nep-pol New Economics Papers
on Positive Political Economics
Issue of 2005‒12‒14
sixteen papers chosen by
Eugene Beaulieu
University of Calgary

  1. The Structure of Lobbying and Protection in U.S. Agriculture By Kishore Gawande
  2. Congressional Trends to Tax and Spend: Examining Fiscal Voting Across Time and Chamber By Edward J. Lopez
  3. Antidumping and Safeguard Measures in the Political Economy of Liberalization : The Mexican Case By Luz Elena Reyes de la Torre; Jorge G. González
  4. Gains from a Redrawing of Political Boundaries: Evidence from State Reorganization in India By Rajashri Chakrabarti
  5. Measuring Risk: Political Risk Insurance Premiums and Domestic Political Institutions. By Nathan M Jensen
  6. Strategic Institutional Choice: Voters, States, and Congressional Term Limits By Edward J. Lopez; R. Todd Jewell
  7. Decentralization and Electoral Accountability : Incentives, Separation and Vote Welfare By Jean, HINDRIKS; Ben, Lockwood
  8. A Model of Rights By Nicholas Shunda
  9. Political Pressures and Monetary Mystique By Petra M. Geraats
  10. Democratization and clientelism: Why are Young Democracies Badly Governed? By Philip Keefer
  11. Governance in the Gullies : Democratic Responsiveness and Leadership in Delhi's Slums By Saumitra Jha; Vijayendra Rao; Michael Woolcock
  12. The Profits of Power: Land Rights and Agricultural Investment in Ghana By Markus Goldstein; Christopher Udry
  13. When will a dictator be good? By Ling Shen
  14. Institution Building and Growth in Transition Economies By Thorsten Beck; Luc Laeven
  15. Postbellum Protection and Commissioner Wells's Conversion to Free Trade By Stephen Meardon
  16. Resistance to Multilateral Influence on Reform : The Political Backlash against Private Infrastructure Investments By Witold J. Henisz; Bennet A. Zelner

  1. By: Kishore Gawande (Bush School of Government, Texas A&M)
    Abstract: The author surveys the empirical literature on the political economy of agricultural protection. He uses a detailed data set of agricultural Political Action Committee (PAC) contributions over five U.S. congressional election cycles over the 1991-2000 period to investigate the relationship between lobbying spending and agricultural protection. A detailed graphical analysis of campaign contributions by the agricultural PACs indicates that although there are very many PACs, in most sectors the majority of contributions are made by very few PACs. Econometric analysis reveals that lobbying spending by agricultural PACs is positively associated with the use of nontariff barriers and specific tariffs by the United States. There is a strong association between the average U.S. tariff on goods that benefit from U.S. export subsidies and lobbying spending. And there is no association between agricultural protection and trade measures such as import penetration and the export-to-output ratio.
    Keywords: Agriculture, International economics
    Date: 2005–09–01
  2. By: Edward J. Lopez (San Jose State University)
    Abstract: This paper examines congressional spending preferences over time by party and chamber. The data employed is the annual vote index compiled by the National Taxpayers Union for 1979-2002. NTU scores are presented with and without adjusting for interchamber and intertemporal movements of the policy space over which the scores are calculated. Results indicate that the parties and chambers are much more stable over time, and exhibit a slighter liberal trend, with adjustments for movements in the policy space. In addition, during fiscal milestones the adjusted scores indicate less pronounced changes in spending preferences than the unadjusted data do.
    Keywords: fiscal policy, legislator voting, ideal point estimation
    JEL: D6 D7 H
    Date: 2005–12–02
  3. By: Luz Elena Reyes de la Torre (; Jorge G. González (
    Abstract: Mexico's creation and use of safeguard and antidumping processes to advance its liberalization illustrate three key points: (1) The country was able to use the instruments without losing political control. In a period of crisis that threatened congressional approval of critical steps in the liberalization-brought on by currency overvaluation and recession, along with unexpected demands from the United States in the North American Free Trade Agreement negotiations-the government applied a number of trade defense measures. Once the problems were addressed with adequate instruments the number of measures dropped drastically. The instruments had not been captured by protection-seeking interests; (2) The country adopted a liberalization-accepting measure of international norms. An important innovation that Mexico made operational was the use within World Trade Organization (WTO) rules of prevailing international prices as the measure of competition that industry was expected to meet. The WTO rules would also have allowed the use of other standards-as in traditional antidumping-using countries-that impose less discipline. Moreover, the Mexican standard was consistent with the government-industry understanding that though Mexican industry would be protected against extraordinary circumstances it would be expected to face up to international competition; (3) Political judgment and political courage are essential. While mastery of the technical elements of a safeguard or antidumping investigation is mandatory, sustaining liberalization depends in significant part on the political skills to know when to emphasize the technical elements, when to rely more on the discretion the government retains under the rules, and on the courage to do it.
    Keywords: International economics
    Date: 2005–08–01
  4. By: Rajashri Chakrabarti (Harvard University)
    Abstract: This paper analyzes the impact of a redrawing of political boundaries on voting patterns. It investigates whether secession of states leads to gains in terms of better conformity of the electorate's political preferences with those of the elected representatives. We study these issues in the context of reorganization of states in India. Madhya Pradesh, the biggest state in India before the reorganization, was subdivided into Madhya Pradesh and Chhattisgarh in 2000, the latter accounting for less than one-fourth of the electorate of undivided Madhya Pradesh. Using socio-economic composition and traditional voting patterns, we argue that there were differences in political preferences between Madhya Pradesh and Chhattisgarh. However, in electoral democracies, the amount of transfers that a constituency gets depends crucially on whether the local representative belongs to the ruling party. Under these circumstances, we show in a theoretical context that when it is part of the same state, the smaller region would vote strategically to elect representatives with preferences more closely aligned to those of the bigger region. Once it constitutes a separate state however, this motive would no longer operate. Exploiting detailed data on state elections in Madhya Pradesh and Chhattisgarh in 1993, 1998 and 2003 and a difference-in-differences estimation strategy, we show that these predictions are validated empirically - there is a significant divergence in voting behavior between the two regions in 2003 compared to the pre-reorganization period.
    Keywords: Political boundaries, Voting, Redistribution
    JEL: P16 H0 O1
    Date: 2005–12–02
  5. By: Nathan M Jensen (Washington University)
    Abstract: There is a renewed interest in political science on how political risk affects multinational corporations operating in emerging markets. Most existing studies suffer from data problems where researchers can only offer indirect evidence of the relationship between political institutions and political risk. In this paper I utilize a new data resource to explore how domestic institutions affect political risks for multinationals. Utilizing price data from political risk insurance agencies I test how domestic political institutions affect the premiums multinationals pay for coverage against 1) expropriations and contract disputes and 2) government restrictions on capital transactions. I find that constraints on politicians lead to marginally lower expropriation and transfer risks. Democracy, on the other hand, greatly reduces expropriation risk but has no impact on transfer risk.
    Keywords: FDI, political risk, expropriation, insurance
    JEL: F3 F4
    Date: 2005–12–09
  6. By: Edward J. Lopez (San Jose State University); R. Todd Jewell (University of North Texas)
    Abstract: This paper demonstrates that states’ decisions on limiting congressional terms are empirically determined by measures of relative political influence in Congress. States’ choices on term limits are quantified as a multiple-categorical variable that reflects variation in the stringency of term limits laws passed. Using 1992 data on the American states, the model controls for unobserved heterogeneity that is introduced by some voters having access to institutions of direct democracy. At 2002 state-level values for congressional tenure and federal spending, the model predicts approximately eight to ten additional states would choose to limit terms of their own congressional delegations, but are prohibited from doing so under a Supreme Court ruling. The results hold implications for institutional federalism and the potential passage of similar political institutions across the states.
    Keywords: term limits; political institutions; federalism; political economy
    JEL: D72 H7
    Date: 2005–12–02
  7. By: Jean, HINDRIKS; Ben, Lockwood
    Abstract: This paper studies the relationship between fiscal decentralization and electoral accountability, by analyzing how decentralization impacts upon incentive and selecion effects, and thus on voter welfare. The model abstracts from features such as public good spillovers or economics of scale, so that absent elections, voters are indifferent about the fiscal regime. The effect of fiscal centralization on voter welfare works through two channels : (i) via its effect on the probability of pooling by the bad incumbent; (ii) conditional on the probability of pooling, the extent to which, with centralization, the incumbent can divert rents in some regions without this being detected by voters in other regions (selective rent diversion). Both these effects depend on the information structure; whether voters only observe fiscal policy in their own region, in all regions, or an intermediate case with a uniform tax across all regions. More voter information does not necessarily raise voter welfare, and under some conditions, voter would choose uniform over differentiated taxes ex ante to constrain selective rent diversion
    Keywords: Fiscal federalism; decentralization; elections; accountability
    JEL: D72 D73 H41
    Date: 2005–03–15
  8. By: Nicholas Shunda (University of Connecticut)
    Abstract: In this paper, we develop a simple model of the rights a government provides its citizenry. Rights are treated as public goods and taken as primitives in agents utility functions; each agent has preferences over the entire policy vector. We model the interaction among citi-zens and the government as a game in which an exogenous lobbying set makes contributions to the government to in uence policy formu-lation in the matter of rights. When examining contribution schedules comprising truthful Nash strategies, we find that members of the lob-bying set obtain rights closer to their most-preferred bundle, while the rights of non-lobbyers further diverge from their most-preferred bun-dle. Further, if the lobbying set comprises the entire population, the government s allocation of rights does not differ from the allocation achieved in the absence of contributions.
    Keywords: contributions, political economy, rights, voting
    JEL: D72 D73 D78 H41
    Date: 2005–10
  9. By: Petra M. Geraats
    Abstract: Central bank independence and transparency have become best practice in monetary policy. This paper cautions that transparency about economic information may not be beneficial in the absence of central bank independence. The reason is that it reduces monetary uncertainty, which could make the government less inhibited to interfere with monetary policy. In fact, a central bank could use monetary mystique to obtain greater insulation from political pressures, even if the government faces no direct cost of overriding. As a result, economic secrecy could be beneficial and provide the central bank greater political independence.
    Keywords: Transparency, monetary policy, political pressures
    JEL: E58 E52 D82
    Date: 2005–12
  10. By: Philip Keefer (The World Bank)
    Abstract: This paper identifies systematic performance differences between younger and older democracies: younger democracies are more corrupt; exhibit less rule of law, lower levels of bureaucratic quality, and lower secondary school enrollments; and spend more on public investment and government workers. Only one theory explains the effects of democratic age on the wide range of policy outcomes examined here-the inability of political competitors in younger democracies to make credible promises to citizens. This explanation, first advanced in Keefer and Vlaicu (2004), offers a concrete interpretation of what political institutionalization might mean, and why it is that young democracies frequently fail to become older and well-performing democracies. A variety of tests support this explanation against alternatives. The effect of democratic age remains large even after controlling for the possibilities that voters are less well-informed in young democracies, that young democracies have systematically different political and electoral institutions, or that young democracies exhibit more polarized societies.
    Keywords: Infrastructure, Governance, Social Development, Education, Public sector management
    Date: 2005–05–01
  11. By: Saumitra Jha (Stanford University); Vijayendra Rao (The World Bank); Michael Woolcock (The World Bank)
    Abstract: The authors use detailed ethnographic evidence to design and interpret a broad representative survey of 800 households in Delhi's slums, examining the processes by which residents gain access to formal government and develop their own informal modes of leadership. While ethnically homogeneous slums transplant rural institutions to the city, newer and ethnically diverse slums depend on informal leaders who gain their authority through political connections, education, and network entrepreneurship. Education and political affiliation are more important than seniority in determining a leader's influence. Informal leaders are accessible to all slum dwellers, but formal government figures are most accessed by the wealthy and the well-connected.
    Keywords: Governance, Urban development, Poverty, Social Development
    Date: 2005–09–01
  12. By: Markus Goldstein (The World Bank); Christopher Udry (Economic Growth Center, Yale University)
    Abstract: We examine the impact of ambiguous and contested land rights on investment and productivity in agriculture in Akwapim, Ghana. We show that individuals who hold powerful positions in a local political hierarchy have more secure tenure rights, and that as a consequence they invest more in land fertility and have substantially higher output. The intensity of investments on different plots cultivated by a given individual correspond to that individual’s security of tenure over those specific plots, and in turn to the individual’s position in the political hierarchy relevant to those specific plots. We interpret these results in the context of a simple model of the political allocation of land rights in local matrilineages.
    Keywords: Land tenure, Investment, Institutions
    JEL: O12 O13 O17
    Date: 2005–11
  13. By: Ling Shen
    Abstract: Dictatorship is the predominant political system in many developing countries. However, different dictators act quite differently: a good dictator implements growth-enhancing economic policies, e.g. investment in public education and infrastructure, whereas a bad dictator expropriates wealth of her citizens for her own consumption. The present paper provides a theoretical model by deriving underlying determinants of dictatorial behavior. We assume that the engine of economic growth is private investment. It can increase the productivity of individuals who invest, as well as the aggregate technological level. A good dictator encourages this investment in order to expropriate more. However, the cost of this encouragement is that the ensuing higher growth rate will induce earlier democratization. In this paper we will illustrate the trade-off between economic benefits from a growth-enhancing policy in the short run and the shorter life-time of the dictator in the long run. Furthermore, we will find that the higher the return from private investments is the less likely the dictator will be a good one. Contrary to McGuire and Olson (1996) we find that a long life-time does not always induce positive incentives among dictators.
    Keywords: dictatorship, political transition, economic growth
    JEL: H00 O12 P16
    Date: 2005–09
  14. By: Thorsten Beck (The World Bank); Luc Laeven (The World Bank and CEPR)
    Abstract: Drawing on the recent literature on economic institutions and the origins of economic development, the authors offer a political economy explanation of why institution building has varied so much across transition economies. They identify dependence on natural resources and the historical experience of these countries during socialism as major determinants of institution building during transition by influencing the political structure and process during the initial years. Their empirical analysis shows that countries that are more reliant on natural resources and spent a longer time under socialist governments are more likely to see former communists remain in power and to start the transition process with less open political systems, with negative repercussions for the development of market-compatible institutions. Using natural resource reliance and the years under socialism to extract the exogenous component of institution building, the authors also show the importance of institutions in explaining the variation in economic development and growth across transition economies during the first decade of transition.
    Keywords: Governance, Transition, Macroeconomics and growth
    Date: 2005–07–01
  15. By: Stephen Meardon (Williams College)
    Abstract: A moment of consequence to the postbellum U.S. tariff debate was the 'conversion' of David Ames Wells, Commissioner of the Revenue from 1865- 1870, to free trade. When he began his work Wells was a disciple of the eminent American protectionist Henry C. Carey. By the age of forty, however, he had become America's answer to Britain's Sir Robert Peel: a public figure of tremendous influence, who, having changed his mind on the issue, became the standard-bearer for free trade in both the intellectual and political arenas. Half a century and more in the past, when Wells's name was better remembered in American economic and political history, several stories were told of the causes of his conversion: some attributed it ultimately to the force of ideas, some to interests. My purpose is to demonstrate that the unacknowledged but most important cause was Wells's relationship with Edward Atkinson, and Wells and Atkinson's mutual wish to grant effective protection, or net protection, to cotton manufacturers. The story of Wells's conversion that unfolds in the demonstration is not one that disentangles and assigns weights to the contributions of theory and interests. It shows instead how each determined the other.
    Keywords: Wells, David Ames; Atkinson, Edward; free trade; revenue commission; effective protection; net protection
    JEL: B1 B31 F13 N71
    Date: 2005–12–06
  16. By: Witold J. Henisz (University of Pennsylvania); Bennet A. Zelner (Georgetown University)
    Abstract: Coercive isomorphism is a prominent source of institutional change. The literature to date has emphasized how actors that are powerful and legitimate (for example, a national government) may coerce the adoption of reforms by dependent actors (for example, state governments and other organizations whose activities are governed by the federal government). The authors observe that an actor's power alone may be sufficient to promote reform, regardless of the actor's legitimacy. But such reforms are more susceptible to subsequent change than those that emerge from processes not subject to the influence of external actors whose sway derives from their power alone. They develop and test their arguments in the context of the worldwide electricity provision industry by analyzing countries' adoption of reforms in response to conditional lending practices by multilateral organizations such as the World Bank and the International Monetary Fund. The authors find that reforms adopted in response to coercive pressures exerted by these organizations encounter much greater resistance, and that the incidence of financial and economic crises, the absence of checks and balances in established political institutions, and the inexperience of investor coalitions dramatically increase the predicted level of resistance.
    Keywords: Infrastructure
    Date: 2005–09–01

This nep-pol issue is ©2005 by Eugene Beaulieu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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