Hostname: page-component-745bb68f8f-cphqk Total loading time: 0 Render date: 2025-02-10T06:04:42.867Z Has data issue: false hasContentIssue false
  • English
  • Français

Room to Move: International Financial Markets and National Welfare States

Published online by Cambridge University Press:  09 July 2003

Layna Mosley
Get access

Abstract

A central research question in international political economy concerns the influence of financial markets on government policy outcomes. To what extent does international capital mobility limit government policy choices? I evaluate the relationship between international financial markets and government policy outcomes, with a focus on the government bond market in developed democracies. Evidence includes interviews with financial market participants and a cross-sectional time-series analysis of the determinants of interest rates. This evaluation suggests that governments of developed democracies face strong but narrowly defined financial market pressures. Financial market participants are concerned with a few macroeconomic policy indicators, including inflation rates and government deficit/GDP ratios, but not with micropolicy indicators, such as the distribution of government spending across functional categories. In these areas, governments retain policymaking autonomy. I conclude by exploring the role of financial market influences within domestic politics and offering suggestions for further research.

Type
Articles
Information
International Organization , Volume 54 , Issue 4 , Autumn 2000 , pp. 737 - 773
Copyright
Copyright © The IO Foundation 2000

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alesina, Alberto, and Perotti, Roberto. 1995. The Political Economy of Budget Deficits. IMF Staff Papers 42 (1):1–31.CrossRefGoogle Scholar
Alesina, Alberto, Roubini, Nouriel, and Cohen, Gerald. 1997. Political Cycles and the Macroeconomy. Cambridge, Mass.: MIT Press.Google Scholar
Anderson, Nicola, Breedon, Francis, Deacon, Mark, Derry, Andrew, and Murphy, Gareth. 1996. Estimating and Interpreting the Yield Curve. New York: John Wiley and Sons.Google Scholar
Andrews, David M. 1994. Capital Mobility and State Autonomy: Toward a Structural Theory of International Monetary Relations. International Studies Quarterly 38 (2):193–218.Google Scholar
Barro, Robert J. 1997. Determinants of Economic Growth: A Cross-Country Empirical Study. Cambridge, Mass.: MIT Press.Google Scholar
Bates, Robert J., and Lien, Da-Hsiang D.. 1985. A Note on Taxation, Development, and Representative Government. Politics and Society 14 (1):53–70.Google Scholar
Beck, Nathaniel, and Katz, Jonathan N.. 1995. What to Do (and Not to Do) with Time-Series Cross-Section Data. American Political Science Review 89 (3):634–47.Google Scholar
Berger, Suzanne. 1996. Introduction. In National Diversity and Global Capitalism, edited by Berger, Suzanne and Dore, Ronald, 1–25. Ithaca, N.Y.: Cornell University Press.CrossRefGoogle Scholar
Bisignano, Joseph. 1994. The Internationalisation of Financial Markets: Measurement, Benefits, and Unexpected Interdependence. Banque de France Cahiers Economiques et Monetaires 43:9–71.Google Scholar
Block, Fred. 1977. The Ruling Class Does Not Rule: Notes on the Marxist Theory of the State. Socialist Revolution 7 (3):6–28.Google Scholar
Boix, Carles. 1997a. Political Parties and the Supply Side of the Economy: The Provision of Physical and Human Capital in Advanced Economies, 1960–1990. American Journal of Political Science 41 (3): 814–45.Google Scholar
Boix, Carles. 1997b. Privatizing the Public Business Sector in the Eighties: Economic Performance, Partisan Responses, and Divided Governments. British Journal of Political Science 27 (4):473–96.Google Scholar
Boix, Carles 1998. Political Parties, Growth, and Equality: Conservative and Social Democratic Economic Strategies in the World Economy. Cambridge: Cambridge University Press.Google Scholar
Borio, Claudio E. V., and McCauley, Robert N.. 1996. The Economics of Recent Bond Yield Volatility. BIS Economic Papers No. 45. Basel: Bank for International Settlements.Google Scholar
Calvo, Guillermo A., and Mendoza, Enrique G.. 2000. Rational Contagion and the Globalization of Securities Markets. Journal of International Economics 51 (1):79–113.Google Scholar
Cameron, David R. 1978. The Expansion of the Public Economy: A Comparative Analysis. American Political Science Review 72 (4):1243–61.Google Scholar
Cerny, Philip G. 1994. The Dynamics of Financial Globalization: Technology, Market Structure, and Policy Response. Policy Sciences 27 (4):319–42.Google Scholar
Cerny, Philip G. 1995. Globalization and the Changing Logic of Collective Action. International Organization 49 (4):595–625.CrossRefGoogle Scholar
Clark, William Roberts, and Hallerberg, Mark. 1997. Strategic Interaction Between Monetary and Fiscal Actors Under Full Capital Mobility. Paper presented at the 93rd Annual Meeting of the American Political Science Association, Washington, D.C.Google Scholar
Coase, Ronald H. 1937. The Nature of the Firm. Economica 4 (16):386–405.Google Scholar
Cohen, Benjamin J. 1996. Phoenix Risen: The Resurrection of Global Finance. World Politics 48 (2):268–96.Google Scholar
Cook, Karen Schweers, and Levi, Margaret, eds. 1990. The Limits of Rationality. Chicago: University of Chicago Press.Google Scholar
Cooper, Richard N. 1968. The Economics of Interdependence: Economic Policy in the Atlantic Community. New York: McGraw-Hill.Google Scholar
Cooper, Richard N. 1972. Economic Interdependence and Foreign Policy in the Seventies. World Politics 24 (2):159–81.Google Scholar
Cosh, Andrew D., Hughes, Alan, and Singh, Ajit. 1992. Openness, Financial Innovation, Changing Patterns of Ownership, and the Structure of Financial Markets. In Financial Openness and National Autonomy: Opportunities and Constraints, edited by Banuri, Tariq and Schor, Juliet B., 19–42. New York: Oxford University Press.Google Scholar
Davis, E. P. 1988. Financial Market Activity of Life Insurance Companies and Pension Funds. BIS Economic Papers No. 21. Basel: Bank for International Settlements.Google Scholar
Dell, Edmund. 1987. The Politics of Economic Interdependence. New York: St. Martin's Press.CrossRefGoogle Scholar
Downs, Anthony. 1957. An Economic Theory of Democracy. New York: Harper.Google Scholar
Edwards, Sebastian. 1994. The Latin American Debt Crisis. Washington, D.C.: World Bank.Google Scholar
Epstein, Gerald A., and Gintis, Herbert. 1992. International Capital Markets and the Limits of National Economic Policy. In Financial Openness and National Autonomy: Opportunities and Constraints, edited by Banuri, Tariq and Schor, Juliet B., 167–97. New York: Oxford University Press.Google Scholar
Erb, Claude B., Harvey, Campbell R., and Viskanta, Tadas E.. 1996. Political Risk, Economic Risk, and Financial Risk. Working Paper 96–005. Durham, N.C.: Center for International Business Research, Duke University.Google Scholar
European Commission. 1995. Green Paper on the Practical Arrangements for the Introduction of the Single Currency (Brussels, May), COM(95) 333 final.Google Scholar
Evans, Peter. 1997. The Eclipse of the State? Reflections on Stateness in an Era of Globalization. World Politics 50 (1):62–87.Google Scholar
Fama, Eugene F. 1970. Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance 25 (2):383–417.Google Scholar
Feldstein, Martin, and Horioka, Charles. 1980. Domestic Savings and International Capital Flows. Economic Journal 90 (358):314–29.CrossRefGoogle Scholar
Ferejohn, John. 1991. Rationality and Interpretation: Parliamentary Elections in Early Stuart England. In The Economic Approach to Politics, edited by Monroe, Kristen R., 279–305. New York: Harper Collins.Google Scholar
Franzese, Robert J. 1996. The Political Economy of Overcommitment: A Comparative Study of the Democratic Management of the Keynesian Welfare State. Ph.D. diss., Harvard University.Google Scholar
Frieden, Jeffry A. 1991. Invested Interests: The Politics of National Economic Policies in an Age of Global Markets. International Organization 45 (4):425–51.Google Scholar
Friedman, Benjamin M. 1984. Comment on Robert J. Shiller, Stock Prices and Social Dynamics. Brookings Papers on Economic Activity 2:504–508.Google Scholar
Garrett, Geoffrey. 1996. Capital Mobility, Trade, and the Domestic Politics of Economic Policy. In Internationalization and Domestic Politics, edited by Milner, Helen V. and Keohane, Robert O., 79–107. Cambridge: Cambridge University Press.Google Scholar
Garrett, Geoffrey. 1998a. Partisan Politics in the Global Economy. New York: Cambridge University.CrossRefGoogle Scholar
Garrett, Geoffrey. 1998b. Governing in the Global Economy: Economic Policy and Market Integration Around the World. Paper presented at the 94th Annual Meeting of the American Political Science Association, Boston, 3–6 September.Google Scholar
Garrett, Geoffrey. 1998c. Global Markets and National Politics: Collision Course or Virtuous Circle? International Organization 52 (4):787–824.Google Scholar
Garrett, Geoffrey, and Lange, Peter. 1991. Political Responses to Interdependence: What's “Left” for the Left? International Organization 45 (4):539–64.Google Scholar
Garrett, Geoffrey, and Mitchell, Deborah. Forthcoming. Globalization and the Welfare State. European Journal of Political Research.Google Scholar
Goodman, John B., and Pauly, Louis W.. 1993. The Obsolescence of Capital Controls? Economic Management in an Age of Global Markets. World Politics 46 (1):50–82.Google Scholar
Gordon, Roger H., and Bovenberg, A. Lans. 1996. Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation. American Economic Review 86 (5): 1057–75.Google Scholar
Helleiner, Eric. 1994. The World of Money: The Political Economy of International Capital Mobility. Policy Sciences 27 (4):295–98.Google Scholar
Hirschman, Albert O. 1970. Exit, Voice, and Loyalty. Cambridge, Mass.: Harvard University Press.Google Scholar
Huber, Evelyn, Ragin, Charles, and Stephens, John D.. 1997. Comparative Welfare States Data Set, North-western University and University of North Carolina. Available at <lissy.ceps.lu/compwsp.htm>..>Google Scholar
Kennedy, Charles R. 1987. Political Risk Management: International Lending and Investing Under Environmental Uncertainty. New York: Quorum Books.Google Scholar
Keohane, Robert O., and Nye, Joseph Jr, 1977. Power and Interdependence: World Politics in Transition. Boston: Little, Brown.Google Scholar
Keynes, John Maynard. 1936. The General Theory of Employment, Interest, and Money. London: Mc-Millan.Google Scholar
Kopits, George, ed. 1992. Tax Harmonization in the European Community: Policy Issues and Analysis. Washington, D.C.: International Monetary Fund.Google Scholar
Kurzer, Paulette. 1993. Business and Banking: Political Change and Economic Integration in Western Europe. Ithaca, N.Y.: Cornell University Press.Google Scholar
Lange, Peter, and Scruggs, Lyle. 1998. Where Have All the Members Gone? Union Density in the Era of Globalization. Center for German and European Studies Working Paper 1.63. Berkeley, Calif.: Center for German and European Studies, University of California.Google Scholar
Lewis-Beck, Michael S. 1988. Economics and Elections: The Major Western Democracies. Ann Arbor: University of Michigan Press.Google Scholar
Lindblom, Charles E. 1977. Politics and Markets: The World's Political-Economic Systems. New York: Basic Books.Google Scholar
Mayhew, David R. 1974. Congress: The Electoral Connection. New Haven, Conn.: Yale University Press.Google Scholar
McKenzie, Richard B., and Lee, Dwight R.. 1991. Quicksilver Capital. New York: Free Press.Google Scholar
Milner, Helen V., and Keohane, Robert O., eds. 1996. Internationalization and Domestic Politics. Cambridge: Cambridge University Press.Google Scholar
Mishkin, Frederic S. 1992. The Economics of Money, Banking, and Financial Markets. 3d ed. New York: Harper Collins.Google Scholar
Missale, Alessandro. 1999. Public Debt Management. Oxford: Oxford University Press.Google Scholar
Missale, Alessandro, and Blanchard, Oliver Jean. 1994. The Debt Burden and Debt Maturity. American Economic Review 84 (1):309–19.Google Scholar
Morse, Edward L. 1969. The Politics of Interdependence. International Organization 23 (2):311–26.Google Scholar
Mosley, Layna. 1998. Focal Points and International Financial Markets: The Maastricht Convergence Criteria. Paper presented at the 39th Annual Meeting of the International Studies Association, Minneapolis.Google Scholar
Mosley, Layna. 1999. Room to Move: International Finance and National Government Policies. Ph.D. diss., Duke University.Google Scholar
Notermans, Tom. 1993. The Abdication of National Policy Autonomy: Why the Macroeconomic Policy Regime Has Become So Unfavorable to Labor. Politics and Society 21 (2): 133–67.Google Scholar
Obstfeld, Maurice. 1993. International Capital Mobility in the 1990s. NBER Working Paper 4534. Cambridge, Mass: National Bureau for Economic Research.Google Scholar
Obstfeld, Maurice. 1998. The Global Capital Market: Benefactor or Menace? The Journal of Economic Perspectives 12 (4):9–30.Google Scholar
Ohmae, Kenichi. 1995. The End of the Nation State: The Rise of Regional Economies. New York: Free Press.Google Scholar
Orr, Adrian, Edey, Malcolm, and Kennedy, Michael. 1995. The Determinants of Real Long-Term Interest Rates: 17 Countries Pooled-Time-Series Evidence. Working Paper No. 155. Paris: OECD Economics Department.Google Scholar
Quinn, Dennis. 1997. The Correlates of Change in International Financial Regulation. American Political Science Review 91 (3):531–51.Google Scholar
Pacek, Alexander C., and Radcliff, Benjamin. 1995. Economic Voting and the Welfare State: A Cross-National Analysis. Journal of Politics 57 (1):44–61.Google Scholar
Perry, Robert L., and Robertson, John D.. 1998. Political Markets, Bond Markets, and the Effect of Uncertainty: A Cross-National Analysis. International Studies Quarterly 42 (1): 131–60.Google Scholar
Powell, G. Bingham, Jr and Whitten, Guy D.. 1993. A Cross-National Analysis of Economic Voting: Taking Account of the Political Context. American Journal of Political Science 37 (2):391–414.Google Scholar
Pringle, Robert. 1992. Financial Markets Versus Governments. In Financial Openness and National Autonomy: Opportunities and Constraints, edited by Banuri, Tariq and Schor, Juliet B., 89–109. New York: Oxford University Press.Google Scholar
Przeworski, Adam, and Wallerstein, Michael. 1988. Structural Dependence of the State on Capital. American Political Science Review 82 (1):11–29.Google Scholar
Reich, Robert B. 1997. Locked in the Cabinet. New York: Knopf.Google Scholar
Rodrik, Dani. 1997. Has Globalization Gone Too Far? Washington, D.C.: Institute for International Economics.Google Scholar
Rogowski, Ronald. 1998. Globalization and Convergence: Getting the Theory and the Evidence Right. Paper presented at the Duke University Workshop on Globalization, Durham, N.C., 18–20 September.Google Scholar
Scharfstein, David S., and Stein, Jeremy C.. 1990. Herd Behavior and Investment. American Economic Review 80 (3):465–79.Google Scholar
Sherman, Steven J., and Corty, Eric. 1984. Cognitive Heuristics. In Handbook of Social Cognition, Vol. 1, edited by Wyer, Robert S. Jr, , and Srull, Thomas K., 189–286. Hillsdale, N.J.: Lawrence Erlbaum Associates.Google Scholar
Shiller, Robert J. 1989. Market Volatility. Cambridge, Mass.: MIT Press.Google Scholar
Shiller, Robert J., and Pound, John. 1989. Survey Evidence on Diffusion of Interest and Information Among Investors. Journal of Economic Behavior and Organization 12 (1):47–66.Google Scholar
Simon, Herbert A. 1982. Models of Bounded Rationality. Cambridge, Mass.: MIT Press.Google Scholar
Simmons, Beth A. 1994. Who Adjusts? Domestic Sources of Foreign Economic Policy During the Interwar Years. Princeton, N.J.: Princeton University Press.Google Scholar
Simmons, Beth A. 1999. The Internationalization of Capital. In Continuity and Change in Contemporary Capitalism, edited by Kitschelt, Herbert, Lange, Peter, Marks, Gary, and Stephens, John, 36–69. Cambridge: Cambridge University Press.Google Scholar
Sinclair, Timothy J. 1998. Budget Deficits and Policy Change: The International Dimension. Paper presented at the 94th Annual Meeting of the American Political Science Association, Boston, 3–6 September.Google Scholar
Sinclair, Timothy J. 1994. Between State and Market: Hegemony and Institutions of Collective Action Under Conditions of International Capital Mobility. Policy Sciences 27 (4):447–66.Google Scholar
Sobel, Andrew C. 1999. State Institutions, Private Incentives, Global Capital. Ann Arbor: University of Michigan Press.Google Scholar
Strange, Susan. 1996. The Retreat of the State: The Diffusion of Power in the World Economy. New York: Cambridge University Press.Google Scholar
Swank, Duane. 1998a. Funding the Welfare State: Global Taxation of Business in Advanced Market Economies. Political Studies 46 (4):671–92.Google Scholar
Swank, Duane. 1998b. The Political Economy of Advanced Capitalist Democracies: Pooled Time-Series Data Base. Unpublished manuscript, Department of Political Science, Marquette University.Google Scholar
Thorbecke, Willem. 1993. Why Deficit News Affects Interest Rates. Journal of Policy Modeling 15 (1):1–11.Google Scholar
Tiebout, Charles M. 1956. A Pure Theory of Local Expenditures. Journal of Political Economy 64 (5): 416–24.Google Scholar
Zeckhauser, Richard, Patel, Jayendu, and Hendricks, Darryll. 1991. Nonrational Actors and Financial Market Behavior. Theory and Decision 31 (1):257–87.Google Scholar