Jude C. Hays

Government spending and public support for trade in the OECD: An empirical test of the embedded liberalism thesis

According to the embedded liberalism thesis, governments committed to free trade provide insurance and other transfers to compensate those who lose economically from expanded trade. The goal of this spending is to maintain public support for trade liberalization. We provide a micro-level test of the critical assumption behind the embedded liberalism thesis that government programs designed to protect individuals harmed by imports reduce opposition to free trade. Our micro results have important implications for the macro relationship between trade and government spending, which we also test. We find empirical support for the embedded liberalism thesis in both our micro- and macro-level analyses.Earlier versions of this article were presented at the Midwest Political Science Associations 2002 Meeting and at the University of Illinois during summer 2003. We thank the respective panel and seminar participants for their feedback. In addition, we want to acknowledge valuable comments from William Bernhard, Rebecca Blank, Kerwin Charles, Alan Deardorff, John DiNardo, John Freeman, Brian Gaines, Jim Granato, Nathan Jensen, William Keech, Layna Mosley, Robert Pahre, Ken Scheve, Marina Whitman, two anonymous reviewers, and Lisa Martin. They, of course, are not responsible for any errors.

Globalization and Capital Taxation in Consensus and Majoritarian Democracies

This article contributes to the growing literature on the role that domestic political institutions play in mediating globalization pressures by arguing that the capital tax constraints arising from international economic integration are the most severe for countries with majoritarian political institutions. In doing so, the author solves a tax puzzle that challenges conventional thinking about how institutions condition the relationship between economic globalization and domestic politics. He presents a formal, game-theoretic model to sharpen the basic logic of his argument and then tests some of the models predictions empirically using both quantitative and qualitative evidence.

Strategic Interaction among EU Governments in Active Labor Market Policy-making Subsidiarity and Policy Coordination under the European Employment Strategy

The European Union (EU) recently committed to becoming ‘the most competitive and dynamic knowledge-based economy in the world.’ Active labor market (ALM) policies are a critical part of the European Employment Strategy (EES) – the plan designed to achieve this objective. ALM policies entail several possible externalities that, spilling across national boundaries, may create incentives for European governments to free ride off the efforts of their neighbors. We provide empirical evidence that the national best-response functions for ALM spending (worker-training programs in particular) are indeed downward sloping; an increase in expenditures in one country decreases equilibrium expenditures in its neighbors. Therefore, levels of ALM spending may well be too low, notwithstanding the mildly increasing coordination fostered through the EES framework. Stronger enforcement procedures may be necessary if the European Union is to achieve its EES objectives.

Globalization and the new politics of embedded liberalism

As the world economy slides into the worst recession since the 1930s, there is fear that hard times will ignite a backlash against free trade policies and globalization more generally, much like happened during the earlier interwar period, the last time the international economy collapsed. This is troubling because expanding trade has been a source of growth and prosperity in developed and many developing economies for decades. There are potentially serious consequences for international peace and security too. When globalization was reversed in the 1930s, political disintegration and world war followed closely behind. Can it happen again? Political economists have argued that the domestic political foundation of the liberal international economy rests on an implicit contract between governments and their citizens called the bargain of embedded liberalism, according to which governments are expected to protect their citizens from the vagaries of the global economy in return for political support for policies like free trade that drive economic globalization. To help stem the rising tide of opposition to globalization, the bargain of embedded liberalism-currently under strain from forces associated with the multinationalization of production, the internationalization of financial markets, and now global recession-must be reestablished and bolstered. This book explores the political and economic institutional foundations of the bargain of embedded liberalism and the ways domestic institutions shape how governments redistribute the risks and benefits of economic globalization. The author identifies the Anglo-American democracies, because of their majoritarian polities combined with decentralized, competitive economies, as uniquely vulnerable to the contemporary challenges of globalization and the most susceptible to a backlash against it. Available in OSO:

The Spatial Probit Model of Interdependent Binary Outcomes: Estimation, Interpretation, and Presentation

We have argued and shown elsewhere the ubiquity and prominence of spatial interdependence, i.e., interdependence of outcomes among cross-sectional units, across the theories and substance of political and social science, and we have noted that much previous practice neglected this interdependence or treated it solely as nuisance, to the serious detriment of sound inference. These earlier studies considered only linear-regression models of spatial/spatio-temporal interdependence. For those classes of models, we (1) derived analytically in simple cases the biases of non-spatial and spatial least-squares (LS) under interdependence, (2) explored in simulations under richer, more realistic circumstances the properties of the biased non-spatial and spatial least-squares estimators and of the consistent and asymptotically efficient spatial method-of-moments (i.e., IV, 2SLS, GMM) and spatial maximum-likelihood estimators (ML), and (3) showed how to calculate, interpret, and present effectively the estimated spatial/spatio-temporal effects and dynamics of such models, along with appropriate standard errors, confidence intervals, hypothesis tests, etc. This paper begins a like set of tasks for binary-outcome models. We start again by stressing the ubiquity and centrality substantively and theoretically of interdependence in binary outcomes of interest to political and social scientists. We note that, again, this interdependence has typically been ignored in most contexts where it likely arises and that, in the few contexts where it has been acknowledged, or even rather centrally emphasized, those of policy diffusion and of social networks, the endogeneity of the spatial lag used (appropriately) to model the interdependence has only rarely been recognized. Next, we note and explain some of the severe challenges for empirical analysis posed by spatial interdependence in binary-outcome models, and then we follow recent advances in the spatial-econometric literature to suggest Bayesian or recursive-importance-sampling (RIS) approaches for tackling the estimation demands of these models. In brief and in general, the estimation complications arise because among the RHS variables is an endogenous weighted spatial-lag of the unobserved latent outcome, y*, in the other units; Bayesian or RIS techniques facilitate the complicated nested optimization exercise that follows from that fact. We show how to calculate estimated spatial effects (as opposed to parameter estimates) in such models and how to construct confidence regions for those, adopting simulation strategies for these purposes, and then how to present such estimates effectively.

Exchange Rate Volatility and Democratization in Emerging Market Countries

We examine some of the consequences of financial globalization for democratization in emerging market economies by focusing on the currency markets of four Asian countries at different stages of democratic development. Using political data of various kinds—including a new events data series—and the Markov regime switching model from empirical macroeconomics, we show that in young and incipient democracies politics continuously causes changes in the probability of experiencing two different currency market equilibria: a high volatility “contagion” regime and a low volatility “fundamentals” regime. The kind of political events that affect currency market equilibration varies cross-nationally depending on the degree to which the polity of a country is democratic and its policymaking transparent. The results help us better gauge how and the extent to which democratization is compatible with financial globalization.

Empirical Modeling of Spatial Interdependence in Time-Series Cross-Sections

Empirical analyses of spatial interdependence in the social sciences have until recently remained largely confined to specialized areas of applied economics (e.g., urban/regional, environmental, and real-estate economics) and sociology (i.e., network analysis). However, social-scientific interest in and applications of spatial modeling have burgeoned lately-including in comparative politics-due partly to advances in theory that imply interdependence and in methodology for addressing it, partly to global developments that have enhanced interconnectivity substantively, and thus the popular and scholarly perception of and attention to it, at all levels, from micro-/personal to macro-/international, and partly to advances in technology for obtaining and working with spatial data.

Modeling International Diffusion: Inferential Benefits and Methodological Challenges, with an Application to International Tax Competition

Although scholars recognize that time-series-cross-section data typically correlate across both time and space, they tend to model temporal dependence directly, often by lags of dependent variables, but to address spatial interdependence solely as a nuisance to be “corrected” by FGLS or to which to be “robust” in standard-error estimation (by PCSE). We explore the inferential benefits and methodological challenges of directly modeling international diffusion, one form of spatial dependence. To this end, we first identify two substantive classes of modern comparative-and-international-political-economy (C&IPE) theoretical models—(context-conditional) open-economy comparative political-economy (CPE) models and international political-economy (IPE) models, which imply diffusion (along with predecessors, closed-economy CPE and orthogonal open-economy CPE)—and then we evaluate the relative performance of three estimators—non-spatial OLS, spatial OLS, and spatial 2SLS—for analyzing empirical models corresponding to these two modern alternative theoretical visions from spatially interdependent data. Finally, we offer a substantive application of the spatial 2SLS approach in what we call a spatial error-correction model of international tax competition.

Contagion, Common Exposure, and Selection: Empirical Modeling of the Theories and Substance of Interdependence in Political Science

This paper provides overview for lay audiences of the empirical modeling of the spatial and spatiotemporal interdependence that is substantively and theoretically ubiquitous, indeed inherently central, in political science.

The m-STAR Model as an Approach to Modeled, Dynamic, Endogenous Interdependence in Comparative & International Political Economy

Even casual observation reveals obvious spatial patterns in labor-market outcomes and policies across the developed democracies, and within the European Union particularly. Labor-market policies entail significant cross-border spillovers, so strategic interdependence among developed democracies might explain this. However, these countries also faced common or very similar exogenous-external conditions and internal trends, which would also tend to generate spatial patterns in the domestic responses thereto, even without any interdependence. Likewise, membership in the EU itself presents both a series of common external stimuli and a set of strategic interdependencies in common and individual-country labor-market-relevant actions. Additionally, however, labor-market policies will themselves shape the patterns of economic interchange by which some of the interdependencies arise, and entry into the European Union typically presupposes a certain baseline set of shared national characteristics and orientations, raising the possibility that labor-market policies and the pattern of interdependence via institutional co-membership have common origin. That is, the policies of interest may also shape the patterns of connectivity affecting those outcomes, a complex sort of endogeneity known as selection in the dynamic networks literature. We have discussed elsewhere the severe empirical-methodological challenges in distinguishing the first two of these possible sources of spatial correlation (Galtons Problem). This paper extends those analyses, applying the multiparametric spatiotemporal autoregressive (m-STAR) model as a simple approach to modeling the patterns of interdependence simultaneously with its effects, while recognizing their possible endogeneity (i.e., selection). We do so in an empirical application attempting to disentangle the roles of economic interdependence, correlated external and internal stimuli, and EU membership in shaping labor-market policies in recent years.