Stephen Weymouth

Unbundling the Relationship between Authoritarian Legislatures and Political Risk

A strong statistical association between legislative opposition in authoritarian regimes and investment has been interpreted as evidence that authoritarian legislatures constrain executive decisions and reduce the threat of expropriation. Although the empirical relationship is robust, scholars have not provided systematic evidence that authoritarian parliaments are able to restrain the actions of state leaders, reverse activities they disagree with, or remove authoritarian leaders who violate the implied power-sharing arrangement. This article shows that authoritarian legislatures, by providing a forum for horse trading between private actors, are better at generating corporate governance legislation that protects investors from corporate insiders than they are at preventing expropriation by governments. The statistical analysis reveals that the strength of authoritarian legislatures is associated with corporate governance rules and not expropriation risk.

The Influence of Firm Global Supply Chains and Foreign Currency Undervaluations on US Trade Disputes

We apply insights from “new, new†trade theory to explain a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). We propose that firms making vertical or resource-seeking investments abroad will be less likely to file AD petitions, and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, we argue, the increasing vertical FDI of US firms makes trade disputes far less likely. We use firm-level data to examine the universe of US manufacturing firms and find that AD filers generally conduct no intrafirm trade with filed-against countries. We also find that persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. In the context of currency undervaluation, we confirm the existing finding that undervaluation is associated with more AD filings. We also find, however, that high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. Our study highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.

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.

The Social Construction of Policy Reform: Economists and Trade Liberalization Around the World

A large number of developing countries liberalized trade policies over the past three decades. We argue that the global spread of ideas contributes to trade liberalization. Building on insights from a rich case-based literature, we suggest an explicit mechanism of trade policy diffusion: U.S.trained Ph.D. economists, who share a common belief in the benefits of free trade, and who operate with varying degrees of political influence around the world. We offer the first crossnational test of the impact of economists on trade liberalization using a unique dataset recording the country of residence of all 6,493 foreign-based, U.S.-trained American Economic Association (AEA) members over the period 1981-1997. Specifically, we measure the influence of economists on the timing and extent of trade liberalization. First, we endogenize the date of trade liberalization using hazard and probit models. Controlling for alternative diffusion mechanisms and other confounding variables, our results suggest that economists significantly speed up the reform process. Second, we find that countries with greater numbers of economists are more open to trade at the end of the period. All of our results are robust to an instrumental variables strategy that employs the number of Fulbright grants allocated by the United States as an instrument for the number of U.S.-trained economists.

Government Partisanship and Property Rights: Cross‐Country Firm‐Level Evidence

Property rights are essential to economic development but vary with the political environment. We develop and test the claim that government partisanship influences the security of business firms’ property rights: the perceived security of property rights increases when right-wing parties take power and declines with the election of left-leaning parties. Unlike research that uses country-level aggregates to draw inferences about the determinants of secure property rights, we analyze survey responses of over 7,400 firm owners from 73 countries using a novel difference-in-differences approach. We find that the political partisanship of the government in power strongly affects individual perceptions of property rights: firm owners are more likely to perceive that their property rights are secure under right-leaning governments. Our results are robust to firm- and country-level economic performance as well as controls for political institutions that might induce more stability to property rights, such as the number of checks and balances (veto players) in a system. Overall, our results indicate that business owners’ beliefs about the security of property rights are highly responsive to changes in government partisanship.

The Influences of Foreign Direct Investments, Intrafirm Trading, and Currency Undervaluation on U.S. Firm Trade Disputes

We use the case of a puzzling decline in U.S. firm antidumping (AD) filings to explore how firm-level economic heterogeneity within U.S. industries influences political and regulatory responses to changes in the global economy. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment. We propose that firms making vertical, or resource-seeking, investments abroad will be less likely to file AD petitions. Hence, we argue, the increasing vertical FDI of U.S. firms (particularly in countries with undervalued currencies) makes trade disputes far less likely. We use firm level data to examine the universe of U.S. manufacturing firms and find that AD filers generally conduct no intrafirm trade with filed-against countries. Among U.S. MNCs, the number of AD filings is negatively associated with increases in the level of intrafirm trade for large firms. In the context of currency undervaluation, we confirm the existing finding that undervaluation is associated with more AD filings. We also find, however, that high levels of related-party imports from countries with undervalued currencies significantly decrease the numbers of AD filings. Our study highlights the centrality of global production networks in understanding political mobilization over international economic policy. [192]

Competition Politics: Interest Groups, Democracy, and Antitrust Reform in Developing Countries

This article examines the political origins of antitrust enforcement in the developing countries. I consider how the organization and political influence of business affects governments’ commitments to competition policy institutions. The analysis predicts cross-class coalitions with contending regulatory preferences. An alliance of incumbent producers and affiliated labor groups (“insiders”) opposes competition policies that threaten its existing rents. A procompetition coalition of consumers, unorganized workers, and small businesses (“outsiders”) favors the price and employment effects of effective antitrust enforcement. I argue that governments’ commitments to competition policy reflect the congruence of interests among economic insiders and the strength of democratic institutions. I examine the argument using a new dataset measuring the timing of competition policy reforms, as well as governments’ commitments to the effectiveness of the competition policy authority. The empirical analysis indicates that democracies are more likely to pursue competition policy reforms. I also find that organized insiders are associated with a slower reform process and with less effective competition agencies.

Partisan Cycles in Offshore Outsourcing: Evidence from U.S. Imports

The wage and employment effects of offshoring roil politics in the United States and around the world. Firms that offshore either outsource their activities to unaffiliated businesses, or internalize production by establishing subsidiaries from which they import intrafirm. We argue that the political environment in trade partner countries influences U.S. offshoring patterns in ways that have been ignored in the extant literature. Drawing on the political business cycle literature, we expect higher production costs and lower profits for firms in capital (labor) intensive sectors when the Left (Right) is in power. These partisan cycles, in turn, shape the sectoral composition of exports from the partner to the United States, and the degree to which trade is conducted intrafirm. Under a Left‐ (Right‐) leaning government in a partner country, U.S. intrafirm imports of capital‐ (labor‐) goods increase relative to total imports in these industries. Examining highly disaggregated U.S. import data, we find strong support for our argument. Our results indicate that the effect of partisan governments on offshore outsourcing depends on factor intensities of production, which vary across industries. The degree of internalization in global sourcing is shaped in part by the distributional objectives of partisan governments, and not by economic factors alone.

Response to Parakkal’s Comments

I thank Raju Parakkal for providing provocative commentary on my article. My article develops an interest group explanation for the emergence of competition policy institutions in developing countries. I argue that big firms in concentrated industries (those in which a small number of firms account for a large share of the market) will oppose competition reforms, since these reforms threaten the ability of firms to continue to extract monopoly rents. Where industries are highly concentrated and labor market institutions promote rent-sharing with organized labor, competition policy reform will be slow and relatively ineffective. Where outsiders gain political strength through democratic institutions, effective reform will be more likely. The question of who benefits from antitrust enforcement in developing countries is not explicitly addressed in my paper. However, recent experience suggests that the benefits to consumers—should those benefits accrue at all—will not be immediate. Mexico provides an illustrative case. Mexican industries are notoriously concentrated: oligopolies and near-monopolies exist in telecommunications, cement, and banking (among others). Corporate insiders in these industries have long resisted antitrust reforms; and their opposition is not surprising given the exorbitant profits found in concentrated sectors. For instance, Telecom service providers, dominated by Carlos Slim’s América Móvil, have been able to charge 45% more for home landlines and 63% more for business lines compared to the OECD average. For basic broadband, prices have been nearly ten times more than in the rest of the OECD. As Mexico’s democracy strengthened, the public push for stronger antitrust enforcement followed. The Comisión Federal de Competencia Económica (COFECE), Mexico’s antitrust agency, was established in 1992. Reforms in 2006, 2008, and 2014 all moved in a more consumer-friendly direction. But until very recently, the competition authorities were unsuccessful in taming the monopolistic practices of the major corporations. In 2007, COFECE lost a long court battle to declare Telmex, with over 90% market share, dominant in fixed-line telephones. As another example, it took COFECE nearly seventeen years to levy its first judgment against cartel behavior. Finally, in 2010, COFECE said it had uncovered schemes involving six firms to rig the bidding to provide health services— behavior viewed by many as ‘‘standard practice’’ in public contracting. Part of the problem was that the