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Globalization and the (Mis)Governance of Nations

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Author Info

  • Arthur Blouin
  • Sayantan Ghosal
  • Sharun Mukand

Abstract

We analyze whether or not the globalization of capital, ‘disciplines’ governments and improves governance. We demonstrate that globalization affects governance, by increasing a country’s vulnerability to sudden capital flight. This increased threat of capital flight can discipline governments and improve governance and welfare by placing countries in a ‘golden straitjacket’. However, globalization may also ‘overdiscipline’ governments - resulting in a perverse impact on governmental incentives that catalyzes (mis)governance. Accordingly, the paper suggests a novel (and qualified) role for capital controls. Finally, we provide some suggestive evidence consistent with the predictions from our theoretical framework.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-01/cesifo1_wp3715.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3715.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3715

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Keywords: globalization; governance; capital flight; capital controls; discipline;

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References

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  1. Shang-Jin Wei & Irina Tytell, 2004. "Does Financial Globalization Induce Better Macroeconomic Policies?," IMF Working Papers 04/84, International Monetary Fund.
  2. Glick, Reuven & Rose, Andrew K, 1998. "Contagion and Trade: Why are Currency Crises Regional," CEPR Discussion Papers 1947, C.E.P.R. Discussion Papers.
  3. Leonardo Bartolini & Allan Drazen, 1996. "When Liberal Policies Reflect External Shocks, What Do We Learn?," NBER Working Papers 5727, National Bureau of Economic Research, Inc.
  4. Sebastian Edwards, 1999. "How Effective are Capital Controls?," NBER Working Papers 7413, National Bureau of Economic Research, Inc.
  5. Stiglitz Joseph E., 2010. "Contagion, Liberalization, and the Optimal Structure of Globalization," Journal of Globalization and Development, De Gruyter, vol. 1(2), pages 1-47, December.
  6. Maurice Obstfeld, 1998. "The Global Capital Market: Benefactor or Menace?," NBER Working Papers 6559, National Bureau of Economic Research, Inc.
  7. Anna Pavlova & Roberto Rigobon, 2003. "Asset Prices and Exchange Rates," NBER Working Papers 9834, National Bureau of Economic Research, Inc.
  8. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
  9. Besley, Timothy J. & Smart, Michael, 2002. "Does Tax Competition Raise Voter Welfare?," CEPR Discussion Papers 3131, C.E.P.R. Discussion Papers.
  10. Alberto F. Alesina & Roberto Perotti, 1999. "Budget Deficits and Budget Institutions," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 13-36 National Bureau of Economic Research, Inc.
  11. Sharun Mukand, 1999. "Globalization and the "Confidence Game"," Discussion Papers Series, Department of Economics, Tufts University 9924, Department of Economics, Tufts University.
  12. Frederic Mishkin, 2005. "Is Financial Globalization Beneficial?," NBER Working Papers 11891, National Bureau of Economic Research, Inc.
  13. Hongbin Cai & Daniel Treisman, 2005. "Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy," American Economic Review, American Economic Association, vol. 95(3), pages 817-830, June.
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Cited by:
  1. repec:cge:warwcg:131 is not listed on IDEAS
  2. Mitchener, Kris James & Wandschneider, Kirsten, 2013. "Capital Controls and Recovery from the Financial Crisis of the 1930s," CAGE Online Working Paper Series 132, Competitive Advantage in the Global Economy (CAGE).

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