Comments on International Coercion, Emulation and Policy Diffusion: Market-Oriented Infrastructure Reforms, 1977-1999

1. Comments onInternational Coercion, Emulation and Policy Diffusion:Market-Oriented Infrastructure Reforms, 1977-1999 Alexander Dyck Harvard Business School

2. A fact: Market oriented reforms increase significantly in recent years

3. What drives this adoption of market oriented reforms? • A conventional (Coasian) approach - Privatization and deregulation driven by a comparative institutional analysis • Change approach when net benefits of state ownership and regulation less than net expected benefits of private ownership and deregulation • Suggests focus on factors affecting government failure (e.g. budget, political constraints) and market failure (tech change, economies of scale, etc.) • N.B. - largely focus on efficiency, and domestic factors

4. What is approach taken here? • Choices driven in addition by political and sociological factors in the international arena. • Politically, multilateral lenders are a distinct interest group that can influence power balance and choice (‘coercion’) • ~H1 – Rate of adoption of market-oriented reforms increases with international coercion • Sociologically, willing to do something not because efficiency suggests better, but because others with ‘legitimacy’ are doing this. (‘emulation’) • ~H3 – Rate of adoption of market-oriented reforms increases with emulative pressures

5. Worthy question – both conceptually and from policy perspective. Fascinating questions: How much do lenders matter?(which they address here) Do these pressures help or hurt? (which they leave to later work) • Think you are right on lenders • Lots of rich case studies showing effect of lending • Crude time series variation suggests scope for additional explanatory power from international factors • Domestic institutions have limited time series variation and/or cyclicality rather than one direction variability • International factors - lending, trade, etc, have similar time series variation as reforms.

6. Summary of my comments • While sympathetic with overall thrust – don’t think you’ve done enough to convince sceptics …yet • Framing and empirics not set up as test of conventional and alternative view • Are independent and dependent variables what we want? • Some data questions • Remaining opportunities

7. 1. Framing concerns Approach taken in paper • Go to great length to define your alternative • Not clear that 19 pages to get to data description and references to other papers does justice to your contribution • There is a considerable body of research on the cross-national diffusion of ideas, practices and policies, including social security systems (Collier and Messick 1975), oil nationalizations (Kobrin 1985), decolonization (Strang 1990), growth in the welfare state (Strang and Chang 1993), bureaucratization of national science policy (Finnemore 1993), currency crises (Glick and Rose 1998), policies to protect the environment (Frank, Hironaka, and Schofer 2000a; Frank, Hironaka, and Schofer 2000b), quality certification by firms (Guler, Guillén, and Macpherson 2002), deregulation (Eising 2002; Gilardi 2003), neoliberal macroeconomic policies (Yebra 2002a; Yebra 2002b; Yebra 2003), pension privatization (Weyland 2003), current account liberalization (Biglaiser and Brown 2003), capital account liberalization (Brune and Guisinger 2003), Central Bank Independence (McNamara and Castro 2003), right to transparency laws (Roberts 2003) and privatization (Brune, Garrett, and Kogut 2004; Kogut and Macpherson 2003). While several of these studies emphasize the coercive role of multilateral organizations or strong states (Strang 1990; Strang and Chang 1993; Finnemore 1993; Glick and Rose 1999; Frank, Hironaka, and Schofer, 2000a, 2000b; Eising 2002; Biglaiser and Brown 2003; McNamara and Castro 2003; Roberts 2003; Brune, Garrett and Kogut, 2003; Kogut and Macpherson, 2003) and others highlight the role of emulation among peer countries (Collier and Messick 1975; Kobrin 1985; Weyland 2003; Guler et. al. 2002; Yerba 2002a, 2002b, 2003; Gilardi 2003), only one considers both mechanisms simultaneously Brune and Guisinger 2003). • Specify a variety of ‘other factors’

8. 1. Framing concerns My preferred approach • My null – non-international factors (such as identified by Coase) explain adoption. • Your alternative – coercive and emulative factors explain adoption. • Contribution of paper – provide empirical test to see if conventional wisdom wrong to ignore these international factors

9. Such an approach would reduce and clarify concerns about omitted variable bias • Surely a measure of government failure is the ability of government to fund new investment in sector? (e.g. fiscal imbalance (debt burden, budget imbalance), interest rate on government debt). • Time series as well as cross sectional variability, so looks promising. • Table 7 and 8 attempt to address as robustness check –– now negative effect of coercion on reform (sign changes, column 7), coefficient declines by 1/3 for telecom and sizable drop in significance • Likely that covaries with multilateral lending, so probably not right test - Two stage procedure (Table 4) helps, but direct measure of debt burden should be included in second stage. • Bottom line: Need to control for more ‘other variables’ in core tests to convince skeptics

10. Is foreign investment/GDP a part of alternative that emphasizes coercion/emulation? • Test of coercion and emulation also includes foreign investment as measure Why? • Not in theory section up front • Not sure how to interpret results • Might be easier if disentangled fdi in sector, other fdi • Do we expect fdi interested in competition? • concerned that other results may not be there if don’t include.

11. 2. Are independent and dependent variables what we want? • Key independent variables are emulation and coercion • Don’t have measures of emulation and coercion so use proxies • OK with emulation measure from trade-weighted measure of reforms. • Not very comfortable with multilateral lending/GDP as measure of conditionality.

12. 2. • Could very well be true that increases in multilateral lending/GDP bring more coercive pressures and conditionality.But, no validation of this assumption, either cross-sectionally or over time. • Measure closer to theory would be much more convincing. • Likely to have a lot of cross-sectional variation – for a given level of lending/gdp, quite different level of conditionality, • don’t know what time series variation looks like– increases all at once (step function) or gradually? • Can exploit this variation to identify effect. • Don’t know if this is feasible. Weaknesses should at least be recognized, hypotheses stated in terms of variables of interest rather than imperfect proxies

13. 2. Independent variable • Do you really have 180 observations from each country? • 9 different measures, seem very related, clearly within categories (regulation, privatization) and also across categories. • Visual glance of data suggests many of these happen at same time • Does clustering s.e. by country really correct s.e. correctly?

14. 3. Data questions • How can you have negative FDI/GDP, Multilateral lending/GDP? (Table 2) • Ratio of multilateral lending/GDP is 12 percent. One standard deviation is 15 percent. • Results relevant to what income ranges? (e.g. for middle income aid%of gnp just 2.1%) What happens if exclude low-income? • 205 (196) countries (American samoa? – WB only 133), pre and post communist, etc. • Are results true for subsamples that understand better (e.g. excluding tiny places, those affected by socialism)? • What actually is subsample for key regressions? • thought would have ~37000 obs =205*20*9, which do have. Sample drops to 8217 observations when run tests – who drops out? Unbalanced sample? Since this relevant sample, why not just include this.

15. 4. Additional opportunities • Could do more than refute conventional wisdom. Have collected data (type of lending, type of reforms) that allow for more subtle tests. • What are treated as robustness checks could be emphasized more • Right to conclude that multilateral lending a disaster for competition? (Table 5) • Regional development bank lending is disruptive of market-oriented reforms? (Table 6) • Performance shortfalls don’t affect privatization • Multilateral pressures for priv in telecoms and for regulatory reforms in electricity, etc.

16. Summary of my comments • While sympathetic with overall thrust – don’t think you’ve done enough to convince sceptics …yet • Framing and empirics not set up as test of conventional and alternative view • Are independent and dependent variables what we want? • Some data questions • Remaining opportunities