Pablo M. Pinto

The Politics of Investment Partisanship: And the Sectoral Allocation of Foreign Direct Investment

This paper explores the existence of partisan cycles in foreign direct investment performance. Our theoretical model predicts that the incumbent governments partisanship should affect foreign investors decision to flow into different sectors of the host country: pro-labor governments would encourage the inflow of the type of investment that complements labor in production; pro-capital governments would promote the entry of investment that substitutes for labor. Empirical evidence from a sample of Organisation for Economic Co-operation and Development countries reveals a pattern of foreign investors response to partisan cycles consistent with the predictions of the model. First, foreign investment systematically flows into different sectors of the host economy under left- and right-leaning incumbents. Second, we find a positive correlation between foreign investment and changes in average wages under left-leaning incumbents, but no effect on wages under right-leaning governments.

Politics and Foreign Direct Investment

For decades, free trade was advocated as the vehicle for peace, prosperity, and democracy in an increasingly globalized market. More recently, the proliferation of foreign direct investment has raised questions about its impact upon local economies and politics. Here, seven scholars bring together their wide-ranging expertise to investigate the factors that determine the attractiveness of a locale to investors and the extent of their political power. Multinational corporations prefer to invest where legal and political institutions support the rule of law, protections for property rights, and democratic processes. Corporate influence on local institutions, in turn, depends upon the relative power of other players and the types of policies at issue.

The Political Determinants of Economic Performance: Political Competition and the Sources of Growth

The authors present and test a theory about the effects of political competition on the sources of economic growth. Using Mankiw, Romer, and Weil’s model of economic growth and data for roughly 80 countries, the authors show that political competition decreases the rate of physical capital accumulation and labor mobilization but increases the rate of human capital accumulation and (less conclusively) the rate of productivity change. The results suggest that political competition systematically affects the sources of growth, but those effects are cross-cutting, explainingwhy democracy itself may be ambiguous. These findingshelp clarify the debate about regime type and economic performance and suggest new avenues for research.

Fortune or Evil? The Effect of Inward Foreign Direct Investment on Corruption

We analyze how one of the central drivers of globalization, foreign direct investment (FDI), relates to the prevalence of corruption. According to received wisdom, the link between globalization and corruption depends on the presence of proper political institutions and practices. We develop an alternative explanation that looks at the effect of inward FDI on host market dynamics, which in turn affect the opportunities for rent creation. We argue that, in less developed countries, FDI inflows can increase market concentration, resulting in higher rents that public officials can demand from market actors. Yet, the positive association between inward investment and corruption is mitigated in more developed economies. There, foreign entry into a market populated by productive indigenous firms promotes competition and reduces rents. This lowers opportunities for corrupt behavior. We test this nonlinear relationship between FDI and corruption in an instrumental variable two-stage least squares setting. The results indicate that FDI is indeed associated with higher levels of corruption in less developed countries, but not in developed countries. Our findings highlight the role of globalization in shaping host countries’ market dynamics, which often set the parameters of political outcomes.

Sensitivity to Issue Framing on Trade Policy Preferences: Evidence from a Survey Experiment

We explore the impact of issue framing on individual attitudes toward international trade. Based on a survey experiment fielded in Argentina during 2007, which reproduces the setup of earlier studies in the United States, we show that individuals position in the economy and their material concerns define the strength of their prior beliefs about international trade, and thereby mitigate their sensitivity to the new dimensions introduced in informational cues. Extending the analysis beyond the United States to a country with different skill endowments allows us to better explore the role of material and nonmaterial attributes on individual attitudes toward trade. We find that skill is a central predictor of support for openness. The effect is strongest for individuals in the service sector and in cities that cater to the producers of agricultural commodities. Our findings suggest that the pattern of support for economic integration reflects the predictions from recent literature in international economics that emphasizes trades impact on the relative demand for skilled labor regardless of factor endowments. Our findings also amend recent empirical contributions that suggest socialization is the main factor explaining individual sensitivity to issue framing on trade preferences. We suggest that material conditions associated with income and price effects are crucial, both in shaping trade preferences and in affecting the malleability of attitudes to issue framing. Hence, our results provide a crucial contribution to our general understanding of the attributes shaping susceptibility to political framing in policy debates.

Randomization Tests and Multi-Level Data in U.S. State Politics

Many hypotheses in U.S. state politics research are multi-level, positing that state-level variables affect individual-level behavior. Unadjusted standard errors for state-level variables are too small, leading to overconfidence and possible false rejection of null hypotheses. Primo, Jacobsmeier, and Milyo (2007) explore this problem in their reanalysis of Wolfinger, Highton, and Mullins (2005) data on the effects of post-registration laws on voter turnout. Primo et al. advocate the use of clustered standard errors to solve the overconfidence problem, but we offer an alternative solution: randomization tests. Randomization tests are non-parametric tests that do not rely on comparisons to theoretical test statistic distributions. Instead, they use distributions tailored to the data, created by randomly scrambling the data many times to simulate what would be observed under the null hypothesis. Unlike with clustering, with the randomization test, U.S. state-level reforms generally fail to be significant both as additive effects and as interactions with individual characteristics.

Dyadic Analysis in International Relations: A Cautionary Tale

We explore problems with the use of dyadic data in international relations. We illustrate these problems by analyzing a central proposition among IR scholars that democracies seek out other democracies as trading partners. Our main contribution is to present randomization tests to infer the correct p-values associated with the trade hypotheses. Our results show that typical statistical tests for significance are severely overconfident in dyadic data. Second, we show that democratic trade can be modeled using nations as the units of analysis, testing whether the proportion of trade with other democracies increases when a country becomes more democratic. Third, we conduct a difference-in-differences analysis of change in trading partners following democratic or anti-democratic shocks. Rather than adding further layers of statistical complexity, these tests are simple and intuitive. They provide the cleanest evidence that when nations undergo democratic or nondemocratic transitions, their trade patterns change just as theory would suggest.

The politics of stock market development

ABSTRACT This article locates the political determinants of stock market development in the distributional cleavages among voters and interest groups. Our argument questions the prevailing explanation about the role of partisanship in the literature, where it is usually assumed that left governments frighten investors. To the extent that financial development is translated into higher levels of investment that increases labor demand, workers and the parties representing them will adopt policies and regulations that favor the capitalization of financial markets. We explore the empirical content of our hypothesis against several competing explanations: the legal origins school, which argues common law proxies stronger investor protections than civil law; the electoral law school, which argues proportional representation provides weaker protections than do majoritarian ones; the institutional economics view, which argues that checks on policy-making discretion such as veto gates protect the property rights o...

The Distributional Consequences of Preferential Trade Liberalization: Firm-Level Evidence

While increasing trade and foreign direct investment, international trade agreements create winners and losers. Our paper examines the distributional consequences of preferential trade agreements (PTAs) at the firm level. We contend that PTAs expand trade among the largest and most productive multinationals by lowering preferential tariffs. We examine data covering the near universe of US foreign direct investment and disaggregated tariff data from PTAs signed by the United States. Our results indicate that US preferential tariffs increase sales to the United States from the most competitive subsidiaries of multinational corporations operating in partner countries. We also find increases in market concentration in partner countries following preferential liberalization with the United States. By demonstrating that the gains from preferential liberalization are unevenly distributed across firms, we shed new light on the firm-level, economic sources of political mobilization over international trade and investment policies.

No Entiendo: The Effects of Bilingualism on Hispanic Earnings

This paper examines the economic consequences of Spanish/English bilingualism in the United States. Specifically, we explore whether the ability to effectively communicate in English and Spanish is rewarded in labor markets. Using a sample of the Hispanic population in the United States drawn from census data for the year 2000 we find that bilingualism is indeed associated with higher income. The effect is, however, substantively small: on average the income level of bilingual Hispanics is 2.7 percentage points more than the income of those that Hispanics that only speak English after accounting for educational attainment, gender, age, origin, sector and region of employment and occupation. We also find that bilingualism is not rewarded in all segments of the labor market. While the correlation between bilingualism and income is positive among non-supervisory laborers in manufacturing, the association turns negative among those in managerial positions. Moreover, for those employed in the public sector where we would assume that the ability to speak both Spanish and English would be particularly valued, we find a negative correlation between bilingualism and income for all occupation categories. These findings are troubling for several reasons. They suggest that the difference in earnings may be the consequence of discrimination in labor markets. Alternatively, it is plausible that lower wages may reflect the extent to which Spanish-speaking Latinos including those who are fluent in English, receive educational services of lower quality than Hispanics that speak English only, and even non-Hispanic whites despite similar education attainment levels. The results from our tests allow us to evaluate the major contemporary academic debates on minority assimilation and incorporation. Specifically, we contend that they support the theory of segmented assimilation (Zie & Greenman 2005; Portes & Zhou 1993; among others). However, our conclusion is more negative regarding the opportunities available to Hispanic immigrants. Our findings that even when fully bilingual Hispanics’ earnings are systematically lower in different segments of the labor market suggest that only few Latinos will be capable of experiencing a conventional path to assimilation. The findings could also be construed as revealing the existence of a deeply institutionalized pattern of discrimination. 1 The authors are listed in alphabetical order to indicate that each contributed equally to the development of the paper.