Popular Attitudes, Globalization, and Risk

Popular opposition to globalization may be interpreted as xenophobia or hostility to market economics and signal country risk, including the degree of security risk - the possibility that local staff of facilities could be subject to discriminatory treatment, harassment, or attack. This paper integrates the Pew Global Attitudes data into a series of economic models on foreign direct investment (FDI), sovereign ratings, and local entrepreneurship and finds that some responses correlate with economic variables of interest, conveying information beyond what can be explained through standard models. More tolerant countries attract more FDI, obtain better ratings, and exhibit more entrepreneurship.Globalization, risk, foreign direct investment, sovereign ratings, entrepreneurship

Explaining Middle Eastern Authoritarianism

Arab political regimes are both unusually undemocratic and unusually stable. A series of nested statistical models are reported to parse competing explanations. The democratic deficit is comprehensible in terms of lack of modernization, British colonial history, neighborhood effects, reliance on taxes for government finance, and the Arab population share. Interpretation of the last variable is problematic: It could point to some antidemocratic aspect of Arab culture (though this appears not to be supported by survey evidence), or it could be a proxy for some unobservable such as investment in institutions of internal repression that may not be culturally determined and instead reflect elite preferences. Hypotheses that did not receive robust support include the presence of oil rents, the status of women, conflict with Israel or other neighbors, or Islam. The odds on liberalizing transitions occurring are low but rising. In this respect the distinction between the interpretation of the Arab ethnic share as an intrinsic cultural marker and as a proxy for some unobservable is important—if the former is correct, then one would expect the likelihood of regime change to rise only gradually over time, whereas if it is the latter, the probabilities may exhibit much greater temporal variability.democracy, Middle East, Islam, regime change

Avoiding the Apocalypse: The Future of the Two Koreas

On the Korean peninsula one of the greatest success stories of the postwar era confronts a famine-ridden--and possibly nuclear-armed--totalitarian state. The stakes are extraordinarily high for both North and South Korea and for countries such as the United States that have a direct stake in these affairs. This study, the most comprehensive volume to date on the subject, examines the current situation in the two Koreas in terms of three major crises: the nuclear confrontation between the United States and North Korea, the North Korean famine, and the South Korean financial crisis. The future of the peninsula is then explored under three alternative scenarios: successful reform in North Korea, collapse and absorption (as happened in Germany), and "muddling through" in which North Korea, supported by foreign powers, makes ad hoc, regime-preserving reforms that fall short of fundamental transformation.

Selective Intervention and Growth: The Case of Korea

This paper attempts to determine whether conditions amendable to successful selective interventions to capture cross-industry externalities are likely to be fulfilled in practice. Three criteria are proposed for good candidates for industrial promotion: that they have strong interindustry links to the rest of the economy, that they lead the rest of the economy in a causal sense, and that they be characterized by a high share of industry-specific innovations in output growth. According to these criteria, likely candidates for successful intervention are identified in the Korean data. It is found that, with one exception, none of the sectors promote by the heavy and chemical industry (HCI) policy fulfills all three criteria.Korea, industrial policy, growth

South Korea's Experience with International Capital Flows

South Korea's experience is unparalleled in its combination of sustained prosperity, capital controls, and financial crisis. Over several decades, South Korea experienced rapid sustained growth in the presence of capital controls. These controls and the de-linking of domestic and international financial markets were an essential component of the country's state-led development strategy. As the country developed, opportunities for easy technological catch-up eroded, requiring more sophisticated corporate and financial sector decision-making, but decades of financial repression had bequeathed a bureaucratized financial system and a formidable constellation of incumbent stakeholders opposed to transition to a more market-oriented development model. Liberalization undertaken in the 1990s was less a product of textbook economic analysis than of parochial politicking. Capital account liberalization program affected the timing, magnitude, and particulars of the 1997-98 crisis. Despite considerable reforms undertaken since the crisis, concerns remain about both South Korea's lending culture and its authorities' capacity to successfully regulate the more complex financial system. The main lesson of the South Korean case appear to be that while the state-led model may deliver impressive initial gains, transitioning out of this approach presents an exceedingly complex challenge of political-economy.Korea, capital controls, financial crises, financial liberalization

The Strategic Importance of US-Korea Economic Relations

Despite the passage of 50 years since an armistice ended military hostilities, the Korean peninsula remains divided, a Cold War vestige that seemingly has been unaf-fected by the evolution that has occurred elsewhere. If anything, US confrontation with North Korea--a charter member of its "axis of evil"--has intensified in recent years. Yet today, increasing numbers of South Koreans, accustomed to living for decades in the shadows of the North's forward-deployed artillery, do not regard the North as a serious threat. Growing prosperity and confidence in the South, in marked contrast to the North's isolation and penury, have transformed fear and loathing into pity and forbearance. Instead, it is the United States, an ocean away, that regards the North and its nuclear weapons program with alarm. As the United States has focused on the nuclear program, its ally, South Korea, has observed the North Koreans' nascent economic reforms and heard their talk of conventional forces reduction, and the gap in the two coun-tries' respective assessments of the North Korean threat has widened dangerously, threatening to undermine their alliance.

Industrial Policy, Innovation Policy, and Japanese Competitiveness

Japan faces significant challenges in encouraging innovation and entrepreneurship. Attempts to formally model past industrial policy interventions uniformly uncover little, if any, positive impact on productivity, growth, or welfare. The evidence indicates that most resource flows went to large, politically influential “backward” sectors, suggesting that political economy considerations may be central to the apparent ineffectiveness of Japanese industrial policy. Rather than traditional industrial or science and technology policy, financial and labor market reforms appear more promising. As a group, Japan’s industrial firms are competitive relative to their foreign counterparts. Japan falls behind in the heavily regulated service sector. The problems are due less to a lack of industrial policy than to an excess of regulation. Japan may have more to gain through restructuring the lagging service sector than by expending resources in pursuit of marginal gains in the industrial sector.Japan, industrial policy, innovation policy

The (Non) Impact of UN Sanctions on North Korea

This study finds that North Korea's nuclear test and the imposition of UN Security Council sanctions have had no perceptible effect on North Korea's trade with its two largest partners, China and South Korea. Before North Korea conducted an underground nuclear test, it was widely believed that such an event would have cataclysmic diplomatic ramifications. However, beginning with visual inspection of data and ending with time-series models, no evidence is found to support the notion that these events have had any effect on North Korea's trade with its two principal partners. In retrospect, North Korea may have calculated quite correctly that the direct penalties for establishing itself as a nuclear power would be modest (or, alternatively, put such a high value on demonstrating its nuclear capability that it outweighed the downside risks, however large). If sanctions are to deter behavior in the future, they will have to be much more enthusiastically implemented.Sanctions, North Korea, Nuclear, United Nations, Trade equations

The stuff of legend: diamonds and development in southern Africa

This essay establishes four propositions. First, the diamond industry has been a positive force for development in southern Africa. Second, jewelry, among the most profitable segments of the industry, is a non-essential luxury, and accordingly, consumer concerns over conflict diamonds pose a long-term threat to the industry. Third, key in conflict diamonds is violent political conflict, not diamonds per se. Fourth, the continuing challenges shared by the industry, the NGOs, and public sector are to strengthen the Kimberley Process Certification System (KPCS) to eradicate trade in conflict diamonds and to enhance the related Diamond Development Initiative to regularize artisanal production and bring the diggers into the system.diamonds, resource curse, Kimberley process, South Africa, Botswana, Namibia

The East Asian Industrial Policy Experience: Implications for the Middle East

Japan, South Korea, and Taiwan are regarded as primary examples of countries that have derived great benefits from increasing integration with the international economy, without surrendering national autonomy in the economic or cultural spheres, by pursuing decidedly nonneutral policies with respect to the promotion of specific sectors and activities. This working paper addresses a series of questions in an attempt to assess the relevance of their experiences for the contemporary Middle East: Was industrial policy a major source of growth in these three economies? Can these outcomes be duplicated in the Middle East today, or do special circumstances or changes in the international policy environment prevent replication of the East Asian experience? Given the revealed costs and benefits, is replication advisable? And, if not, are there other, positive lessons that Middle Eastern countries can derive from the experiences of the East Asians?industrial policy, Asia, Middle East