The influence of foreign direct investment on contracting confidence in developing countries

This paper examines whether foreign direct investment (FDI) influences confidence in commercial contracts in developing countries. While the research on how host countries’ policy environments encourage FDI inflows has flourished, scholars have paid less attention to how the policy environment and local actors’ beliefs might, in turn, be affected by FDI. This is surprising because multinational enterprises are well‐recognized political and economic actors across the world. We expect that their increasing economic salience will influence the policy environments in which they function. By employing an innovative measure of property rights protection – contract‐intensive money – we examine how foreign direct investment influences host countries’ contract‐intensive money ratio in a large panel time series of both developed and developing countries from 1980 to 2002. Our analysis suggests that higher levels of FDI inflows are associated with greater confidence in commercial contracts and, by extension, the protection of property rights in developing countries.     

‘Whatever it takes’: Polanyian perspectives on the eurozone crisis and the gold standard

Abstract

The parallels between the monetary politics of the gold standard and that of the eurozone crisis are striking and have informed contemporary debate about the future of European integration. The eurozone crisis has been widely interpreted as the result of a mismatch between international monetary integration and a concomitant lack of fiscal integration, or more broadly as the result of a European Union which is economically integrated, yet politically fragmented. The prospect of a 1930s-style descent into division and nationalism has formed the backdrop against which moves towards extensive integration at the supranational level have been made. Polanyi diagnosed the political effects of monetary integration through his analysis of the gold standard system in The great transformation, making it important that we unpack his analysis and consider carefully how a Polanyian perspective might apply to the eurozone today. I argue that Polanyi encourages us to look beyond ‘monetary vs. fiscal’ and ‘economic vs. political’ characterizations of European integration, and instead to examine how such oppositions are formed in the first place and how they constrain political debate, particularly in terms of how ‘sound money’ is established as the highest policy concern. Through a re-reading of Polanyi's distinction between ‘all-purpose’ and ‘special-purpose’ money, I highlight how, despite the huge efforts undertaken to preserve the identity of the euro as an all-purpose currency, the eurozone crisis has rendered visible a series of latent conflicts between the different functions of money. This analysis moves us away from the ‘monetary vs. fiscal’ integration view of the eurozone crisis and towards a more open study of how the various possible purposes of money are being articulated and challenged, offering some limited hope for alternatives to the current eurozone policy agenda.     

The Political (and Economic) Origins of Consumer Confidence

Economic conditions, the story usually goes, influence consumer confidence, which in turn influences both political evaluations and votes. But we have little sense of the origins of consumer confidence itself. It is generally assumed that monthly reports of the nation's level of consumer confidence respond to objective economic conditions. We argue that politics is important for understanding consumer sentiment beyond what we know from economic conditions. Specifically, we demonstrate a direct effect of political evaluations of the president's management of the economy, the party of the president, extraordinary political events, and monetary policy, as well as an indirect effect of media coverage of the economy, on consumer sentiment, after controlling for economic conditions. When news coverage is positive, citizens give favorable evaluations, leading to more positive sentiment. Our findings suggest that understanding the political economy requires an emphasis on the causal effect of politics as well as economics.     

Controlling money during socialist economic reform: the Chinese experience

Contrary to the easy job that some conservative economists imagine, the task faced by the socialist monetary authority in controlling the money supply during economic reform is a daunting one, as recent experience in China indicates. It is difficult to estimate the demand for money in the mixed system that has emerged from the reform process, with all its structural disequilibria. Given prevailing economic and political interferences, keeping the money supply within targets is also beset with problems. Monetary issues have not received much attention in the conventional discourse about socialist economics, before or during reform. Hence the Chinese central bank often has to take uninformed action on events that it cannot effectively control. The results could be very serious, even tragic. In any case, it seems that the bank should not shoulder the main blame.     

Influencing the Bureaucracy: The Irony of Congressional Oversight

Does the president or Congress have more influence over policymaking by the bureaucracy? Despite a wealth of theoretical guidance, progress on this important question has proven elusive due to competing theoretical predictions and severe difficulties in measuring agency influence and oversight. We use a survey of federal executives to assess political influence, congressional oversight, and the policy preferences of agencies, committees, and the president on a comparable scale. Analyzing variation in political influence across and within agencies reveals that Congress is less influential relative to the White House when more committees are involved. While increasing the number of involved committees may maximize the electoral benefits for members, it may also undercut the ability of Congress as an institution to collectively respond to the actions of the presidency or the bureaucracy.     

The political monetary business cycle: Political reality and economic theory

This paper addresses the issue of expectations incorporated into political business cycle models. Rational agents anticipate Democratic efforts to stimulate the economy via monetary policy, discounting money supply from the calculations for determining output variance, so that output under Democrats is wholly unaffected by changes in the money supply. Rational agents appear to be naive about Republicans, incorporating money supply into the calculations for determining output variance, so that output under Republicans is significantly related to money supply.     

Family Policy Past As Prologue: Jimmy Carter,the White House Conference on Families,and the Mobilization of the New Christian Right1

The White House Conference on Families both exemplified the contested nature of “family policy” since the late nineteenth century and inaugurated the latest phase in the venerable invocation of “family values” as a tactic for political mobilization. In 1976 presidential candidate Jimmy Carter proposed a White House Conference on the American Family in order to shore up support among cultural conservatives, especially Roman Catholics. Four years later, after much debate within the Carter administration as well as in the country at large about what constituted a legitimate family, three sessions of a White House Conference on Families were held. Cultural moderates, feminists, gays rights activists, devout Catholics, and evangelical Protestants disagreed vehemently about policies ranging from legalized abortion to family leave. Following a long though little known tradition, women were especially active among grassroots conservatives. Ultimately conservatives mobilized much more effectively than their liberal and moderate opponents, and they quickly made restoration of family values an effective wedge issue for the new Christian right and the Republican party. In many ways, the debate over family policy in the early 21st century still echoes that of the 1970s—or the 1930s or the 1910s.     

Partisanship in the setting and coordination of fiscal and monetary policies

Abstract. The principal concerns of this paper are with the roles partisan politics have played in the making of fiscal and monetary policies within OECD countries as well as the extent to which these policies have complemented each other. It is argued that parties of the left pursue fiscal policies that are distinctly different from those pursued by the right. The critical difference is in the way these parties use fiscal policy as a corrective mechanism for dealing with macroeconomic problems: leftist parties adopt counter–cyclical fiscal policies while rightwing parties adhere to pro–cyclical fiscal stances. The paper also examines two arguments regarding monetary policy and how partisan politics affect this policy area. The first and most conventional argument sees the formal independence of the central bank from government as a means of negating partisan influences on monetary policy; the second advances the proposition that, regardless of central bank independence, monetary authorities are not politically neutral but instead share views similar to those of parties on the right–hand side of the political spectrum. Empirical analysis, using a pooled cross–section time–series design with data from 14 countries between 1961 and 1994, produces evidence in favor of the argument concerning the role of partisanship in fiscal policy; it also shows little support for the view that central bank independence inhibits partisan influences while at the same time provides support for the thesis that central banks are politically non–neutral. Thus, coordination between fiscal and monetary policies is far less likely to occur when left–wing parties are in power.     

Chairman reappointments,presidential elections and policy actions of the federal reserve

A number of recent studies have analyzed whether there is a political influence on monetary policy, focusing primarily on whether monetary policy becomes easier just prior to elections. In addition to exploring whether there exists an election period cycle in monetary policy, this article explores the existence of another political influence on policy. Following up on some recent anecdotal evidence provided by John T. Woolley, this article explores whether incumbent FED chairmen have succeeded in influencing monetary policy in order to improve their reappointment chances. The analysis, which spans the administrations of seven U.S. presidents and four FED chairmen, finds no conclusive evidence that FED policy changes systematically either before elections or chairman reappointment dates. The analysis has implications for the issue of rules versus discretion in monetary policy.     

The credibility of monetary reform – New evidence

The history of monetary policy is characterised by crisis and reform. The paper is dedicated to an explanation of what makes monetary reforms successful. A cross-sectional econometric analysis is chosen to deal with this problem. It is based on a standard macroeconomic model of commitment and credibility. As the dependent variable, we calculate a post-reform inflation rate. The exogenous variables are the degree of legal commitment, the constraining influence of institutions and a new variable for ex-ante credibility of the reform. The paper allows for the conclusion that monetary commitment, the consideration of institutional constraints and abstinence from the money press are crucial for the success of a monetary reform.     

The choice of inflation targeting regimes for inclusive growth: Lessons from southern countries

This study tries to shed light on whether the inflation targeting framework behaves as a growth enhancing strategy in some selected southern countries. The study also investigates the best choice of inflation targeting regimes. Using panel data regression model for a growth regression, we found that this monetary policy framework has a relatively significant positive effect on economic growth. This means that even in terms of economic growth, using inflation as a nominal anchor is a better framework to conduct monetary policy than using exchange rate or money aggregate. The results also revealed that among different types of inflation targeting frameworks, full‐fledged can be the best choice for the selected southern countries.     

The Unscientific Determinants of Voting on a Controversial Scientific Issue: An Evaluation of Biofuels Policy in the U.S. Congress

Whether allegiance to party or the preferences of constituents are most important in an elected representative's voting decision has been a long‐running question in political science. This study contributes to this debate through an evaluation of biofuels policy in the U.S. Congress. Results indicate that in this policy area the House and Senate balance these influences differently, with partisanship playing a significant role in the House but not in the Senate. Analysis of voting on this issue indicates that there are important distinctions between how a legislator views the overall partisan preferences of constituents in their district or state versus how they view the interests of particular groups of constituents; when the concentration of agricultural interests in a legislator's district or state is great enough, it can override the effects of party for this issue, which suggests that legislators are especially concerned with specific constituency groups in their district or state that would stand to gain or lose from a policy. The proposition that a legislator is most likely to do that which benefits him or her most regardless of the available science relevant to a policy is a useful starting point for understanding what has been found in this research project.     

Partisanship in the setting and coordination of fiscal and monetary policies

The principal concerns of this paper are with the roles partisan politics have played in the making of fiscal and monetary policies within OECD countries as well as the extent to which these policies have complemented each other. It is argued that parties of the left pursue fiscal policies that are distinctly different from those pursued by the right. The critical difference is in the way these parties use fiscal policy as a corrective mechanism for dealing with macroeconomic problems: leftist parties adopt counter–cyclical fiscal policies while rightwing parties adhere to pro–cyclical fiscal stances. The paper also examines two arguments regarding monetary policy and how partisan politics affect this policy area. The first and most conventional argument sees the formal independence of the central bank from government as a means of negating partisan influences on monetary policy; the second advances the proposition that, regardless of central bank independence, monetary authorities are not politically neutral but instead share views similar to those of parties on the right–hand side of the political spectrum. Empirical analysis, using a pooled cross–section time–series design with data from 14 countries between 1961 and 1994, produces evidence in favor of the argument concerning the role of partisanship in fiscal policy; it also shows little support for the view that central bank independence inhibits partisan influences while at the same time provides support for the thesis that central banks are politically non–neutral. Thus, coordination between fiscal and monetary policies is far less likely to occur when left–wing parties are in power.     

A race to liberalization? Diffusion of economic policy reform among OECD-economies

Most OECD economies witnessed a liberalization of economic policies over the past thirty years. The present paper examines to what extent this development is caused by domestic political and economic factors on the one hand, and international policy diffusion via competitive interaction of governments on the other. Employing a comprehensive index of economic reform it can be shown that policy diffusion is a driving factor for economic liberalization. Especially in the fields of regulatory, monetary and trade policies we find significant interdependence of policy choices, as suggested by theories of policy diffusion.     

Politicians,Scandals, and Trust in Government

In this paper we examine the role that political scandals play in eroding regard for government and political institutions in general. We know that scandals can lower regard for individual politicians and government leaders. Yet, less is known about how scandal influences attitudes toward institutions and the political process. It has been widely assumed that such attitudes are influenced by factors that lie largely beyond the control of individual politicians. Using data from the U.S. and the U.K. we show that scandals involving legislators can have a negative influence on their constituent's attitudes toward institutions and the political process. One consequence of this finding is that, instead of looking for scapegoats in Hollywood or among the failings of voters themselves, politicians should first get their own House in order.     

EXPLAINING FEDERAL RESERVE MONETARY POLICY

In an examination of Federal Funds rate monthly from 1954 to 2000, we compare a model using presidential party as a compositional variable with a model using presidential party as an interactive variable. Federal Reserve monetary policy was found responsive to the economy, to business elites, and to political circumstances. However, these influences had different patterns depending upon presidential party. The Federal Reserve appears to act neither randomly nor in isolation. It is responsive to the economy and interest groups but a President's partisan preference is particularly influential in decisions on monetary policy.     

Central Bank Independence and Deflation

Deflation presents special challenges to central banking, as traditional monetary policy tools are highly inefficient in dealing with deflationary pressures. In this case, the Federal Reserve must use alternative monetary policy tools that are specially designed to artificially boost asset prices through “printing press” or currency manipulation. Unfortunately, these alternative monetary policy tools create unintended political, geopolitical, and social consequences that overreach into the direct responsibilities of other branches of government. Thus, the government must be able to influence Federal Open Market Committee decisions that potentially affect (or contradict) U.S. foreign policy, U.S. trade policy, U.S. dollar policy, and deliberate domestic/global wealth distribution policies.     

Electoral politics and monetary policy: does the Bank of Canada contribute to a political business cycle?

In this paper I apply the work of Abrams and Iossifov (Public Choice 129:249–262, 2006) to monetary policy in Canada to see if same political party affiliation is needed to produce evidence of political opportunism. After modifying their analysis to maintain the time-series consistency of their variables for Canada, I find that both an error correction model and a Taylor rule reformulation of their test generate evidence consistent with same party political opportunism, but only weakly so. On the other hand, I also find the presence of more traditional indicators of political influence. In particular, the data suggest that the election of a Liberal party government, a decrease in the degree of political competition, and to a lesser extent, the election of a minority government all positively influence the expansiveness of Canadian monetary policy.     

Barriers to competition and the effect on political shirking: 1953–1992

Economists and political scientists have offered a variety of explanations for why legislators might rationally choose to ignore the preferences of their constituents, political parties, and presidents. The broad conclusion of this literature is that there is an element of “shirking” in congressional voting. The objective of this paper is to suggest that the effects of shirking in congressional voting may have increased over time, largely in response to the raising of barriers to competition in congressional elections, thereby enabling legislators to vote their own preferences without fear of losing reelection. We use a quasi-experimental design that controls for the effects of party, region, electoral safety, presidential control of the White House, and constituency factors, in isolating the causal effects of barriers to entry on a continuous series of roll-calls regarding the raising of the debt limit between 1953 and 1992. We find that “shirking” in legislative voting on debt limit legislation is a post-1970s phenomenon.