Power Fluctuations and Political Economy

We study the constrained Pareto efficient allocations in a dynamic production economy in which the group that holds political power decides the allocation of resources. We show that Pareto efficient allocations take a quasi-Markovian structure and can be represented recursively as a function of the identity of the group in power and updated Pareto weights. For high discount factors, the economy converges to a first-best allocation in which labor supply decisions are not distorted and the levels of labor supply and consumption are constant over time (though there may be transfers from one group to another). For low discount factors, the economy converges to an invariant stochastic distribution in which distortions do not disappear and labor supply and consumption levels fluctuate over time. The labor supply of groups that are not in power are taxed in order to reduce the deviation payoff of the party in power and thus relax the political economy/sustainability constraints. We also show that the set of sustainable first-best allocations is larger when there is less persistence in the identity of the party in power. This result contradicts a common conjecture that there will be fewer distortions when the political system creates a “stable ruling group”. In contrast, political economy distortions are less important when there are frequent changes in power (because this encourages compromise between social groups). Despite this result, it remains true that distortions decrease along sample paths where a particular group remains in power for a longer span of time.

The dynamics of public investment under persistent electoral advantage

This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and its subsequent propagation to the economy. The struggle between opposing groups — that disagree on the composition of public consumption — results in governments being endogenously short-sighted: Systematic under investment in infrastructure and overspending on public goods arise, as resources are more valuable when in power. Because the party enjoying an electoral advantage is relatively less short-sighted, it devotes a larger proportion of government revenues to productive public investment. Political turnover, together with asymmetric policy choices, induces economic fluctuations in an otherwise deterministic environment. The author characterizes the long-run distribution of capital and shows that output increases on average with political advantage, despite the fact that the size of the government expands as a percentage of GDP. Volatility, on the other hand, is non-monotonic in political power and is an additional source of inefficiency.Political science ; Expenditures, Public

The Influence of Regional Power Distributions on Interdependence

Political economy debates about the influence of power configurations in expanding and maintaining global liberalization ebb and flow with the wax and wane of the concentration of power in the international system. This article engages the debate in a novel way from previous scholarship. Employing a series of econometric models that account for regional power, I argue that the global power concentration is ill fit to be the primary predictor of trade liberalization, but instead, regional power fluctuations can dampen and enhance global trends. By incorporating sub-systemic power configurations, we gain a better understanding of the regional variation in states buying into or cashing out of interdependence

Institutionalizing Northeast Asia: Challenges and Opportunities

With North Korea going nuclear, tensions ever present in the Taiwan Strait, and growing posturing over territories thought to be rich in resources, the question of how lasting peace, order, stability and prosperity can be achieved in Northeast Asia has become increasingly important. Globalisation and China’s galloping economy have caused radically different economic growth rates in Northeast Asia, resulting in constant fluctuations in the balance of power among the nations in the region. With new emerging threats to security as well as threats posed by environmental degradation and disasters, the old concept of sovereign independence no longer offers satisfactory solutions for Northeast Asia. Instead, alternatives are needed that provide more plausible answers to Northeast Asia’s emerging challenges. In so doing, Institutionalizing Northeast Asia advances the notion of regional institutionalism as a counterweight to the principle of sovereignty, arguing that regional cooperation via regional institution-building is the right “recipe” for dealing with the growing intertwinement of global issues and developments with needs and interest at the regional and national levels, as well as the demand for supra-territorial policy responses to such issues as trade, finance, the environment, human rights and human security. The copyright of this article which is the introductory chapter of the book: Institutionalizing Northeast Asia: Regional Steps towards Global Governance, Tokyo: UNUP 2008, rests with United Nations University Press; for further information on the book and its 19 chapters on political economy, security, norms and identity, environment, human rights, migration and human security in Northeast Asia, go to: http://www.unu.edu/unupress2008/institutionalizingNEAsia.htmlinstitutionalism; regionalism; norms; identity; security: economy; trade; investment; finance; multilateralism; balance of power; sovereignty; energy; environment; human rights; human migration; human security; Northeast Asia; Korea; China; Japan; ASEAN+3; Russia; Shanghai Cooperation Organization; Six-Party Talks; ASEAN Charter

A reconstructive critique of IPE and GPE from a critical scientific realist perspective: An alternative Keynesian-Kaleckian approach

This paper offers, first, a critique of the relative lack of economic theory in ‘British’ Global Political Economy and then use of neoclassical rational choice theory in American mainstream IPE from the perspective of critical scientific realism. Keynesian economic theories provide perhaps the most obvious alternative. Keynes’ General Theory has been followed by many, forming also the basis of Minsky’s long ignored but now, after the 2008-9 crisis, all of a sudden famous explorations on the mechanisms of financial markets. While a major leap forward, we argue that these theories are historically and conceptually limited. Keynes’ critique of neoclassical economic theory and his alternative theories of particularly the effective demand and of money and credit can be strengthened by following also a neo-Kaleckian approach which avoids some of the inconsistencies of neo-Keynesianism. We indicate where further conceptual work is required and provide several illustrations from the neo-Kaleckian and neo-Keynesian theory to suggest a partial agenda of further scientific work including the explanation of unnecessary and undesired global fluctuations, tendencies and crises and possible collective responses to them. We also suggest the possibility of going beyond Keynes and Kalecki in terms of a general field theory of global political economy that can accommodate the deep normative and institutional underpinnings of the historically evolving planetary political economy

Studying small states : a review

This essay provides an overview of the literature in the field of small states studies. It analyses the development of the discipline, and in particular how vulnerability and a lack of capacity – core concepts of the early small state literature – have dominated the discipline ever since. It also explores how realism, liberalism and constructivism respectively approach the study of small states. However, we also outline how the focus has over time slowly shifted from the challenges associated with smallness to opportunities. There is considerable literature across various disciplines that helps us to better understand small states in International Relations; but there remains a largely unexplored field of inquiry about small states which needs to be thoroughly examined and theorised. Studies of small states have never been as relevant as today, given the increasing number of small states and with many small territories that are potential candidates for independence.peer-reviewe

Evidence and Ideology in Macroeconomics: The Case of Investment Cycles

The paper reports the principal findings of a long term research project on the description and explanation of business cycles. The research strongly confirmed the older view that business cycles have large systematic components that take the form of investment cycles. These quasi-periodic movements can be represented as low order, stochastic, dynamic processes with complex eigenvalues. Specifically, there is a fixed investment cycle of about 8 years and an inventory cycle of about 4 years. Maximum entropy spectral analysis was employed for the description of the cycles and continuous time econometrics for the explanatory models. The central explanatory mechanism is the second order accelerator, which incorporates adjustment costs both in relation to the capital stock and the rate of investment. By means of parametric resonance it was possible to show, both theoretically and empirically how cycles aggregate from the micro to the macro level. The same mathematical tool was also used to explain the international convergence of cycles. I argue that the theory of investment cycles was abandoned for ideological, not for evidential reasons. Methodological issues are also discussed

Fiscal Rules and Effective Fiscal Policy

This article examines and assesses the influence of political factors on the effectiveness of pursuing fiscal policy. These factors usually cause and maintain a high budget deficit and public debt. Moreover, the problems of influence of fiscal rules on increased effectiveness of the pursued fiscal policy have been discussed. The fiscal rules are to assure macroeconomic stability in economy and improve credibility of the pursued fiscal policy by reducing the deficit, government spending, and public debt. Examples of applicable fiscal rules in the EU and Poland are presented and an attempt is made to evaluate the effectiveness of these rules in the process of consolidation of public finances.Artykuł poddaje analizie i ocenie wpływ czynników politycznych na efektywność prowadzenia polityki fiskalnej. Czynniki te z reguły przyczyniają się do powstawania i utrzymywania wysokiego deficytu budżetowego i długu publicznego. Ponadto, poruszone zostały problemy wpływu reguł fiskalnych na zwiększenie skuteczności prowadzonej polityki fiskalnej. Reguły fiskalne poprzez ilościowe ograniczenie poziomu deficytu, wydatków rządowych lub długu publicznego mają zapewnić stabilność makroekonomiczną w gospodarce oraz poprawić wiarygodność prowadzonej polityki fiskalnej i redukcję nadmiernego deficytu budżetowego. Zaprezentowane zostały przykłady stosowanych reguł fiskalnych w UE i w Polsce oraz podjęta została próba oceny skuteczności tych reguł w procesie konsolidacji finansów publicznych