges. This political accommodation argument predicts a positive relationship between external and internal migration policy, or that policy related to labor immigration openness and immigrant rights should advance together, although not necessarily quickly or at the same rate. It then tests these competing propositions using a new dataset that sorts labor migration policy changes among 38 advanced industrial democracies from 1995 to 2016 into these two dimensions, finding a significant positive relationship between them.     

Italian foreign policy in the post-cold war period: a neoclassical realist approach

Abstract

Drawing on a neoclassical realist approach, this article analyses the foreign policy conduct of different Italian governments from 1994 to 2008. Pressured by the post-cold war international system, these governments have been compelled to raise Italy's profile within the international system. However, the way in which successive governments have responded has differed markedly. By looking at variables located at the domestic level – elite perceptions of the distribution of power and government instability – it is possible to explain these differences. Neo-classical realism is seen as an advance on Waltzian neo-realism precisely because it allows room for domestic as well as international (or systemic) variables, and because it has a very specific focus on foreign policy as such.