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Globalization and the (Mis)Governance of Nations

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  • Blouin, Arthur

    (University of Warwick)

  • Ghosal, Sayantan

    (University of Warwick)

  • Mukand, Sharun

    (University of Warwick)

Abstract

We analyze whether or not the globalization of capital, `disciplines' governments and improves gov- ernance. We demonstrate that globalization a ects governance, by increasing a country's vulnerability to sudden capital ight. This increased threat of capital ight 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 quali ed) role for capital controls. Finally, we provide some suggestive evidence consistent with the predictions from our theoretical framework.

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Bibliographic Info

Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 69.

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Date of creation: 2011
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Handle: RePEc:cge:wacage:69

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Keywords: Globalization; Governance; Capital Flight; Capital Controls; Discipline.;

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References

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  1. Sebastian Edwards, 1999. "How Effective are Capital Controls?," NBER Working Papers 7413, National Bureau of Economic Research, Inc.
  2. Mukand, Sharun W., 2006. "Globalization and the `confidence game'," Journal of International Economics, Elsevier, vol. 70(2), pages 406-427, December.
  3. 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.
  4. Besley, Timothy J. & Smart, Michael, 2002. "Does Tax Competition Raise Voter Welfare?," CEPR Discussion Papers 3131, C.E.P.R. Discussion Papers.
  5. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
  6. Anna Pavlova & Roberto Rigobon, 2007. "Asset Prices and Exchange Rates," Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1139-1180.
  7. 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.
  8. Frederic Mishkin, 2005. "Is Financial Globalization Beneficial?," NBER Working Papers 11891, National Bureau of Economic Research, Inc.
  9. Reuven Glick & Andrew K. Rose, 1998. "Contagion and Trade: Why Are Currency Crises Regional?," NBER Working Papers 6806, National Bureau of Economic Research, Inc.
  10. Obstfeld, Maurice, 1998. "The Global Capital Market: Benefactor or Menace?," Center for International and Development Economics Research, Working Paper Series qt3kn3n2s8, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  11. Leonardo Bartolini & Allan Drazen, 1996. "When liberal policies reflect external shocks, what do we learn?," Staff Reports 18, Federal Reserve Bank of New York.
  12. Shang-Jin Wei & Irina Tytell, 2004. "Does Financial Globalization Induce Better Macroeconomic Policies?," IMF Working Papers 04/84, International Monetary Fund.
  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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