The Politics of Telecommunications Regulation: State–Industry Alliance Favouring Foreign Investment in India

This paper explores the political economy of three significant policy decisions of the Congress–United Progressive Alliance government between November 2005 and February 2006. These decisions improved the regulatory incentives for the smaller and efficient firms in the Indian GSM industry, which were heavily dependent on foreign investment for their expansion. India's telecommunications sector became more attractive to foreign investors as a result of these regulatory changes. This was a notable departure from the past when government policy had favoured large domestic investors using CDMA technology who were not dependent on foreign capital. A globalisation friendly policy change occurred after a Centre-Left United Progressive Alliance coalition came to power. The paper argues that these decisions, which promoted both competition and foreign investment, occurred due to the increased sensitivity of the Department of Telecommunications towards the needs of the relatively smaller GSM service providers, driven by considerations of efficiency. They were not driven by a crisis of private investment, foreign pressure, or stealth. The shift occurred in normal times when the Department of Telecommunications under a persistent ministerial stewardship took on a regulator, which was less interested in engineering this shift. This globalisation-friendly strategy depended to a large extent on the particular industrial sub-sector that the ruling party or coalition supported for spreading telecommunications in India.     

Democratisation and the prospects for participatory regionalism in Southeast Asia

This article explores the impact of democratic transitions in Southeast Asia on regional co-operation, and the relationship between this process and the development of a non-official regionalism. Until now, regionalism in Southeast Asia has been essentially elite-centred and politically illiberal. The emergence of the Association of Southeast Asian Nations was founded upon the common desire of its members, which had by then retreated significantly from their postcolonial experiments in liberal democracy, to ensure regime survival. This orientation was further institutionalised by asean 's doctrine of non-interference, which helped to shield its members from outside pressures towards democratisation. But with democratisation in the Philippines, Thailand and more recently Indonesia, the asean model of elite-centric regional socialisation has been challenged. The civil society in the region demands greater openness in Southeast Asian regionalism. The article proposes a conceptual framework for analysing the relationship between democratisation and regionalism, with the key argument being that the displacement of traditional patterns of regional elite socialisation has been offset by potential gains such as advances in regional conflict management, transparency and rule-based interactions. But the realisation of a more 'participatory regionalism' in Southeast Asia faces a number of barriers, including obstacles to further democratisation, the continued salience of the non-interference doctrine and the diminished space for civil society in the wake of the 11 September terrorist attacks.     

How Does Globalisation Affect Regional Inequality within A Developing Country? Evidence from China

Developing countries are increasingly concerned about effects of globalisation on regional inequality. This paper develops an empirical method for decomposing the contributions of two major driving forces of globalisation, foreign trade and foreign direct investment (FDI), on regional inequality and applies it to China. Even after controlling for many other factors, globalisation is still found to be an important factor contributing to the widening regional inequality. The paper ends by investigating the role of factor market segmentations in aggravating the distributional effect of changing regional comparative advantages in the process of globalisation.     

The European Union and Mercosur: A case of inter-regionalism

The article reviews the relation between two regional integration arrangements, the European Union and Mercosur, under three aspects: trade and investment, international negotiations and the institutional dimension. Tracing the agenda and issues dealt with between the two, leading to a project of a transatlantic free trade area, reveals that trade issues, one of two 'pillars' of reference, are important. However, the most influential results have stemmed so far from the other 'pillar', the political one. These results may be seen in the EU's role as a 'road map' for Mercosur's institutional trajectory, and second, as a signal for the private sector in furthering industrial networks within the ongoing world economic restructuring. The objective, thus, is to highlight how the relationship may interact with two encompassing processes: the shaping of regionalism/s, in particular the Mercosur case, and the so-called globalisation process.     

The mexican financial crisis

In the period 1990-93 Mexico's economy experienced expansion and structural change. This was associated with economic opening, market deregulation, and large inflows of foreign capital. Mexico had dealt with the external debt problem through a Brady debt restructuring. This restructuring lowered the financial requirements of the public sector, improved market expectations, and set the stage for a decline in domestic interest rates.

In the early 1990s Mexico attracted fully one-fifth of all capital flows directed into developing countries. These inflows more than financed the current account deficit, and permitted Mexico to expand its official reserve holdings. The portfolio capital inflow bolstered the stock market, which appreciated in value. Mexico's entry into NAFTA provided another reason to be optimistic concerning economic and business prospects.

However, Mexico's external payments position was falling deeper into deficit. By mid-1994 it was possible to observe that the current account in Mexico's balance of payments had shifted further into deficit, and that the high unsustainable level of capital inflow was diminishing. Political violence and assassinations in 1994 caused foreign investors to look more carefully at investment prospects, and steadily rising interest rates in the United States created incentives favoring dollar rather than peso financial instruments. As peso interest rates began to rise, the Mexican government and commercial banks turned to dollar-indexed or outright dollar borrowing. By December 1994 this increased dollar liability position together with a runoff in foreign exchange reserves left Mexico in a difficult liquidity position. The December 20, 1994 devaluation failed to renew confidence in the viability of Mexico's payments position, and two days later the peso was floated. In the early weeks of 1995 a massive Mexican financial assistance package was provided by the United States, the International Monetary Fund, and others.

An analysis of the components of Mexico's GDP and balance of payments suggests that the financial disequilibrium was clearly evident by mid- 1994. Over the period 1993-94 domestic absorption had increased beyond the ability of the economy to sustain it. Parallel to this, the current account deficit had increased beyond the ability of foreign exchange resources to support this deficit. Failure by the government and central bank to take action in the third quarter of 1994 resulted in a runoff of foreign exchange reserves, speculative trading in the financial markets, growing skepticism concerning the viability of existing arrangements. Fiscal and monetary tightening early in 1995 produced an improved financial equilibrium, suggesting that similar action at mid-1994 might have avoided the near debt crisis that manifested itself in December 1994 jand the following weeks.     

Experiments with tradition: An interpretation of modern Indian ideas on the nature of social and political change

A recently completed survey of British manufacturing investment in 14 anglophone African countries indicates that there has been major disinvestment during the last five years. This process of corporate disengagement is occuring despite concerted attempts by African governments to improve the overall investment climate for both national and foreign investors. The article analyses the pattern of disinvestment by country and industrial sector and considers some of the key causal factors.     

The Challenges for Developing Countries in International Tax Justice

Developing countries face three main challenges in international tax cooperation. The most widely known are the twin problems of tax avoidance by foreign investors and tax evasion by domestic actors, which have become a major focus of debate in international organisations and of civil society activism in recent years. The second problem, tax competition, incorporates a range of issues from the ‘prisoners’ dilemma’ facing countries competing for inward direct investment through to the harmful tax rules used by tax havens that enable tax avoidance and evasion. This article reviews four recent monographs that analyse these problems at an international level. While they contain much useful discussion of the problems and potential technical solutions, there remains a need for political economy research to understand why certain technical solutions have not been adopted by governments. A third challenge faced by developing countries, barely considered in the tax and development literature up to now, leads to a note of caution: international tax institutions tend to be designed in ways that place disproportionate restrictions on capital-importing countries’ ability to tax foreign investors.     

Distributional Consequences of Globalisation: Empirical Evidence from Panel Data

This paper investigates the impact of globalisation on cross-country inequality using a large panel dataset. The findings reveal that location and capital are the main determinants of inequality; trade intensity and foreign direct investment make only a small contribution (approximately 4%). The relative contributions of trade and foreign direct investment to inequality have changed little over time and have certainly not increased at the same rate as the rise in global trade and investment activity. Hence, globalisation does not emerge as a significant factor in driving cross-country inequality. Differences emerge when countries are grouped by relative income, but the main findings persist.     

Expanding the levels of analysis of fdi for improved understanding of policy issues: the case of mexico

Foreign Direct Investment (FDI) inflows are a key component of the restructuring and external integration now underway in many Latin American national economies. This paper suggests that understanding of policy issues concerning FDI can be enriched by two complementary shifts in the levels of analysis of FDI, each of which entails more detailed attention to the strategies and operations of multinational corporations (MNCs). At the macro-level, we show why it is beneficial to expand beyond the normal analytic concern with aggregate total FDI flows to focus instead on the separate, disaggregated components of those flows--that is, equity, reinvested earnings and other long-term and short-term capital flows between parent firms and their affiliates, as recorded in the national balance of payments capital account. The microlevel shift emphasizes the importance of focusing on varieties of types of FDI, not only across different foreign investors but within individual companies as well. It demonstrates the significance of switching from the usual concentration on firms as a whole to instead accentuating examination of individual projects and products--especially the dichotomy between market-access projects producing for the host country domestic market and production-efficiency projects producing for export markets, including the home country market. These two shifts in the level of analysis complement one another, and they interact in the sense that the mix of component flows can depend in part on the type of FDI. These analytic themes are developed using evidence concerning FDI in Mexico, with special reference to the automotive industry. Such improved comprehension of FDI is particularly germane for Latin American countries that are contemplating liberalization of foreign direct investment rules or have already undertaken them and witnessed the ensuing increase of inbound FDI.     

Financial investment via ADRs in Mexico and South America

American depository receipts (ADRs) are dollar-denominated, negotiable instruments issued by a depository bank to represent ownership of a foreign security in the bank's possession. They are the primary method employed by Latin American corporations to raise equity capital in the United States. One flequently overlooked aspect about ADRs is that their investment performance provides a gauge not only on management's performance but also a measure of the foreign government's ability to provide a political, legal, economic and social climate that is conducive to international investment. This paper investigates the returns and risks associated with foreign investment in Mexico and South America. First, we show that the weekly returns to Latin American stocks are weakly correlated with the U.S. stock market which suggests that they can reduce the risk of a portfolio that is fully diversified within the U.S. market. Second, we find that ADRs from this region are more risky than U.S. common stocks. However, we find little evidence that foreign exchange rate risk should be a major factor in the investment decision. Third, we examine the effects of the devaluation of the Mexican peso and show that political factors can significantly increase the risk and reduce the return to foreign investment. Finally, the results show that investors do not pay a significantly larger relative transaction cost premium for investing in Mexican and South American equity vis-à-vis U.S. common stock. We conclude that ADRs provide the ability for the U.S. investor to realize potentially superior gains from companies located in these emerging economies. However, the willingness by the U.S. investor to disinvest means that politicians and managers have a powerful incentive to continue reforms that lead to improved standards of living for their citizens and employees.     

How EU Integration and Legacies Mattered for Foreign Direct Investment into Central and Eastern Europe

This essay uses the case of foreign direct investment (FDI) in Central and Eastern Europe to stipulate how European Union (EU) integration affected the economic globalisation of the post-socialist region. Existing studies argue that expectations of impending EU membership had a direct effect on raising FDI inflows because they reduced perceived investment risks for potential investors. In contrast, I show that the EU accession process worked through an indirect effect on FDI: it influenced post-socialist states' efforts to promote FDI as a desirable strategy of economic development and the behaviour of firms. These state efforts, in turn, increased FDI inflows, net of conventional risk and return factors. Further analyses indicate that decisions about state FDI-promotion have been influenced not only by EU conditionality but also, and importantly, by particular legacies, namely the countries' initial choice of privatisation strategies, extent of reform during socialism and history of state sovereignty. Overall, the results suggest that EU integration and legacies of the past shape both the structural and the ideational context for domestic decision-making elites in Central and Eastern Europe, and may act not only as constraints but also as enabling conditions facilitating the global economic integration of the region.     

Globalisation and resistance in post-cold war Mexico: Difference,citizenship and biodiversity conflicts in Chiapas

In the post-cold war era changes at the global, regional, national and local level are altering earlier ways of understanding and practising citizenship. In Mexico the decline of the state-guided national development project (1930s-70s) has been accompanied by the transformation of corporatist forms of political control. This article uses examples of recent biodiversity conflicts in the state of Chiapas to illustrate this process in terms of a struggle between competing models of 'market citizenship' and 'pluri-ethnic citizenship'. By focusing on the actions and demands of the Zapatista Army of National Liberation and other indigenous organisations, the article highlights how resistance to globalisation in the Lacandon rainforest of Chiapas is related to struggles for collective rights and a more inclusive form of democracy in Mexico. This also raises important questions regarding the future shape of national identities and the scope of democratic rights around the world in the post-cold war era.     

'New regionalism' in Central America

Central American regionalism is in a state of disarray after having been surrounded by great enthusiasm in the early 1990s. This article explores whether a 'new regionalism' framework can improve our understanding of this turn of events. It is argued that Central American integration lacks a series of features assumed to characterise 'new regionalism'. It has not been accompanied by spontaneous societal integration, its main stimulus has come from external actors, and the goal of the process has narrowed from originally being human welfare and security in a wide sense, to primarily being integration in the global economy. This is reflected in the integrationist rhetoric, where globalisation has entered the centre stage and is presented as a threat to which regional action should respond. This change has also rendered regional agreements largely superfluous as the member states pursue policies aimed at global integration regardless of the integration process.     

Neo-liberalism and Domestic Capital: The Political Outcomes of the Economic Crisis in Thailand

The 1997 economic crisis in Thailand provided an opportunity for a reinvigoration of neo-liberal economic policies. International financial institutions, together with Thailand's Democrat-led government, emphasised further market reforms, liberalisation, deregulation, decentralisation, privatisation and a reduced role for the state. The deep economic downturn saw a popular rejection of such policies, meaning that the neo-liberal interregnum was short-lived. The 2001 landslide electoral victory of the Thai Rak Thai Party symbolised the intensity of opposition to neo-liberalism. It also showed that national governments remain critical in shaping markets and that domestic economic actors continue to have significant political roles. In Thailand, far from neutering domestic capital's political capacity, the crisis and opposition to neo-liberalism saw this enhanced. One reason for this was that neo-liberal restructuring was not simply about the efficient operation of the market. Rather, it demanded a fundamental transformation of the operations of government and of the ways that business was organised and conducted. This threatened domestic capital. Its economic survival required that it seize the state so that it could control economic policy-making. This was achieved through the Thai Rak Thai electoral victory and its subsequent rule, where the protection of domestic capital's interests was achieved through a re-negotiation of its social contract with other classes.     

Policy responses to capital inflows: lessons from mexico

This paper has two basic objectives. The first is to examine the impact large inflows of foreign capital have on the economies of developing countries. This is important because international investment in many “emerging” markets has increased rapidly, particularly since 1990. The second objective is to explain Mexico's recent (1994-95) currency and financial crisis and to assess the role large capital inflows (and outflows) played in these events. In general, the paper concludes that the Mexican crisis was a direct outgrowth of the large inflows of foreign portfolio investment that followed the announcement of the NAFTA in early 1990. But while these capital inflows served as the catalyst, the policy responses adopted by the Mexican authorities to deal with these flows bear the ultimate responsibility for the crisis. Accordingly, this paper reviews the most common alternatives for redressing the effects of capital inflows on the recipient's economy and balance of payments, and uses Mexico's recent experience to draw general lessons for countries that encounter similar situations in the future.     

Unanticipated capital flows and the Mexican economy: An empirical investigation

This research explores the differential impact of unanticipated and anticipated foreign capital flows on Mexico's economy for the period 1965–85. If unanticipated flows cause appreciation of the real exchange rate and do not affect domestic expenditure, one can assume that the country's foreign exchange constraint is not binding. Based on empirical evidence, this hypothesis can be rejected. The implication is that Mexico's problems probably do not stem from overborrowing. Anticipated capital flows do affect private spending, but a negative coefficient suggests that the private sector has borne the brunt of post‐crisis adjustment. The results show that the Mexican government has dominated the expenditure of foreign loans throughout the period.     

On the apparent benefits of higher productivity: An arithmetical illustration a comment

During the 1980s, like many other developing countries Nepal attempted actively to attract direct foreign investment. This article reports the results of a survey of the foreign‐owned firms in operation at the end of the 1980s. The motives of firms for their investment decisions in Nepal are summarised. The impact of foreign investment is assessed quantitatively using both financial and economic cost‐benefit criteria. In general, it appears that foreign investment has been beneficial to both the foreign investors and the national economy. Foreign investors from India have played a particularly important role. However, much of the national returns from foreign investment is derived from the payment of taxes, so that an excessively generous policy of tax incentives may not maximise national returns.     

From agricultural modernisation to agri-food globalisation: The waning of national development in Thailand

Agriculture has been central to accounts of Thailand's modernisation and the rise of the national development project between the 1940s and the 1970s. However, the role of agriculture in the waning of national development is rarely explored critically in the Thai context. This paper focuses on agriculture and the role of the state in the shift from national development to globalisation. The first part of the paper examines the beginnings of Thailand's modern agricultural sector, before turning to the state-sponsored diversification of agriculture in the 1950s. The paper locates shifting state responses to agriculture in the late 1950s and 1960s in the context of specific political and historical social forces, before exploring the emergence of agri-food exports in the 1970s and the rise of agribusiness in the 1980s and 1990s. The paper concludes by commenting on the significance of the Thai state's role in the national development project and the globalisation project.     

Chinese Eastern Industrial Zone in Ethiopia: unpacking the enclave

Abstract

This paper examines China’s engagement with Africa through economic zones (EZs). It moves beyond the conceptualisation of EZs as undifferentiated enclaves of foreign investment to a dynamic perspective on the locally negotiated process of zone development. Such a perspective entails critical unpacking of the specific zone regime to understand the diverse and evolving relationships among different state and non-state actors. Drawing upon empirical research on the Eastern Industrial Zone (EIZ) in Ethiopia, we explore the complex process of learning and adaptation by government, developers, investors, and workers throughout the development of a zone regime, with specific attention to capital–labour and expatriate–local relations. We find that despite the EIZ being a state-level cooperation project, private Chinese developers work diligently with the Ethiopian government to improve the institutional support for EZs. Chinese investors also collectively generate a management regime to enhance their overseas operational capacity and experiment with various tactics to transform local recruits into an industrial workforce. Local workers, with limited protection by official labour unions, turn to individual- and group-based agency to improve their working conditions. Despite the momentum created by multiple stakeholders, there are concerns regarding the long-term contributions of EZs to engender sustained industrial transformation and skills development.     

Agency conflict and the signalling snafu in the mexican peso crisis of 1994

In this paper I explore the role of signalling in the agency conflict that pits national governments against international lenders in the Mexican peso crisis of 1994. (The term international lenders includes domestic residents with the capacity to invest abroad.) I give evidence for the conventional conclusion that Mexico's underlying economic and financial situation did not warrant the humiliating treatment inflicted on it by the international financial markets. The humiliating treatment, however, was not a mindless overreaction to suddenly perceived changes in the country's political fragility. On the contrary, I show that the country's evolving political fiagility was recognized and compensated for as far back as 1991. It was rather the result of a rational reevaluation of the costs of the agency conflict that is inherent in the relationship between national governments and international lenders and the power of national governments through moratoriums, repudiation, or default to subordinate the claims of international lenders to those of domestic agents. I model the conflict as a government held option to default and introduce signalling by assuming that the Mexican government had monopolistic information on the economy's true situation. I then give evidence that the agency costs were reevaluated when it became clear that the Mexican government had been sending false signals to the international investment community and that these false signals had made it possible for Mexico to borrow close to or beyond the point where default was the optimal financial strategy.