2013 IPEC Conference Papers

January 5, 2013

"India and Recent Wave of Regionalism in Asia Pacific"

Author: Parthapratim Pal

Abstract: Paper forthcoming

Discussants: Arpita Mukherjee and Lisa Martin

"Rent-Seeking and Reform – Relationship Revisited"

Author: Sugata Marjit

Abstract: Domestic and foreign firms engaged in Cournot competition bribe the local authorities. The local firm pays for imposing a cost to the foreigners, the foreign pays so that the local competitor does not get overwhelming advantage. Local authorities, political or otherwise, decide an optimal level of ‘cost’ to be inflicted on the foreign firms which maximize their pay-offs from both. We argue why drastic trade reform increases the pay-off to the authorities whereas relatively less drastic reforms do the opposite. Thus extreme liberal stance is consistent with greater rent seeking.

Discussants: James Vreeland and Sudip Chaudhuri

"State Control and the Effects of Foreign Relations on Bilateral Trade"

Authors: Christina Davis, Andreas Fuchs, and Kris Johnson

Abstract: A growing literature addresses the question of whether powerful states use trade to reward and punish partners. WTO rules and pressures of globalization restrict states’ capacity to manipulate trade policies, but we argue that governments can link political goals with economic outcomes using less direct avenues of influence. More specifically, where governments control the operations of firms through state ownership, they can manipulate bilateral trade at the firm level. Taking China and India as examples, we collect sector-level data on firm ownership and bilateral trade, as well as measures of bilateral political relations based on UN voting and political events to estimate the effect of political relations on import and export flows. Our results support the hypothesis that trade controlled by state-owned enterprises (SOEs) exhibits stronger responsiveness to political relations than trade controlled by non-SOEs. This research holds broader implications for how we should think about the relationship between political and economic relations going forward, especially as a number of countries with partially state-controlled economies gain strength in the global economy.

Discussants: Partha Ray and Lisa Martin

"Capital Goods Imports and Economic Growth: Does the Composition Matter?"

Author: C. Veeramani

Abstract: Capital goods are very heterogeneous in terms of their vintages and level of embodied knowledge. Countries can potentially choose to import from wide varieties that are available in different sources and this choice has a bearing on their growth rates. Using a quantitative index, denoted as KNOWjk, we measure the level of knowledge embodied in each variety, the country of origin being taken as the demarcation of a variety. The central idea intrinsic to the construction of this index is that richer countries hold a comparative advantage in producing the most knowledge-intensive varieties. Using the KNOWjk values, we construct another index, denoted as IMKNOW (import-weighted average of KNOWjk), which measures the extent of knowledge embodied in a country’s imports of capital goods. Using instrumental variable method, we find that a higher initial value of the IMKNOW index (for the year 1995) leads to a faster growth rate of income per capita in the subsequent years (during 1995–2005). The results imply that a 10 per cent increase in IMKNOW increases growth by about 2 to 3 percentage points.

Discussants: Indira Rajaraman and Gene Grossman

"Globalization and Perceptions of Upward Mobility in Developing Countries: An Experimental Study"

Authors: Nita Rudra and Sera Linardi

Abstract: Do citizens demand more redistribution as their economies become increasingly exposed to international market competition? The link between globalization and the demand for redistribution has never been established in an empirical test. A central contention in the international and comparative political economy literatures is that governments facilitate redistribution policies alongside international market expansion in order to reduce worker insecurities, and “buy” support for openness policies. However, the causal mechanisms linking globalization and why citizens might, or might not, demand redistribution have not been fully explored.  This paper uses survey and experimental evidence to  assess whether globalization –operationalized as foreign direct investment--actually generates greater public support for redistribution.   In the effort to confirm that such a link exists, we connect with a wealth of literature in economics which explores micro-level factors affecting demand for redistribution, heretofore neglected in the globalization-redistribution debate.

Discussants: Kenneth Scheve and Parthapratim Pal

"US vs. Them: Mass Attitudes toward Offshore Outsourcing"

Authors: Edward Mansfield and Diana Mutz

Abstract: Economists have argued that outsourcing is another form of international trade. However, based on a representative national survey of Americans, we find that the distribution of preferences on these two issues is quite different. We examine the origins of attitudes toward outsourcing, focusing on the extent to which it reflects (1) the economic vulnerabilities of individuals, (2) the information they receive about outsourcing, including their subjective understanding of what constitutes outsourcing, and (3) non-economic attitudes toward foreign people and foreign countries. Our findings emphasize the importance of variations in understandings of the term, as well as the highly symbolic nature of attitudes toward this issue.

To the extent that self-interest guides mass preferences, opinions toward outsourcing should reflect the same sort of distributional consequences as foreign commerce. However, we find little evidence to support this assumption. Instead, individuals who believe the US should distance itself from international affairs more generally, who are nationalistic, or who feel that members of other ethnic and racial groups within the US are less praiseworthy than their own group tend to have a particularly hostile reaction to outsourcing. The informational cues people receive are also important influences on their understanding of and attitudes toward outsourcing.

Experimental results further emphasize the symbolic nature of attitudes toward outsourcing; people react differently to the same policy when the label “outsourcing” is not used. Taken together, our results strongly suggest that attitudes are shaped less by the economic consequences of outsourcing, than by a sense of “us” versus “them.” In particular, the term “outsourcing” triggers a sensitivity to nationalistic sentiments that encourages extremely negative views of this phenomenon.

Discussants: Pulapre Balakrishnan and Layna Mosley

"Banks, Policy, and Risks"

Author: Ashima Goyal

Abstract: Emerging market (EM) banks differ from advanced county banks. They may be weaker in some respects but are stronger in others. Neither of these is well understood leading to inappropriate policy. Scale and cross-border exposures for banks in emerging economies are lower compared to advanced economies. The path of market development and regulatory evolution has helped reduce structural risks but some of the distinctive broad-pattern regulation used, creates good incentives that could fill gaps in global regulatory reforms if more widely applied. Since markets remain thin, and interest rate spreads are high, EM banks are vulnerable to large fluctuations in asset prices. Cyclical risks can be contained as long as policy makers moderate these. Global regulatory reform can also reduce risks. The argument is illustrated with the Indian case.

Discussants: Layna Mosley and Partha Sen

January 6, 2013


"Which Devil in Development? A Large-N Survey and Randomized Field Experiment Comparing Bilateral Aid, Multilateral Assistance, and Government Action in Uganda"

Authors: Helen Milner, Daniel L. Nielson and Michael G. Findley

Abstract: Debate over the effectiveness of foreign aid has raged on despite a paucity of information about recipients’ actual views of development assistance, especially as citizens compare aid to relevant alternatives such as domestic government programs. We argue that citizens may see foreign aid as an escape from clientelism because aid is relatively less politicized than government programs. They may also favor multilateral donors over bilateral donors for the same reason. We test the argument with a randomized experiment on a subject pool of roughly 3,600 Ugandan citizens. We randomly assigned the project funders– multilateral banks, bilateral donors, and a control implying the domestic government – for co-financed “pipeline” projects and invited citizens to sign a petition and send a text message in support. Citizens are significantly more willing to sign a petition or send a text message in support of foreign aid projects compared to government programs. Likewise, subjects familiar with multilateral donors were significantly more likely to sign a petition for multilateral assistance compared to bilateral aid and government programs. A companion survey to the experiment reveals evidence that citizens perceive aid, and multilateral aid in particular, as less prone to politicization. The findings suggest that recipients view foreign aid – particularly from multilateral donors – as relatively effective, especially compared to the most likely alternative of government programs.

Discussants: Mike Tomz and Pulapre Balakrishnan

"Industry, Self-Interest, and Individual Preferences"

Author: Mike Tomz

Abstract: Do voters have economically self-interested preferences about trade policy? Despite a proliferation of research on this question, no consensus has emerged. We argue that scholars can gain new insight by analyzing public attitudes toward protectionism for specific industries, instead of looking at sentiment toward free trade in general. Accordingly, we develop industry-specific measures of protectionism, incorporate them into original public opinion polls, and use the data to test several economic theories. We find surprisingly little evidence that the preferences of citizens fit the predictions of standard models, including Stolper-Samuelson, Ricardo-Viner, and “new new” models of trade with heterogeneous firms. These findings compel us to rethink the sources of public opinion about trade policy.

Discussants: Gene Grossman and Indira Rajaraman

"The Federal Reserve as Global Lender of Last Resort"

 Lawrence Broz

Abstract: Passage of the Dodd-Frank financial reform bill, in conjunction with a Supreme Court ruling supporting a Freedom of Information Act request, required the Federal Reserve (Fed) to disclose bank-specific information about its emergency lending during the financial crisis. The disclosures revealed the extent to which the Fed served as a global lender of last resort, providing dollar liquidity to foreign banks that were having difficulty funding their dollar-denominated liabilities. I exploit these unanticipated disclosures on two levels. First, I use the disclosed information to evaluate the Fed's global lending during the crisis. My findings indicate that the Fed supported foreign banks in countries in which U.S. money-center banks had high loan exposures, which suggests that the Fed served the interests of major U.S. banks. Second, I explore the congressional response to the revelation of the Fed's massive global lending. I analyze an "Audit the Fed" vote in the House of Representatives that would end the Fed's confidentiality about the banks and countries it supports and potentially reduce its monetary policy independence. I find the influence of U.S. money-center banks extends to Congress by way of campaign contributions: contributions from these banks significantly reduce the likelihood that a representative will vote in favor of the bill. In addition, I find that right-wing representatives are substantially more likely than their left-wing peers to support the bill, which suggests that new congressional coalitions are forming on the role of the Fed in the (global) economy.

Discussants: Joanne Gowa and Ashima Goyal

"Multilatral Liberalization and Individual Support for Compensation: Coordinated Survery Experiments in Japan and the United States"

Author: Megumi Naoi

Abstract: Does multilateral liberalization increase or decrease domestic support for compensation to losers? Scholars have provided competing predictions on this question, and systematic empirical evidence has been scant. I argue that opposing predictions arise due to a lack of attention to what I call “power asymmetry in public minds”—i.e., how voters perceive power asymmetry among participants in multilateral negotiations. Voters in a powerful state are more likely to support compensation because they perceive their elected leaders as accountable to the outcome of multilateral negotiations. By contrast, voters in less powerful states perceive the negotiation outcome to be “out of leaders’ control” and thus their support for compensation will be weaker. To test this argument, I designed coordinated survey experiments in the United States (i.e., powerful) and Japan (i.e., less powerful) that manipulate the causes of industry’s financial losses (natural disaster vs. multilateral trade agreement) as well as who suffered from it (farmers vs. manufacturing industries). I then gauge respondent’s support for government compensation “using tax payer dollars”. The preliminary finding from the Japanese experiment is that those who perceived the government to have more influence over the contents of the multilateral agreement are more likely to support compensation, yet this effect only exists for uncompetitive industries (i.e., 19 percentage point increase for agriculture, and no systematic increase for manufacturing industries). The finding suggests there may be micro foundations underlying the tendency for powerful countries in the multilateral negotiations to be the most vulnerable to a demand for compensation at home.

Discussants: Dustin Tingley and Sugata Marjit

"Public Support for Global Climate Cooperation"

Authors: Kenneth Scheve and Michael Bechtel

Abstract: Climate change mitigation requires international cooperation and for this cooperation to be sustainable over the long term, formal global agreements to reduce CO2 emissions need broad public support. Using data from an experimental conjoint survey, we provide estimates of the political demand for different types of climate agreements in France, Germany, the United Kingdom, and the United States. Specifically, we explore how three key dimensions of climate cooperation – costs and distribution, participation, and enforcement– affect demand for global climate agreements. We find that citizens' sentiment toward climate agreements most strongly depends on costs. Our estimates imply that an increase of household costs equivalent to 0.5% of gross domestic product decreases the probability that an individual supports an agreement by 20% percent. Our results, however, also suggest that citizens are sensitive to the principles that govern the international distribution of costs, prefer more encompassing forms of climate cooperation, and support agreements that include a low sanction for failing emission reduction targets. Overall, our findings suggest that an important mechanism through which interests, norms, and institutions can support international cooperation is their influence on public opinion.

Discussants: Veeramani C. and Robert Keohane

"Services Sector in India: Trends, Issues and Way Forward"

Author: Arpita Mukherjee 

Abstract: This paper provides an overview of the Indian services sector. It shows that services is the fastest growing sector in India, contributing significantly to GDP, GDP growth, employment, trade and investment. Labour productivity in services is the highest and it has increased overtime. India is a major proponent of liberalizing services both in the WTO and in its bilateral trade agreements. However, there are some concerns. Economic growth has slowed down. Growth in employment in services has not been commensurate with the share of the sector in GDP. A large part of the employment is in the non-corporate or unorganised sector, with limited job security. Although India is portrayed as a major exporter of services, its rank among WTO member countries in services exports is lower than that of China’s and its export competitiveness concentrate in few sectors and a few markets. The paper identifies a number of barriers faced by the services sectors and suggests policy measures, which, if implemented, will lead to inclusive growth, increased productivity, generate quality employment, increase trade and investment, and enhance India’s global competitiveness in services.

Discussants: Amaney Jamal and Biju Paul Abraham

"India: What Ever Happened to Industrialization"

Author: Partha Sen

During India’s struggle for independence from the British, the vision for India, once the country gained independence, emphasized planning and industrialization. In the early years of post-colonial India, these continued to be the dominant themes. Ideological differences were about the role of the state and redistribution, not about industrialization. The first decade after independence was all about factories being the temples of modern India, how the mountains had to be moved if they stood in the way (of progress) and the courses of rivers had be changed.

Discussants: Biju Paul Abraham and Robert Keohane

Graduate School of Public and International Affairs
3601 Wesley W. Posvar Hall, Pittsburgh, Pennsylvania 15260