Domestic Institutions and
Globalization
Layna Mosley
University of North Carolina
Domestic Institutions and
Globalization
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How do domestic institutions affect national
economic policies?
How do varying institutions, or complexes of
institutions, mediate firms’, voters’ and
parties’ responses to economic openness?
To what extent and in what ways does
economic openness generate pressures for
institutional change?
Institutional dynamics in developed vs.
developing, or fully democratic vs.
democratizing nations.
Textile employees in North Carolina (apparel firms)
Banking Employees in North Carolina
I. Institutions as Independent
Variables
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How do domestic institutions affect national
economic policies?
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If globalization is taken as endogenous, we can look to
domestic institutions as determinants of economic policy.
Example: Milner and Kubota link trade openness with
democratization in the developing world, as Frye and
Mansfield (2004) do for post-communist countries.
Example: Quinn and Inclan (1997) link partisanship, in
combination with economic structure, with degree of
capital account openness in OECD nations.
Implication for surveys? We might expect different
dynamics of political activity on policy change in
different political systems.
II. Institutions as Intervening Variables
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How do varying institutions, or complexes of institutions,
mediate firms’, voters’ and parties’ responses to economic
openness?
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One possibility: domestic policies and institutions condition attitudes
regarding globalization.
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Domestic institutional variation also generates differences in political
activities.
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Compensation & embedded liberalism (Ruggie 1982, Rodrik 1997,
Adsera and Boix 2002)
If EU trade policy has been delegated to the supranational level, are
compensation and protectionism substitutes, in the same way we think
they might be elsewhere?
How voters and firms react to globalization depends on supply-side
institutions (electoral systems, parliamentary vs. presidential systems,
degree of democracy), as well as on existing levels of social protection.
Example: Hays (2003) finds that electoral institutions and existing tax
structures condition the effects of financial openness on capital taxation.
Implication: this variation might influence our case (country)
selection, and how we ask our survey questions.
II. Institutions as Intervening Variables
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Another possibility: varieties of capitalism (e.g. Gourevitch)
Is “varieties of capitalism” an appropriate framework for this
analysis? (Tom, Carles)
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Points us to the interactions among varying institutions
(“complementarities”)
But tends to be used as a dichotomous variable in analyses.
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Why should we assume that countries either have all LME institutions or
all CME institutions?
We should see intermediate cases, with some institutions of each type
(and VoC would predict low performance for these cases, and perhaps
pressures for institutional change).
VoC seems unlikely to provide leverage in the developing country
cases.
If we want to use the survey to test out VoC propositions…
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survey firms about their support for various institutional
arrangements (e.g. training systems, financial systems) and examine
cross-national variation.
But is this the best use of our survey resources?
III. Institutions as Dependent Variables
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To what extent and in what ways does economic
openness generate pressures for institutional
change?
Changes in economic and social policies?
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Example: structural reform motivated by
competitiveness concerns.
Pressures could stem from trade openness, shortterm financial openness, FDI and outsourcing, or all
three.
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Rodrik (1997): increased demands for compensation, as
volatility grows for unskilled workers…but declining
government capacity to provide compensation.
This gets to the question of tradeoffs:
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Governments retain the capacity to enact compensatory
policies, but the cost of doing so may increase.
III. Institutions as Dependent Variables
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We could ask respondents about their willingness to
pay – in terms of tax rates or risk of unemployment
or declining wages – for sustained safety nets.
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Expectation? Variation in willingness to pay, depending on
skill levels and skill specificity? (e.g. Moene and Wallerstein)
Tradeoffs are likely to be steeper – that is, externally
imposed constraints are greater – in the developing
world.
Changes in political institutions?
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How do electoral institutions fit with economic
institutions?
To what extent do actors realize the consequences of
institutions when choosing them, especially in
developing nations (newer democracies)?
As globalization intensifies, might institutional choices
be driven more by economic policy-related effects
than by other considerations?
III. Institutions as Dependent
Variables
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Alternatively, if we want to ask firms about domestic
institutions, perhaps we could craft these questions to
assess pressures for institutional change.
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Where does the firm invest and, more importantly, what activities
does it undertake in other locations?
Why did the firm choose to undertake these activities elsewhere?
To what extent do firms’ experiences in other locations change
managements’ views about domestic business practices and
institutions?
More broadly: we know that globalization affects patterns
of interests; as interests change, there could be pressure
for changes in institutions.
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So we might ask firms about the extent to which they attribute
their performance to domestic institutional structures (as opposed
to global economic pressures, or to technological change, or to
whatever else).
Concluding ideas
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Country case selection
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Time series vs. panel design
Which countries are included in the panel?
Ask firms about the opinions of others in
their sector, rather than about their own
view?
Surveys vs. interviews
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Differences in response rates?