The Politics of Trade Liberalization in the Presence of FDI Incentives

This paper examines whether inward FDI incentives can soften the political constraints associated with trade liberalization. After introducing the role of capital inflows into the political economy of trade framework pioneered by Grossman and Helpman (1994, 1995 and 1996), the paper traces the e¤ects of FDI incentives on the politically sustainable equilibrium level of trade protection. In particular, the paper shows that FDI incentives reduce the politically sustainable level of trade protection when capital-owners are politically organized, while they inhibit the process of trade liberalization when labor is the main influential political force. Welfare implications are also considered.

Do Depositors Discipline Swiss Banks?

In this paper, we test for the presence of market discipline in the Swiss deposit market. In particular, we examine whether depositors monitor their banks by withdrawing their saving deposits whenever the fundamentals of their bank is no longer satisfactory. We use a panel of bank-specific data an 250 Swiss banks over the period 1987-1998. We find considerable evidence of market discipline, in the sense that depositors are sensitive to bank-specific fundamentals, to institutional differences across bank groups, and to institutional changes in the Swiss depositor protection system. Our study complements the existing literature which predominantly builds on price indicators of market discipline (like yield spreads) by an approach based on quantities (the uninsured share of deposits). As few banks have traded debt outstanding, our approach is applicable to a much larger number of banks, including banks from non-industrialized countries.