David Leblang

The effect of cultural values on economic development: Theory, hypotheses, and some empirical tests

Theory: Cultural variables are incorporated into a baseline endogenous economic growth model. Hypotheses: Cultural attitudes toward achievement and thrift have a positive effect on economic growth. Cultural attitudes concerning postmaterialism have a negative effect on economic growth. Methods: Ordinary least squares regression is used to test economic and cultural models of growth on a cross section of 25 countries. The encompassing principle is used to resolve competing theoretical specifications and to generate a final parsimonious model. A variant of Leamers Extreme Bounds Analysis (EBA) is used to evaluate the sensitivity of parameter estimates. The conclusions are further supported by nonparametric methods including robust regression and bootstrap resampling. The data for the analysis are from the World Values Survey (1990) and from Levine and Renelt (1992). Results: An empirical model that incorporates both cultural and economic variables is superior to an explanation emphasizing one set of these variables. The final model is robust to: (1) alterations in the conditioning set of variables; (2) elimination of influential cases; and (3) variations in estimation procedures.

DEMOCRACY AND GLOBALIZATION

The relationship between democracy and globalization has been a subject of both scholarly and policy debate. Some argue that the two go hand in hand – that unrestricted international transactions encourage political accountability and transparency and that politically free societies are least likely to restrict the mobility of goods and services. But others argue that democracies, in which special interests that suffer from foreign competition have voice, are more likely to have closed markets, and vice versa. Our analysis differs from its predecessors in three ways. We seek to uncover general patterns by considering as long a period as possible and all countries with the relevant data. We consider multiple dimensions of globalization, analyzing both trade liberalization and capital account liberalization. And we estimate these relationships using an instrumental variables strategy that allows us to confront the issue of simultaneity. Our findings support the existence of positive relationships between democracy and globalization.

Property Rights, Democracy and Economic Growth:

In attempting to identify institutional factors that influence a nations per capita growth rate, scholarship in political science has focused almost ex clusively on differences in political regimes. This article argues that if we are interested in understanding why some nations grow faster than others, then we must redirect our inquiry and focus on property rights. Using new measures for property rights protection and democracy, and building on an endogenous growth model, this study presents the first approximation of the relationship between property rights, democracy, and economic growth. These relationships are tested using cross-national panel data from 1960-90. The evidence supports two conclusions: (1) economies of na tions that protect property rights grow more rapidly than those of nations that do not protect property rights; and (2) the nature of a political regime influences economic growth indirectly through its commitment to prop erty rights.

The Political Economy of Speculative Attacks in the Developing World

This paper examines the relationship between politics and speculative attacks in developing countries. While a burgeoning literature focuses on the economic determinants of speculative behavior, little attention has been paid to the importance of political factors. I examine the response of international capital markets to electoral and partisan changes in a sample of 78 developing countries using monthly data from January 1975 to December 1998. All other things being equal, the empirical evidence indicates that speculative attacks are more likely (1) under left rather than under right governments and (2) during the period after an election as compared with all other periods. The results suggest that models developed for OECD economies can be used to understand political-economic phenomena in developing countries.

Familiarity Breeds Investment: Diaspora Networks and International Investment

What explains cross-national patterns of international portfolio and foreign direct investment (FDI)? While existing explanations focus on the credibility of a policy makers commitment, we emphasize the role of diaspora networks. We hypothesize that diaspora networks—connections between migrants residing in investing countries and their home country—influence global investment by reducing transaction and information costs. This hypothesis is tested using dyadic cross-sectional data for both portfolio and FDI. The findings indicate that even after controlling for a multitude of factors, disapora networks have both a substantively significant effect and a statistically significant effect on cross-border investment.

The Politics of Speculative Attacks in Industrial Democracies

Recent models of speculative currency crises contend that market expectations of policy behavior can trigger a speculative attack. We argue that political processes and partisan objectives inform expectations about the governments commitment to the exchange rate. First, market actors anticipate periods when the partisan identity of a government may change through an election or a cabinet collapse. Second, party labels provide information to currency traders about the policy objectives of a potential government. Consequently, we contend that the probability of a speculative attack will be higher when markets expect the cabinet to end and when the cabinet dissolution is likely to produce a leftward shift in policy. A discrete timesurvival model is used to estimate the probability that a cabinet will dissolve in any given month for sixteen parliamentary democracies from 1970 to 1995. The predicted values are then used as a proxy for market expectations in a model of speculative currency crises.

Domestic Political Institutions and Exchange Rate Commitments in the Developing World

Policymakers use a fixed exchange rate regime to signal their commitment to low inflation and to exchange rate stability. Increasing economic integration and the rise of democratic institutions make it more difficult for policymakers to maintain the credibility of this commitment. We use binary probit (with a variety of corrections for autocorrelated and heteroscedastic disturbances) to test hypotheses relating democratic institutions to exchange rate regime choice on a sample of 76 developing countries over the period 1973‐1994. The empirical analysis indicates that domestic political preferences—as measured by the structure of domestic political institutions and the fractionalization of the party system—influence exchange rate regime choice. We find that floating exchange rate regimes are more likely in democratic than in nondemocratic polities and that democratic polities with majoritarian electoral systems are more likely to fix their exchange rates than those with systems of proportional representation. The growth of international capital markets is truly extraordinary. Cross-border capital flows dwarf those of international trade: recent estimates suggest that foreign exchange trading alone now exceeds one trillion dollars a day. The magnitude and volatile nature of international capital flows has led some political economists to suggest that increased economic integration and capital mobility has become so pervasive that it now acts as a “structural characteristic of the international system, similar to anarchy” (Keohane and Milner, 1996:257). These scholars point to globalization as a crucial factor leading to a convergence of economic policy in the industrialized world. While a wave of economic liberalization has swept OECD economies, governments in developing countries still use a variety of traditional economic tools to protect the relative autonomy of their domestic policies. Vital in this process is exchange rate policy for it is the exchange rate that serves as a buffer between international and domestic markets. Even after the collapse of the Bretton Woods system of pegged exchange rates, most developing countries continue to fix the value of their currency to that of their major trading partner. The logic is clear: by fixing the domestic currency’s value to that of a trading partner, exchange rate volatility is minimized. As a result, bilateral flows of capital and goods are not disrupted by exchange rate uncertainty and

Domestic and Systemic Determinants of Capital Controls in the Developed and Developing World

This paper examines the utility of and preference for controls on short-term capital. Recent work in international political economy has argued that the increasing internationalization of finance has constrained the ability of governments to pursue independent monetary policies. For the most part this conclusion has been reached through an examination of a small number of advanced industrialized countries. This article argues not only that the globalization of finance is far from all-encompassing but also that domestic forces play a more significant role in explaining the implementation and removal of capital controls than do systemic factors. Capital controls are more likely to be put in place by governments that repress the financial sector, that choose to maintain a fixed exchange rate, and that are facing balance-of-payments crises. These propositions are tested using a random effects probit model on a panel of ninety-one countries from 1967 to 1992.

Political Democracy and Economic Growth: Pooled Cross-Sectional and Time-Series Evidence

Interest in the relationship between political democracy and economic growth has been long-standing.See, for example, S. M. Lipset, ‘Some Social Requisites of Democracy: Economic Development and Political Legitimacy’, American Political Science Review, 53 (1959), 69–105. Recently this work has been reanalysed b y J. Helliwell, ‘Empirical Linkages between Democracy and Economic Growth’, British Journal of Political Science, 24 (1994), 225–48; and by R. Burkhart and M. Lewis Beck, ‘Comparative Democracy: The Economic Development Th esis,’ American Political Science Review, 88 (1994), 903–10. Recently, there has been an explosion of empirical research emanating from political science and economics that once again attempts to understand the relationship between democracy and economic growth. The goal in much of this research has been to explain the variation in per capita growth rates that exists across nations. This goal has translated into a straightforward empirical mod elling strategy: regress a countrys growth rate on a democracy variable and a number of control variables and see whether the partial correlation between democracy and economic growth is statistically significant. The last few years has seen the publicat ion of over twenty empirical studies; however, the results are far from conclusive. In their recent review of twenty-one statistical findings investigating this relationship, Przeworski and Limongi explain that ‘eight found in favor of democracy, eight in favor of authoritarianism, and five discovered no difference.’ Of the thirteen studies surveyed by Sirowy and Inkeles, three find a negative effect of democracy on economic growth, four find this negative effect in some situations, and six find no relationship whatsoever.See A. Przeworski and F. Limongi, ‘Political Regimes and Economic Growth’, Journal of Economic Perspectives, 7 (1993), 1002–37; and L. Sirowy and A. Inkeles, ‘The Effects of Democracy on Economic Growth and Inequality: A Review,’ Studies in Comparative International Development, 25 (1990), 126–57. See also R. Levine and D. Renelt, ‘Cross-Country Studies of Growth and Policy: Methodological, Conceptual, and Statistical Problems’ (World Bank Working Paper, No. 608, Washington, DC, 1991). These conclusions are far from reassuring or instructive.

Explaining Wars Fought by Established Democracies: Do Institutional Constraints Matter?

Extant research has shown that cross-national variations in the level of a country ’s democracy tend to be related to its propensity to be involved in external conflict. The dyadic version of the theory of democratic peace contends that democracies rarely, if ever, fight each other, and it is strongly supported by the available evidence. The monadic version, suggesting that democracies are in general more peaceful regardless of the nature of the other party involved in a relationship, has been less well supported. This article addresses the latter proposition, seeking to explain the variations in war involvement among the established democracies on the basis of major differences in their institutions of governance. Among the various distinctions considered (such as parliamentary versus presidential forms of government, rule by a single dominant party versus a coalition government, and phases of the electoral cycle), a country ’s electoral system turns out to be the most important institutional factor that dampens war involvement. Established democracies with a proportionate - representation system tend to have significantly less such involvement according to three alternative measures. We adduce insights from comparative studies of democratic politics to explain this major finding, thereby offering a more specific and cogent account of why this particular institutional arrangement matters for external belligerence.