Domestic Institutions and Globalization

1. Domestic Institutions and Globalization Layna Mosley University of North Carolina

2. Domestic Institutions and Globalization • How do domestic institutions affect national economic policies? • How do varying institutions, or complexes of institutions, mediate firms’, voters’ and parties’ responses to economic openness? • To what extent and in what ways does economic openness generate pressures for institutional change? • Institutional dynamics in developed vs. developing, or fully democratic vs. democratizing nations.

3. Textile employees in North Carolina (apparel firms)

5. Banking Employees in North Carolina

6. I. Institutions as Independent Variables • How do domestic institutions affect national economic policies? • If globalization is taken as endogenous, we can look to domestic institutions as determinants of economic policy. • Example: Milner and Kubota link trade openness with democratization in the developing world, as Frye and Mansfield (2004) do for post-communist countries. • Example: Quinn and Inclan (1997) link partisanship, in combination with economic structure, with degree of capital account openness in OECD nations. • Implication for surveys? We might expect different dynamics of political activity on policy change in different political systems.

7. II. Institutions as Intervening Variables • How do varying institutions, or complexes of institutions, mediate firms’, voters’ and parties’ responses to economic openness? • One possibility: domestic policies and institutions condition attitudes regarding globalization. • Compensation & embedded liberalism (Ruggie 1982, Rodrik 1997, Adsera and Boix 2002) • If EU trade policy has been delegated to the supranational level, are compensation and protectionism substitutes, in the same way we think they might be elsewhere? • Domestic institutional variation also generates differences in political activities. • How voters and firms react to globalization depends on supply-side institutions (electoral systems, parliamentary vs. presidential systems, degree of democracy), as well as on existing levels of social protection. • Example: Hays (2003) finds that electoral institutions and existing tax structures condition the effects of financial openness on capital taxation. • Implication: this variation might influence our case (country) selection, and how we ask our survey questions.

8. II. Institutions as Intervening Variables • Another possibility: varieties of capitalism (e.g. Gourevitch) • Is “varieties of capitalism” an appropriate framework for this analysis? (Tom, Carles) • Points us to the interactions among varying institutions (“complementarities”) • But tends to be used as a dichotomous variable in analyses. • Why should we assume that countries either have all LME institutions or all CME institutions? • We should see intermediate cases, with some institutions of each type (and VoC would predict low performance for these cases, and perhaps pressures for institutional change). • VoC seems unlikely to provide leverage in the developing country cases. • If we want to use the survey to test out VoC propositions… • survey firms about their support for various institutional arrangements (e.g. training systems, financial systems) and examine cross-national variation. • But is this the best use of our survey resources?

9. III. Institutions as Dependent Variables • To what extent and in what ways does economic openness generate pressures for institutional change? • Changes in economic and social policies? • Example: structural reform motivated by competitiveness concerns. • Pressures could stem from trade openness, short-term financial openness, FDI and outsourcing, or all three. • Rodrik (1997): increased demands for compensation, as volatility grows for unskilled workers…but declining government capacity to provide compensation. • This gets to the question of tradeoffs: • Governments retain the capacity to enact compensatory policies, but the cost of doing so may increase.

10. III. Institutions as Dependent Variables • We could ask respondents about their willingness to pay – in terms of tax rates or risk of unemployment or declining wages – for sustained safety nets. • Expectation? Variation in willingness to pay, depending on skill levels and skill specificity? (e.g. Moene and Wallerstein) • Tradeoffs are likely to be steeper – that is, externally imposed constraints are greater – in the developing world. • Changes in political institutions? • How do electoral institutions fit with economic institutions? • To what extent do actors realize the consequences of institutions when choosing them, especially in developing nations (newer democracies)? • As globalization intensifies, might institutional choices be driven more by economic policy-related effects than by other considerations?

11. III. Institutions as Dependent Variables • Alternatively, if we want to ask firms about domestic institutions, perhaps we could craft these questions to assess pressures for institutional change. • Where does the firm invest and, more importantly, what activities does it undertake in other locations? • Why did the firm choose to undertake these activities elsewhere? • To what extent do firms’ experiences in other locations change managements’ views about domestic business practices and institutions? • More broadly: we know that globalization affects patterns of interests; as interests change, there could be pressure for changes in institutions. • So we might ask firms about the extent to which they attribute their performance to domestic institutional structures (as opposed to global economic pressures, or to technological change, or to whatever else).

12. Concluding ideas • Country case selection • Time series vs. panel design • Which countries are included in the panel? • Ask firms about the opinions of others in their sector, rather than about their own view? • Surveys vs. interviews • Differences in response rates?