IDEAS home Printed from https://ideas.repec.org/a/cup/intorg/v61y2007i01p181-216_07.html
   My bibliography  Save this article

Openness, External Risk, and Volatility: Implications for the Compensation Hypothesis

Author

Listed:
  • Kim, So Young

Abstract

A central assumption in the globalization literature is that economic openness generates economic insecurity and volatility. Based on this assumption, scholars 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 economic instability. The openness-volatility link is dubious, however, on both theoretical 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 volatility. 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.Earlier versions of this paper were presented at the 2002 Annual Meeting of the American Political Science Association, Boston, and at the 2004 Ph.D. Colloquium of the Interdisciplinary Studies Program, Florida Atlantic University. My deepest thanks go to the late Michael Wallerstein whose insights, guidance, and encouragement were indispensable for this research. I also thank Stephen Haggard, Dukhong Kim, Jeffrey Morton, Edward Schwerin, Yumin Sheng, and Yael Wolinsky-Nahmias for their invaluable support and thoughtful comments. Finally, I would like to appreciate the editor-in-chief and two anonymous reviewers for their perceptive criticisms that greatly improved this article.

Suggested Citation

  • Kim, So Young, 2007. "Openness, External Risk, and Volatility: Implications for the Compensation Hypothesis," International Organization, Cambridge University Press, vol. 61(1), pages 181-216, January.
  • Handle: RePEc:cup:intorg:v:61:y:2007:i:01:p:181-216_07
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0020818307070051/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Spiliopoulos, Leonidas, 2010. "The determinants of macroeconomic volatility: A Bayesian model averaging approach," MPRA Paper 26832, University Library of Munich, Germany.
    2. Andreas Bergh & Anders Kärnä, 2021. "Globalization and populism in Europe," Public Choice, Springer, vol. 189(1), pages 51-70, October.
    3. Sáenz Rodríguez, Estela & Sabaté Sort, Marcela & Gadea Rivas, María Dolores, 2009. "La medición del riesgo externo. Un estudio aplicado al caso español en el periodo 1960-2000/The Measurement of External Risk. An Applied Study to the Spanish Case in the Period 1960-2000," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 27, pages 575(16á)-57, Agosto.
    4. Bergh, Andreas & Nilsson, Therese, 2014. "Is Globalization Reducing Absolute Poverty?," World Development, Elsevier, vol. 62(C), pages 42-61.
    5. Balavac, Merima & Pugh, Geoff, 2016. "The link between trade openness, export diversification, institutions and output volatility in transition countries," Economic Systems, Elsevier, vol. 40(2), pages 273-287.
    6. Awel, Ahmed Mohammed, 2012. "Terms of Trade Volatility and Economic Growth in Sub-Saharan Africa," MPRA Paper 45453, University Library of Munich, Germany.
    7. Nastasia Henry & Alain Venditti, 2023. "On the (de)stabilization role of protectionism: Theory and evidence," Working Papers hal-04311555, HAL.
    8. Christian Walter Martin & Nils D. Steiner, 2016. "Economic globalization and the change of electoral rules," Constitutional Political Economy, Springer, vol. 27(4), pages 355-376, December.
    9. Bergh, Andreas & Nilsson, Therese, 2009. "Good for Living? On the Relation between Globalization and Life Expectancy," Ratio Working Papers 136, The Ratio Institute.
    10. Andreas Bergh & Irina Mirkina & Therese Nilsson, 2020. "Can social spending cushion the inequality effect of globalization?," Economics and Politics, Wiley Blackwell, vol. 32(1), pages 104-142, March.
    11. Bergh, Andreas & Nilsson, Therese, 2010. "Good for Living? On the Relationship between Globalization and Life Expectancy," World Development, Elsevier, vol. 38(9), pages 1191-1203, September.
    12. Nikitas Konstantinidis & Konstantinos Matakos & Hande Mutlu-Eren, 2019. "“Take back control”? The effects of supranational integration on party-system polarization," The Review of International Organizations, Springer, vol. 14(2), pages 297-333, June.
    13. Jason Sorens, 2014. "Fiscal federalism, jurisdictional competition, and the size of government," Constitutional Political Economy, Springer, vol. 25(4), pages 354-375, December.
    14. Erauskin-Iurrita, Inaki, 2008. "Financial openness and the size of the public sector: a portfolio approach," MPRA Paper 10619, University Library of Munich, Germany, revised 15 Sep 2008.
    15. Raphael Cunha & Andreas Kern, 2022. "Global banking and the spillovers from political shocks at the core of the world economy," The Review of International Organizations, Springer, vol. 17(4), pages 717-749, October.
    16. Sijeong Lim & Brian Burgoon, 2017. "Globalization and Support for Unemployment Spending in Asia," Working Papers hal-01670983, HAL.
    17. Bergh, Andreas, 2019. "The Compensation Hypothesis Revisited and Reversed," Working Paper Series 1273, Research Institute of Industrial Economics.
    18. Huo, Jingjing, 2015. "How Nations Innovate: The Political Economy of Technological Innovation in Affluent Capitalist Economies," OUP Catalogue, Oxford University Press, number 9780198735847.
    19. Estela Sáenz & María Dolores Gadea & Marcela Sabaté, 2009. "Measuring the external risk in the United Kingdom," Economics Bulletin, AccessEcon, vol. 29(2), pages 1182-1189.
    20. Federico Podestà, 2016. "Do Big Governments Promote Trade Liberalization? A Long-Term Analysis of 18 OECD Countries, 1975-2000," FBK-IRVAPP Working Papers 2016-02, Research Institute for the Evaluation of Public Policies (IRVAPP), Bruno Kessler Foundation.
    21. Wu, Jiabin, 2018. "Entitlement to assort: Democracy, compromise culture and economic stability," Economics Letters, Elsevier, vol. 163(C), pages 146-148.
    22. Dutt, Pushan & Mobarak, Ahmed Mushfiq, 2016. "Democracy and policy stability," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 499-517.
    23. EDWARDS, Jeffrey, 2009. "Trading Partner Volatility And The Ability For A Country To Cope: A Panel Gmm Model, 1970-2005," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(2).
    24. Erkam Sari & Hakan Hotunluoglu, 2021. "Government Size and Openness: Insights Basedon Country Classifications," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 7(1), pages 1-16, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:intorg:v:61:y:2007:i:01:p:181-216_07. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/ino .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.