Comparative institutional analysis the politics of international finance
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COMPARATIVE INSTITUTIONAL ANALYSIS: The Politics of International Finance. James Raymond Vreeland School of Foreign Service Georgetown University. What did we learn so far?. Trilemma Bretton Woods: its causes & its collapse Politicians care about survival Economic growth important

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COMPARATIVE INSTITUTIONAL ANALYSIS: The Politics of International Finance

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Comparative institutional analysis the politics of international finance

COMPARATIVE INSTITUTIONAL ANALYSIS:The Politics of International Finance

James Raymond Vreeland

School of Foreign Service

Georgetown University


What did we learn so far

What did we learn so far?

  • Trilemma

  • Bretton Woods: its causes & its collapse

  • Politicians care about survival

    • Economic growth important

  • What is the IMF?

    • Like an inter-governmental credit union

    • Members deposit

    • IMF lends to countries in trouble

    •  moral hazard

    • Solution?

      • Conditionality

        • Let’s you lose

        • Governments may not want to sacrifice sovereignty


This session

This session:

  • Domestic politics and IMF conditionality


So you ve learned which democracies will survive developed

So you’ve learned which democracies will survive (developed)

Which will have the most stable policies?


Unpacking democracy

Unpacking democracy


Pick out the pair

Pick out the pair:

  • Italy

  • United Kingdom

  • United States

  • Suggestions??


What is a veto player

What is a “veto player”?

  • Individual or collective actors whose agreement (by majority rule for collective actors) is required for a change of the status quo.


Comparative institutional analysis the politics of international finance

  • It may be misleading to examine institutional features in isolation.

  • “VETO PLAYER” approach offers a consistent framework for comparing across regimes, legislature types, and party systems.


Consider us uk italy

Consider US, UK, & Italy.

  • Culturalists group US & UK together as different from Italy (Anglo Saxon v. Latin).

  • Party theorists also group US & UK together (2 party v. multiparty).

  • But parliamentary theorists group UK & Italy as different from the US.

  • Who would group US and Italy together?


On the veto player dimension

On the veto player dimension:

  • UK: Almost always 1.

  • US: Up to 3.

  • Italy: Usually about 4.

  • US and Italy are predicted to be more similar with respect to policy stability than UK.


How does the of veto players affect policy stability

How does the # of veto players affect policy stability?

By definition of “veto player,” unanimity between such players is required for policy change.


Straightforward prediction

Straightforward prediction:

  • Increasing # of veto players 

  • Increases policy stability.


Comparative institutional analysis the politics of international finance

Enter the IMFhttp://www.youtube.com/watch?v=GVytOtfPZe8&feature=relatedhttp://www.youtube.com/watch?v=iHufrsP9XMA&feature=related


Domestic politics of imf programs

Domestic politics of IMF programs

  • IMF programs do not just consist of loans. There are policy conditions attached.

  • We often hear that governments want to avoid “conditionality.”

  • But sometimes governments actually want conditions to be imposed.


Comparative institutional analysis the politics of international finance

How does bringing in the IMF help push through economic reform?

Figure 1: The logic of bringing in the IMF

Payoff to veto player

-1 (change policy)

Accept

Veto player

Without the IMF

Reject

0 (maintain the status quo)

Executive

With the IMF

-1 (change policy) + loan

Accept

Veto player

Reject

-r (reject the IMF)


Comparative institutional analysis the politics of international finance

  • The argument requires there to be at least one veto player who prefers less “reform” than the executive.

  • In the aggregate, the probability that at least one veto player prefers less reform than the executive increases with the # of veto players.

  • As the number of veto players increases,

    • the probability that the agreement is helpful to the executive also increases

    • (probably at a diminishing rate).

  • Hypothesis: # veto players has a positive effect on entering into IMF programs.

  • But what about the International Politics?


The international relations problem

The International Relations Problem:

  • Veto players story requires a credible commitment

  • The IMF must punish noncompliance.

  • We have seen from the IR literature that this commitment is not always credible.

  • So the effect of veto players should depend on country-US relations.


Comparative institutional analysis the politics of international finance

Thank youWE ARE GLOBAL GEORGETOWN!


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