Helen V. Milner

Internationalization and domestic politics

Part I. Theoretical Framework: 1. Internationalization and domestic politics: an introduction Helen V. Milner and Robert O. Keohane 2. The impact of the international economy on national policies Jeffrey A. Friedan and Ronald Rogowski 3. Internationalization, institutions, and political change Geoffrey Garrett and Peter Lange Part II. The Industrialized Democracies: 4. Capital mobility, trade and the domestic politics of economic policy Geoffrey Garrett 5. Economic integration and the politics of monetary policy in the United States Jeffrey A. Friedan 6. Internationalization and electoral politics in Japan Frances McCall Rosenbluth Part III. Internationalization and Socialism: 7. Stalins revenge: institutional barriers to internationalization in the Soviet Union Matthew Evangelista 8. Internationalization and Chinas economic reforms Susan Shirk Part IV. International Economic Crisis and Developing Countries: 9. The political economy of financial internationalization in the developing world Stephan Haggard and Sylvia Maxfield Part V. Conclusion: 10. Internationalization and domestic politics: a conclusion Helen V. Milner and Robert O. Keohane.

Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries

Rising international trade flows are a primary component of globalization. The liberalization of trade policy in many developing countries has helped foster the growth of these flows. Preceding and concurrent with this move to free trade, there has been a global movement toward democracy. We argue that these two trends are related: democratization of the political system reduces the ability of governments to use trade barriers as a strategy for building political support. Political leaders in labor-rich countries may prefer lower trade barriers as democracy increases. Empirical evidence supports our claim about the developing countries from 1970–99. Regime change toward democracy is associated with trade liberalization, controlling for many factors. Conventional explanations of economic reform, such as economic crises and external pressures, seem less salient. Democratization may have fostered globalization in this period.We wish to thank the editors at International Organization, David Baldwin, Jim Fearon, Geoffrey Garrett, Barbara Geddes, Tim Groseclose, Robert Kaufmann, Robert Keohane, David Laitin, Jean Leca, Edward Mansfield, Jim Morrow, Ronald Rogowski, B. Peter Rosendorff, Alex Segura, Mike Tomz, Robert Trager, Romain Wacziarg, and Greg Wawro, for their very helpful comments on versions of this article. We also received helpful comments from seminar participants at the University of Michigan, Stanford University, the University of Pennsylvania, Syracuse University, Princeton University, Rutgers University, Yale University, and the University of California at Berkeley. Ben Judkins, Robert Trager, Megumi Naoi, and Tom Kenyon provided invaluable research assistance. An earlier version was presented at the 2001 APSA meeting in San Francisco.

The Digital Divide The Role of Political Institutions in Technology Diffusion

What factors have promoted and retarded the spread of the Internet globally? The Internet is one example of the diffusion of technology. Much as other technologies, the Internet has diffused unevenly across countries, raising concerns over a “digital divide.” My main proposition is that its spread has been driven by neither technological nor economic factors alone. Rather, political factors exert a powerful influence. Groups that believe they will lose from the Internet use political institutions to enact policies that block the spread of the Internet. Some political institutions make this easier than others. Data from roughly 190 countries from 1991 to 2001 showthat a countrys regime type matters greatly, even when controlling for other economic, technological, political, and sociological factors. Democratic governments facilitate the spread of the Internet relative to autocratic ones. Thus, the spread of democracy may help reduce the digital divide.

The New Wave of Regionalism

Economic regionalism appears to be growing rapidly. Why this has occurred and what bearing it will have on the global economy are issues that have generated considerable interest and disagreement. Some observers fear that regional economic institutions—such as the European Union (EU), the North American Free Trade Agreement (NAFTA), Mercosur, and the organization of Asia-Pacific Economic Cooperation (APEC)—will erode the multilateral system that has guided economic relations since the end of World War II, promoting protectionism and conflict. Others argue that regional institutions will foster economic openness and bolster the multilateral system. This debate has stimulated a large and influential body of research by economists on regionalisms welfare implications.

The Optimal Design of International Trade Institutions: Uncertainty and Escape

International institutions that include an escape clause generate more durable and stable cooperative international regimes, and are easier to achieve ex ante. The escape clause is endogenous in a model of repeated trade-barrier setting in the presence of symmetric, two-sided, political uncertainty. They permit, along the equilibrium path, countries to temporarily deviate from their obligations in periods of excessive, unexpected political pressure at some prenegotiated cost. The architects of international agreements optimally choose a cost so that escape clauses are neither too cheap to use (encouraging frequent recourse, effectively reducing the benefits of cooperation) nor too expensive (such that they are rarely used leading to an increased chance of systemic breakdown). The international institutions crucial role is one of an information provider (verifying that the self-enforcing penalty has been paid (voluntarily)), rather than one of enforcer coercing payment. Escape clauses also make agreements easier to reach initially. Their flexibility allows states to be reassured that the division of the long-term gains from the agreement is not immutable.

International Theories of Cooperation Among Nations: Strengths and Weaknesses

Cooperation among nations has become the focus of a wide range of studies in the past decade. The recent international relations literature about cooperation has adopted a distinct approach. It has tended to focus on the systemic level of analysis. It has also used game theory as its central tool of analysis. This review evaluates this literature, arguing that these methodological choices have contributed to both the greatest strengths and the greatest weaknesses of the literature in explaining cooperation among nations. The recent literature on international cooperation has made two general contributions. First, it has developed a concept of cooperation, which can help distinguish what behavior counts as cooperation and which has been adopted widely in thefield.Second, the literature ha* tried to illuminate the conditions under which cooperation is likely to emerge. Using game theory to model relations at the systemic level parsimoniously, scholars have developed at least six hypotheses about the circumstances that promote cooperative behavior. The recent literature also suffers from at least two serious problems. The first problem flows from the assumptions used to generate the relatively parsimonious hypotheses. In particular, the way in which the assumption of anarchy is used causes problems. Second, and relatedly, the literature shows a remarkable neglect of domestic politics. As will be argued, this poses a serious limitation for understanding cooperation. Systemic theory simply cannot take us far enough. The international-level hypotheses depend on implicit theories about internal politics. Hypotheses about domestic influences on cooperation among states are not well developed. Although systemic theory has been touted for a variety of reasons, the biggest gains in understanding international cooperation in the future are likely to come from domestic-level theories.

Democratic Politics and International Trade Negotiations

Elections affect both the probability of successful ratification and the terms of international trade agreements; domestic politics in its simplest form shapes international negotiations. Without elections, the extent of protection in a trade agreement increases with the degree of divided government, and the Schelling conjecture—whereby an international negotiator can point to a hawkish legislature to extract greater concessions from the foreign country—holds only when the legislature is not too hawkish. An election (where the executive anticipates the preferences of the legislature imperfectly) implies that when divisions in government rise, the probability of ratification failure increases, the expected outcome becomes more protectionist, and the executives influence vis-à-vis the foreign country declines, thus challenging the Schelling conjecture.

Internationalization and Domestic Politics: An Introduction

Rapid increases in international economic exchanges during the past four decades have made national economies very open, by historical standards, to the world economy. Much recent economic analysis has been devoted to exploring the effects of such internationalization on macroeconomic policy options, national competitiveness, and rewards to various factors of production. Since economics and politics are so closely linked, there is reason to expect profound political effects as well: in particular, domestic politics in countries around the world should show signs of the impact of the world economy. The central proposition of this volume is that we can no longer understand politics within countries – what we still conventionally call “domestic” politics – without comprehending the nature of the linkages between national economies and the world economy, and changes in such linkages. “Internationalization” is a broad concept used by a variety of writers in a variety of ways. In Chapter 2, Jeffry Frieden and Ronald Rogowski attempt to introduce some precision into its analysis by distinguishing between observable flows of goods, services, and capital, on the one hand, and the “exogenous easing of international exchange that such flows reflect,” on the other. Measurable flows, such as the vast increases in international capital movements over the past few decades, reflect more basic shifts in the costs of international relative to domestic transactions. Indeed, shifting opportunity costs are more fundamental than the flows themselves: the potential for international movements of capital, in response to shifts in interest rates or changing expectations about exchange rates, can exert profound effects on national economic conditions and policies even if no capital movement actually takes place.

The Political Economy of Regionalism

AcknowledgmentsContributorsThe Political Economy of Regionalism: An Overview, by Edward D. Mansfield and Helen V. MilnerRegionalism in Asia and the Americas, by Stephen HaggardThe Political Economy of Currency Regions, by Benjamin J. CohenIndustries, Governments, and the Creation of Regional Trade Blocs, by Helen V. MilnerRegional Agreements as Clubs: The European Case, by Pier Carlo PadoanDispute Settlement in International Trade: Regionalism and Procedural Coordination, by Beth V. Yarbrough and Robert M. YarbroughSystematic Sources of Variation in Regional Institutionalization in Western Europe, East Asia, and the Americas, by Joseph M. GriecoThe Political Economy of Major-Power Trade Flows, by Edward D. Mansfield and Rachel BronsonRegionalizing Europes Security: The Case for a New Mitteleuropa, by Charles A. KupchanBibliographyIndex

Between free trade and protectionism: strategic trade policy and a theory of corporate trade demands

Conventional theories of the political economy of trade argue that industries in import-competing businesses favor protectionism, while multinational firms and export-dependent corporations advocate unconditional free trade. However, many multinational industries have recently advocated “strategic” trade policies: that is, they are willing to support free trade at home only if foreign markets are opened or foreign governments reduce subsidies to their firms. If demands for strategic trade policy were adopted by the United States, they could represent a threat to the General Agreement on Tariffs and Trade (GATT) and the multilateral trading system. This article seeks to explain the emergence of these new corporate trade demands and thereby broaden theories of the political economy of trade. The article begins with the widely supported position that multinational and export-oriented firms prefer unconditional free trade. Building on concepts from theories of industrial organization and international trade, the article then hypothesizes that rising economies of scale and steep learning curves will necessitate that these firms have access to global markets via exports. If growing dependence on world markets is combined with foreign government subsidies or protection, the trade preferences of firms will shift from unconditional free trade to demands that openness at home be contingent on openness overseas. The manner in which firm demands then get translated into industry demands will vary with the industrys structure. If the industry consists of firms with symmetric strategies, it will seek strategic trade policy; but if the industry is highly segmented, it will turn toward protectionism. The article concludes with a preliminary test of these hypotheses in four brief studies of the politics of trade in the semiconductor, commercial aircraft, telecommunications equipment, and machine tool industries.