to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

international institutions and the volatility of international trade during the past half century states have established a large number of international trade institutions both multilateral and regional in scope the existing literature on this topic emphasizes that these agreements are chiefly designed to liberalize and increase the flow of overseas commerce yet such institutions have another function that has been largely ignored by researchers namely reducing volatility in trade policy and trade flows exposure to global markets increases the vulnerability of a country s output to terms of trade shocks governments seek to insulate their economies from such instability through membership in international trade institutions particularly the world trade organization wto and preferential trading arrangements ptas we hypothesize that these institutions reduce the volatility of overseas commerce we further hypothesize that because market actors prefer price stability trade institutions increase the volume of foreign commerce by reducing trade variability this article conducts the first large scale multivariate statistical tests of these two hypotheses using annual data on exports for all pairs of countries from 1951 through 2001 the tests provide strong support for our arguments ptas and the wto regime significantly reduce export volatility in so doing these institutions also increase export levels

returns to regionalism an analysis of nontraditional gains from regional trade agreements the past decade has witnessed a renewed interest in regional trade agreements with many policymakers and academics seeming to believe that these provide more than the traditional gains from trade this article examines several possible benefits that regional trade agreements may confer on their partners including credibility signaling bargaining power insurance and coordination it assesses the necessary conditions for each possible channel to work gives stylized examples of specific types of policy where the benefit might be applicable examines cases where the explanation might be relevant and discusses their overall plausibility it concludes by examining the north american free trade agreement and the europe agreements

real sources of european currency policy sectoral interests and european monetary integration in the thirty years before economic and monetary union was achieved european currency policies varied widely among countries and over time in this article i argue that the sectoral impact of regional exchange rate arrangements in particular their expected real effects on european trade and investment exerted a powerful influence on the course of european monetary integration the principal benefit of fixing european exchange rates was facilitation of cross border trade and investment within the european union eu the principal cost of fixed rates was the loss of national governments ability to use currency policy to improve their producers competitive position empirical results indeed indicate that a stronger and more stable currency was associated with greater importance of manufactured exports to the eu s hard currency core while depreciations were associated with an increase in the net import competition faced by the country s producers this suggests a powerful impact of real factors related to trade and investment and of private interests concerned about these factors in determining national currency policies

openness external risk and volatility implications for the compensation hypothesis a central assumption in the globalization literature is that economic openness generates economic insecurity and volatility based on this assumption schol ars of international political economy have proposed the compensation hypothesis which claims that globalization bolsters rather than undermines the welfare state by increasing public demand for social protection against externally generated eco nomic instability the openness volatility link is dubious however on both theoret ical and empirical grounds in this study i revisit the volatility assumption focusing on a crucial difference between openness and external risk in their effect on volatil ity my statistical analysis of a panel data set from 175 countries 1950 2002 finds a consistent effect of external risk on volatility of the major economic aggregates but a largely insignificant effect of openness these findings suggest that economic volatility may be a mistaken link in explaining the openness spending nexus calling for further research on the causal mechanisms linking the two the general growth of government in the post world war ii era is one of the most important empirical regularities in political science measured by general govern ment consumption or sectoral expenditures government size grew dramatically during most of the postwar period intrigued by this phenomenal government growth political scientists offered numerous accounts some viewing this growth as a corollary of economic phenomena such as modernization industrialization income distribution or fiscal illusion and others attributing government growth to political causes such as bureaucratization interest group politics and electoral competition 1

an exclusive country club the effects of the gatt on trade 1950 94 using data on bilateral trade flows from both before and after world war ii this article examines the impact of the general agreement on tariffs and trade on trade between its members and on the system of interwar trade blocs it shows that the distribution of the benefits produced by the gatt was much more highly skewed than conventional wisdom assumes the article also shows that the gold commonwealth reichsmark and exchange control blocs exerted positive and significant effects on trade after 1945 the authors attribute these effects to the bargaining protocol that governed successive rounds of gatt negotiations the signature element of the postwar trade regime

are preferential trading arrangements trade liberalizing or protectionist preferential trade arrangements and especially free trade agreements have mushroomed in importance in the 1990s this has revived research on the effects of these arrangements both on the welfare of the member countries and those excluded and on the momentum for further liberalization of the open multilateral trading system this paper reviews the analyses and evidence to date as to these effects showing that analytically anything can happen and that to date there has been insufficient experience to draw conclusions from empirical evidence

small states small problems income growth and volatility in small states abstract small states have attracted a large amount of research in this paper we test whether small states are any different from other states in terms of their income growth and volatility outcomes we find that controlling for location small states have higher per capita gdp than other states this income advantage is largely due to a productivity advantage constituting evidence against the idea that small states suffer from an inability to exploit increasing returns to scale small states also do not have different per capita growth rates than other states small states do have greater volatility of annual growth rates which is in part due to their greater volatility of terms of trade shocks this terms of trade based volatility is in turn due to small states greater openness their greater openness on balance has however a positive net payoff for growth the one differential policy measure that might be relevant for small states is to further open up to international capital markets in order to better diversify risk but the benefits of even that are still unresolved in the literature we conclude that small states are no different from large states and so should receive the same policy advice that large states do

democracy and national economic performance the preference for stability appear to arise because democracies ameliorate the effects of social cleavages another mechanism that might explain democratic stability when growth and volatility are jointly examined democracies reveal highly favorable economic results oes democracy affect national economic performance and if so how no question is more central to the study of political economics almost all previous work on democracy and economic performance has focused exclusively on growth rates with contradictory and confusing results in this article we argue that to reveal the impact of democratic institutions on economic performance scholars must consider two dimensions of economic performance growth rate and volatility we begin with a novel hypothesis economic policy in democracy is risk avoiding relative to policy in nondemocracies 1 because voters are riskaverse they penalize incumbent governments for economic volatility and democratic governments respond accordingly in nondemocracies we posit that elites are more likely to seek risk that voters would reject consequently autocracies produce systematically more economic volatility than

the rational design of international institutions international institutions are central features of modern international relations this is true of trade international debt and financial restructuring and even national security once the exclusive realm of pure state action it was certainly true of the two major military engagements of the 1990s the wars in kosovo and the persian gulf as international institutions have gained prominence in the political landscape they have increasingly become prominent topics for study the sharpest debate among researchers has been theoretical do international institutions really matter missing from this debate is a sustained inquiry into how these institutions actually work we shift the focus by posing researchable questions about how they operate and how they relate to the problems states face we begin with a simple observation major institutions are organized in radically different ways some are global essentially open to all states others are regional with restricted memberships some institutions give each state an equal vote whereas others have weighted voting and sometimes require supermajorities institutions may have relatively strong central authorities and significant operating responsibilities or be little more than forums for consultation some arrangements for example most bilateral treaties have no formal organizational structure these are plentiful because states have a striking tendency to codify their relationships in formal legal arrangements why do these differences exist do they really matter both for members and for international politics more generally do they affect what the institutions themselves can do we focus on these large questions of institutional design

trade blocs currency blocs and the reorientation of world trade in the 1930s we analyze the impact of commercial and financial policies on the reorientation of trade in the 1930s we report evidence that commercial policies attenuated prior connections between income growth and trade and that exchange rate instability marginally discouraged international trade in contrast the tendency toward regionalization commonly ascribed to the formation of trade and currency blocs was already evident to a considerable extent prior to the regional policy initiatives of the 1930s this reorientation is more properly attributed to ongoing historical forces such as commercial and financial links between countries forged over many years

multilateral determinants of regionalism the effects of gatt wto on the formation of preferential trading arrangements preferential trading arrangements ptas have spread widely over the past fifty years during the same era multilateral openness has grown to unprecedented heights spurred by the general agreement on tariffs and trade gatt and its successor the world trade organization wto if the cornerstone of the manifestly successful multilateral regime is nondiscrimination why have its members increasingly resorted to preferential liberalization we argue that developments at the heart of gatt wto encourage its members to form ptas as devices to obtain bargaining leverage within the multilateral regime specifically the growth in gatt wto membership the periodic multilateral trade negotiation rounds as well as participation and especially losses in formal gatt wto disputes have led its members to seek entrance into ptas conducting the first statistical tests on the subject we find strong evidence in support of this argument

the demand for international regimes international regimes can be understood as results of rational behavior by the actors principally states that create them regimes are demanded in part because they facilitate the making of agreements by providing information and reducing transactions costs in world politics increased interdependence among issues greater issue density will lead to increased demand for regimes insofar as regimes succeed in providing high quality information through such processes as the construction of generally accepted norms or the development of transgovernmental relations they create demand for their own continuance even if the structural conditions such as hegemony under which they were first supplied change analysis of the demand for international regimes thus helps us to understand lags between structural change and regime change as well as to assess the significance of transgovernmental policy networks several assertions of structural theory seem problematic in light of this analysis hegemony may not be a necessary condition for stable international regimes past patterns of institutionalized cooperation may be able to compensate to some extent for increasing fragmentation of power

the long run volatility puzzle of the real exchange rate abstract this paper documents large cross country differences in the long run volatility of the real exchange rate it shows that the real exchange rate of developing countries is approximately three times more volatile than the real exchange rate in industrial countries the paper shows that this difference in volatility cannot be explained by the fact that developing countries face larger shocks both real and nominal recurrent currency crises or by different elasticities to these shocks arch estimations find a much higher persistence of deviations of the variance of the rer from its long run value when the economy suffers shocks of various kinds

terms of trade and exchange rate regimes in developing countries abstract since friedman essays in positive economics university of chicago press chicago 1953 157 203 an advantage often attributed to flexible exchange rate regimes over fixed regimes is their ability to insulate more effectively the economy against real shocks i use a post bretton woods sample 1973 96 of 75 developing countries to assess whether the responses of real gdp real exchange rates and prices to terms of trade shocks differ systematically across exchange rate regimes i find that responses are significantly different across regimes in a way that supports friedman s hypothesis the paper also examines the importance of terms of trade shocks in explaining the overall variance of output and prices in developing countries

does flexibility promote cooperation an application to the global trade regime do flexibility provisions in international agreements clauses allow ing for legal suspension of concessions without abrogating the treaty promote coop eration recent work emphasizes that provisions for relaxing treaty commitments can ironically make states more likely to form agreements and make deeper conces sions when doing so this argument has particularly been applied to the global trade regime the general agreement on tariffs and trade gatt and its successor the world trade organization wto yet the field has not produced much evidence bearing on this claim our article applies this claim to the global trade regime and its chief flexibility provision antidumping in contrast to prior work this article explic itly models the endogeneity and selection processes envisioned by the theory we find that states joining the wto are more likely to adopt domestic antidumping mech anisms likewise corrected for endogeneity states able to take advantage of the regime s principal flexibility provision by having a domestic antidumping mecha nism in place are significantly more likely to 1 join the wto 2 agree to more tightly binding tariff commitments and 3 implement lower applied tariffs as well

the perversity of preferences gsp and developing country trade policies 1976 2000 industrial countries maintain special tariff preferences namely the generalized system of preferences gsp for imports from developing countries critics have highlighted the underachieving nature of such preferences but developing countries continue to place the gsp at the heart of their agenda in multilateral negotiations what effect do such preferences have on a recipient s own trade policies the authors develop and test a simple theoretical model of a small country s trade policy choice using a dataset of 154 developing countries from 1976 through 2000 they find that countries removed from the gsp adopt more liberal trade policies than those remaining eligible the results corrected for endogeneity and robust to numerous alternative measures of trade policy suggest that developing countries may be best served by full integration into the reciprocity based world trade regime rather than continued gsp style special preferences

the globalization of liberalization policy diffusion in the international political economy one of the most important developments over the past three decades has been the spread of liberal economic ideas and policies throughout the world these policies have affected the lives of millions of people yet our most sophisticated political economy models do not adequately capture influences on these policy choices evidence suggests that the adoption of liberal economic practices is highly clustered both temporally and spatially we hypothesize that this clustering might be due to processes of policy diffusion we think of diffusion as resulting from one of two broad sets of forces one in which mounting adoptions of a policy alter the benefits of adopting for others and another in which adoptions provide policy relevant information about the benefits of adopting we develop arguments within these broad classes of mechanisms construct appropriate measures of the relevant concepts and test their effects on liberalization and restriction of the current account the capital account and the exchange rate regime our findings suggest that domestic models of foreign economic policy making are insufficient the evidence shows that policy transitions are influenced by international economic competition as well as the policies of a country s sociocultural peers we interpret the latter influence as a form of channeled learning reflecting governments search for appropriate models for economic policy

institutions in international relations understanding the effects of the gatt and the wto on world trade the general agreement on tariffs and trade gatt and the world trade organization wto have been touted as premier examples of international institutions but few studies have offered empirical proof this article comprehensively evaluates the effects of the gatt wto and other trade agreements since world war ii our analysis is organized around two factors institutional standing and institutional embeddedness we show that many countries had rights and obligations or institutional standing in the gatt wto even though they were not formal members of the agreement we also expand the analysis to include a range of other commercial agreements that were embedded with the gatt wto using data on dyadic trade since 1946 we demonstrate that the gatt wto substantially increased trade for countries with institutional standing and that other embedded agreements had similarly positive effects moreover our evidence suggests that international trade agreements have complemented rather than undercut each other an earlier version of this article was presented at the 99th annual meeting of the american political science association philadelphia august 28 31 2003 we thank tim buthe joanne gowa miles kahler andrew rose arthur stein richard steinberg and seminar participants at stanford university the university of chicago pipes the university of california los angeles the university of california san diego and the university of virginia for many helpful comments we especially thank claire adida ashley conner moonhawk kim erin krampetz james morrison mike nardis natan sachs rachel rubinfeld and jessica weeks for excellent research assistance we are grateful for financial support from the national science foundation career grant ses 0548285 to tomz the stanford center for international development and the vice provost for undergraduate education at stanford

the gatt and the regulation of trade barrier regime dynamics and functions since the second world war complex and changing sets of norms and rules have governed trade relations among most countries they have largely originated from a unique and accidental international organization the general agreement on tariffs and trade gatt we have labeled these norms rules and decision making mechanisms the gatt regime or global trade barriers regime the importance that gatt members have attached to certain norms has shaped the regime s procedural mechanisms rules and implementation of rules classifying those norms as sovereignty or interdependence norms we posit that the strength or autonomy of the regime can be established by analyzing the prominence of the interdependence norms in the issue area we close by exploring some of the functions of the regime in international trade and political relations

effects of wto accession on policy making in sovereign states preliminary lessons from the recent experience of transition countries one of the most remarkable success es of the world trade organization in recent years has been the expansion of wto membership and the continued stream of applications of countries to accede to the wto of the 43 countries that have applied to accede the wto under article xii since january i 1995 approximately one half are countries in the process of trans ition from a planned to a market economy ten of the 14 countries that have already completed their accession process and between 9 and 13 countries depending on whether east asian countries are included or not of the 28 countries negotiating their accession are trans ition countries clearly the wto represents a powerful attraction for countries in transition cit which treat their wto membership as a stamp of approval of their policies and the admission into the international community a feat quite important for crt that have been isolated from world markets for more 50 years

a generalized design for bilateral trade flow models abstract this paper suggests a full interaction effects design to analyze bilateral trade flows this is illustrated with an unbalanced panel of bilateral trade between the triad eu15 usa and japan economies and their 57 most important trading partners over the period 1986 1997 our full interaction model finds empirical support for the new trade theory and linder s hypothesis we show that the omission of one or more interaction effects can result in biased estimates and misleading inference

checks and balances private information and the credibility of monetary commitments the authors develop and test several new hypotheses about the anti inflationary effect of central bank independence and exchange rate pegs in the context of different institutions and different degrees of citizen information about government policies theory provides strong reason to believe that while central bank independence will prove more effective as a commitment mechanism in countries where multiple players in government have veto power checks and balances the number of veto players will have no effect on the credibility of exchange rate pegs conversely the authors argue that central bank independence does not solve the problems of commitment that arise when citizens are imperfectly informed about the contribution of government policy to inflation exchange rate pegs however mitigate these problems the authors present extensive evidence from cross country tests using newly developed data that provide strong support for their propositions

the politics of dispute settlement design explaining legalism in regional trade pacts dispute settlement mechanisms in international trade vary dramatically from one agreement to another some mechanisms are highly legalistic with standing tribunals that resemble national courts in their powers and procedures others are diplomatic requiring only that the disputing countries make a good faith effort to resolve their differences through consultations in this article i seek to account for the tremendous variation in institutional design across a set of more than sixty post 1957 regional trade pacts in contrast to accounts that emphasize the transaction costs of collective action or the functional requirements of deep integration i find that the level of legalism in each agreement is strongly related to the level of economic asymmetry in interaction with the proposed depth of liberalization among member countries

did the expiration of retail price caps affect prices in the restructured texas electricity market on january 1 2007 the electric reliability council of texas ercot market became the first restructured market in the us to completely remove caps on the prices which could be charged to residential energy consumers by the retailers associated with the traditional or incumbent utility service providers our analysis suggests that the expiration of the price to beat ptb price caps may have led to a reduction in the average prices charged by competitive retail electric providers reps

risk and spectral instability in portfolio analysis abstract this study extends the traditional e v portfolio selection model pioneered by markowitz and extended by others to accommodate the investor s attitude towards predicted instability it is argued that investors given the choice between the two equal amplitude net earnings series may either prefer or be averse to investing in that stock with the highest frequency all other things constant an instability aversion preference function was developed in this study that could accomodate alternative attitudes toward instability finally a situation where an investor who is assumed to be averse to predicted instability was given the choice of selecting among alternative combinations of six stocks was analyzed under alternative weights assigned to the importance of instability relative to risk the results showed that the optimal portfolio combination may begin to differ sharply from the traditional e v solution as the investor s aversion toward instability becomes more important relative to his aversion to risk

antidumping and retaliation threats abstract we propose and test two ways in which retaliation threats may dampen the antidumping ad activity we observe first the threat of retaliatory ad actions may make a domestic industry less likely to name a foreign import source in an ad petition second the prospect of a gatt wto trade dispute may make government agencies less likely to rule positive in their ad decision using a nested logit framework we find evidence that both retaliation threats substantially affect us ad activity from 1980 through 1998

free to trade democracies autocracies and international trade trade relations we address this issue by analyzing the relationship between regime type and trade policy in a formal model of commercial policy we establish that the ratification responsibility of the legislature in democratic states leads pairs of democracies to set trade barriers at a lower level than mixed country pairs composed of an autocracy and a democracy we test this hypothesis by analyzing the effects of regime type on trade during the period from 1960 to 1990 the results of this analysis accord with our argument democratic pairs have had much more open trade relations than mixed pairs t he effects of domestic political institutions on trade policy have long been a source of controversy among social scientists despite the widespread interest that this debate has prompted however remarkably few studies have addressed the links between political regime type and commercial policy 1 most work on the political economy of trade policy that examines institutional factors focuses only on variations in policy among democracies and avoids comparing democracies with other types of regimes moreover many analyses of trade barriers especially those by economists ignore the effects of domestic political

fixed exchange rates and trade abstract a classic argument for a fixed exchange rate is its promotion of trade empirical support for this however is mixed while one branch of research consistently shows a small negative effect of exchange rate volatility on trade another more recent branch presents evidence of a large positive impact of currency unions on trade this paper helps resolve this disconnect our results which use a new data based classification of fixed exchange rate regimes show a large significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it these results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates