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Globalization and the (Mis)Governance of Nations

  • Blouin, Arthur

    (University of Warwick)

  • Ghosal, Sayantan

    (University of Warwick)

  • Mukand, Sharun

    (University of Warwick)

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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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
Date of revision:
Handle: RePEc:cge:wacage:69
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  1. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
  2. Pavlova, Anna & Rigobon, Roberto, 2004. "Asset Prices and Exchange Rates," Working papers 4322-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  3. 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.
  4. 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.
  5. 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.
  6. Leonardo Bartolini & Allan Drazen, 1996. "When liberal policies reflect external shocks, what do we learn?," Staff Reports 18, Federal Reserve Bank of New York.
  7. Sebastian Edwards, 1999. "How Effective are Capital Controls?," NBER Working Papers 7413, National Bureau of Economic Research, Inc.
  8. Mukand, Sharun W., 2006. "Globalization and the `confidence game'," Journal of International Economics, Elsevier, vol. 70(2), pages 406-427, December.
  9. 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.
  10. Frederic S. Mishkin, 2007. "Is Financial Globalization Beneficial?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 259-294, 03.
  11. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
  12. Besley, Timothy J. & Smart, Michael, 2002. "Does Tax Competition Raise Voter Welfare?," CEPR Discussion Papers 3131, C.E.P.R. Discussion Papers.
  13. Shang-Jin Wei & Irina Tytell, 2004. "Does Financial Globalization Induce Better Macroeconomic Policies?," IMF Working Papers 04/84, International Monetary Fund.
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