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

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

  • 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:

  • Domestic politics and IMF conditionality


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

Which will have the most stable policies?


Unpacking democracy


Pick out the pair:

  • Italy

  • United Kingdom

  • United States

  • Suggestions??


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.


  • 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.

  • 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:

  • 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?

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


Straightforward prediction:

  • Increasing # of veto players 

  • Increases policy stability.


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


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.


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)


  • 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:

  • 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.


Thank youWE ARE GLOBAL GEORGETOWN!


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