False Prophet, or Genuine Savior? Assessing the Effects of Economic Openness on Sustainable Development, 1980–1999

While many herald globalization—the increasing interconnectedness of national economies—to be associated with rising standards of living across the globe, many others fear its effects on sustainability. Anti- globalization forces and environmentalists in particular view these developments as a threat to the welfare of future generations because of profligate and excessive current consumption. This study is the first to estimate the effects of dependence on trade, foreign direct investment (FDI), and an index of economic freedom on the World Bank’s measure of sustainability (the genuine savings rate), which measures the rate at which investment in the total stock of manufactured, human, and natural capital exceeds its depreciation. Contrary to pessimists’ fears, our indicators of economic openness show positive effects on sustainability, results that are robust to sample size, testing procedure, and several alternative specifications. The results support those who suggest that distorted economies tend to be both inefficient and damaging to future generations. If increasing trade, foreign direct investment, and economic freedom are hallmarks of globalization, then worries about its effects on future well-being are misplaced.

Disarming fears of diversity : ethnic heterogeneity and state militarization, 1988-2002

The authors address the question of state militarization under conditions of ethnic and other diversity."Primordialist"claims about ancient hatreds, fear, and insecurity in such societies would lead one to expect that fractionalization, polarization, and ethno-nationalist exclusion would prompt governments to militarize heavily. But contrary to such expectations, the authors find that higher levels of ethnic diversity predict lower levels of militarization, whereas higher polarization and ethno-nationalist exclusion trigger neither lower nor higher levels of militarization. If fractionalization lowers the hazard of civil war, as many find, then it does not happen by way of a"garrison state"effect. The authors discuss two potential explanations for their findings, one drawing from the empirical conflict literature, the other stemming from economists'study of public goods provision under conditions of diversity. They argue that their findings are best seen as consistent with and complementary to the empirical literature on conflict onset and duration.Peace&Peacekeeping,Population Policies,Social Conflict and Violence,Post Conflict Reintegration,Inequality

Disarming Fears of Diversity: Ethnic Heterogeneity and State Militarization, 1988–2002

This study addresses state militarization under conditions of ethnic and other diversity. Recent scholarship in economics finds that high diversity leads to lower provision of public goods. At the same time, conflict studies find that highly diverse societies face a lower risk of civil war despite the ‘primordialist’ claims about ancient hatreds, fear, and insecurity in such societies. Investigating possible links between these two separate lines of research, we explore whether diversity prompts governments to militarize heavily in order to prevent armed conflict, which would then crowd out spending on other public goods. Using military expenditures, personnel and arms imports as indicators of militarization, we find that higher levels of ethnic (and possibly linguistic) diversity predict lower levels of militarization, whereas religious diversity does not matter. If high diversity lowers the hazard of civil war, then it does not happen via a ‘garrison state’ effect. If diverse societies spend less on public goods, then this is not because they are crowded out by costly militarization.

Globalization, Women’s Economic Rights and Forced Labor

Globalization critics are concerned that increased trade openness and foreign direct investment exacerbate existing economic disadvantages of women and foster conditions for forced labor. Defenders of globalization argue instead that as countries become more open and competition intensifies, discrimination against any group, including women, becomes more difficult to sustain and is therefore likely to recede. The same is argued with respect to forced labor. This article puts these competing claims to an empirical test. We find that countries that are more open to trade provide better economic rights to women and have a lower incidence of forced labor. This effect holds in a global sample as well as in a developing country sub-sample and holds also when potential feedback effects are controlled via instrumental variable regression. The extent of an economy’s ‘penetration’ by foreign direct investment has no statistically significant impact. Globalization might weaken the general bargaining position of labor such that outcome-related labor standards might suffer. However, being more open toward trade is likely to promote rather than hinder the realization of two labor rights considered as core or fundamental by the International Labour Organization, namely the elimination of economic discrimination and of forced labor.

Paradise is a bazaar? Greed, creed, grievance and governance

This study examines the relative merits of grievance-based explanations of civil conflict that stress ‘Malthusian crises’ and ‘creed-related,’ civilizational clashes against competing propositions of greed- and governance-related explanations. The results from maximum-likelihood analyses on approximately 139 countries over the entire post-Cold War period find little support for Malthusian propositions. Abundant mineral wealth makes countries highly unstable, whereas scarcity of renewable resources is largely unrelated to civil conflict. There is some evidence suggesting that Malthusian crises are likely to be man made. Ethnicity is related to conflict when society is moderately homogenous and safer if highly plural. Large populations of Christians and Muslims within one society make countries remarkably safer, contrary to popular beliefs that ancient hatreds and Islamic militarism drive conflict. Trade to GDP (openness) is also strongly associated with peace

Corruption, the Resource Curse and Genuine Saving

Genuine saving is an established indicator of weak sustainable development that measures the net level of investment a country makes in produced, natural and human capital less depreciation. Maintaining this net level of investment above zero is a necessary condition for sustainable development. However, data demonstrate that resource-rich countries are systematically failing to make this investment. Alongside the familiar resource curse on economic growth, resource abundance has a negative effect on genuine saving. In fact, the two are closely related insofar as future consumption growth is restricted by insufficient genuine saving now. In this paper, we apply the most convincing conclusion from the literature on economic growth - that it is institutional failure that depresses growth - to data on genuine saving. We regress genuine saving on four indicators of institutional quality in interaction with an indicator of resource abundance. The indicators of institutional quality are corruption, bureaucratic quality, the rule of law and political constraints on the executive. We find that reducing corruption has a positive impact on genuine savings that is robust across different estimation procedures.weak sustainability, corruption, institutional quality, resources, curse

Free to Squander? Democracy, Institutional Design, and Economic Sustainability, 1975–2000

While democracy’s effect on economic growth has come under intense empirical scrutiny, its effect on economic sustainability has been noticeably neglected. We assess the effects of regime type and democratic institutional design on economic, or “weak” sustainability. Sustainability requires that stocks of capital do not depreciate in value over time. The World Bank gauges the rate of net investment in manufactured, human, and natural capital, a unified indicator of weak sustainability (the genuine savings rate). All four indicators of democracy we examine show that freer societies have higher genuine savings rates because they invest more in human capital, create less CO2 damage, and extract fewer natural resources per economic unit produced, even if they show lower net investment in manufactured capital. Democracies may trade off immediate material welfare gains for future pay-offs. This finding justifies why scholars should assess the effects of regime type on more than just immediate growth or the rate of change of manufactured capital. Among democracies, we find that pure parliamentary systems spend more on education than do presidential ones, but exhibit no statistically significant difference for the overall genuine savings rate. Proportional representation electoral systems fare worse than plurality when it comes to genuine and net national savings, even though they do better on education spending. The results taken together show that differences in regime type and democratic institutional design allow for different trade-offs. The results are robust to a range of specifications and a developing country only sub- sample.

Corruption, the resource curse and genuine saving.

Genuine saving measures net investment in produced, natural and human capital. It is a necessary condition for weak sustainable development that genuine saving not be persistently negative. However, according to data provided by the World Bank, resource-rich countries are systematically failing to meet this condition. Alongside the well-known resource curse on economic growth, resource abundance might have a negative effect on genuine saving. In fact, the two are closely related, as future consumption growth is limited by insufficient genuine saving now. In this paper, we apply the most convincing conclusion from the literature on economic growth – that it is institutional failure that depresses growth – to data on genuine saving. We regress gross and genuine saving on three indicators of institutional quality in interaction with an indicator of resource abundance. The indicators of institutional quality are corruption, bureaucratic quality and the rule of law. We find that reducing corruption has a positive impact on genuine saving in interaction with resource abundance. That is, the negative effect of resource abundance on genuine saving is reduced as corruption is reduced.

Political science tools for assessing feasibility and sustainability of reforms

We were asked by the Independent Evaluation Office to outline political science methods for assessing the chances of reform implementation in an ex-ante fashion. We agreed to illustrate how these tools 'work' by using Pakistan as a case study. The recent literature on IMF-sponsored reforms points out that successful implementation not only depends on the nature and severity of the economic crisis and on the design of the reforms, but very much also on the political economy of reform politics. We have identified the following as salient political factors for identifying chances of reform success: - the power of sections of the economy and polity that will lose from effective implementation; - the political independence of reform-minded branches of government vis-à-vis politicians that depend on popular support; - the institutional capacity to implement reform; - a high degree of acceptance of the reforms among the major stakeholders (the 'ownership' factor). We have designed three tools that help forecast how these factors will develop in the future. Each tool comprises three dimensions of analysis: - how these factors will develop after signing an agreement, given visible trends in the immediate past (trend extrapolation); - how these factors would be influenced by an effective reform implementation (impact analysis); - how other political framework conditions will evolve and what impact this may have for the reform prospects (scenario building). The three tools belong to different types of forecasting techniques and thus illustrate the wide range methods available. They also address different combinations of the four political factors. The three tools are summarized below. Tool 1: Stakeholder analysis This tool forecasts how the political struggle over reform will end by assessing the relative power and influence of the major stakeholders and by estimating how this balance of power will develop in the future. The three dimensions of analysis could look as follows: Trend extrapolation involves a close inspection of: 1) the reform steps undertaken during and before the negotiation period; 2) the negotiation style of the government (inclusiveness and transparency); 3) the degree of ownership of the reform idea among the major stakeholders. Impact analysis estimates how the power base of the actual government (factor 1) and the relation between civil servants and elected politicians (factor 2) will change due to effective implementation of the reforms and how this in turn influences the probability of continued implementation in the mid-term. Scenario building integrates other independent trends (e.g. declining power base of a party in power) as well as unforeseeable events (such as a foreign policy crisis) into the assessment exercise. The scenarios may be ranked by probability. Tool 2: Institutional analysis This tool would comprise three different elements of analysis. Institutional mapping describes the network of institutions (both governmental and non-governmental and at different levels) involved in decision making and reform implementation. The veto power analysis then determines the relative power and independence of those branches of the bureaucracy that are able and determined to implement reforms. The capacity assessment would look at levels of professionalism, recruitment procedures, educational background and motivation in those branches of government. Trend extrapolation would take into account actual trends of institutional change in determining the chances of reform implementation. Under the impact analysis, the institutional consequences of the reform programme itself and their impact on capacity and willingness to reform can be assessed. The scenario technique could be used to produce different scenarios of mid-term institutional change and see how they influence the prospects for economic reform. Tool 3: Delphi study Delphi studies belong to the pool of expert opinion tools. It consists of at least three rounds of surveys administered by a questionnaire. The experts may adjust their responses in the second and subsequent rounds after having been informed about the mean answers of the previous round. We suggest to ask at least 15 experts from think tanks, advisory bodies, the media, universities etc. to assess a) the prospects for the reforms being implemented given current political trends; b) the political impact of the reforms and how it may affect the possibility of sustained reform; and c) the probability of various mid-term political scenarios and the chances for sustaining reform under these scenarios. One of the comparative advantages of Delphi studies is that the results are not influenced by opinion leader phenomena. They can be used to quickly assess the constellations of opinions with regard to specific policy options and the probabilities associated with different future developments. In the concluding section we recommend - to apply the maximum possible number of tools in order to arrive at a solid assessment of the political feasibility of a programme from different perspectives. - to apply the 'triangulation of methods' approach whenever it is necessary to outbalance different results produced by the different tools. This means to reinterpret results and search for new evidence until more coherent overall conclusions can be reached; - to develop a multi-tier assessment system, where the basic tier, streamlined to all IMFsupported programmes, would consist in the trend extrapolation and impact assessment components of stakeholder analysis; institutional analysis would represent a second tier, to be applied to cases where doubts about implementation prospects are higher; a Delphi study, including scenario building, represents the most complex exercise reserved for the most contested cases; - to rely on careful judgement when deciding to more systematically include political factors, taking into account the risks of becoming involved in political and institutional engineering in sovereign nation states

Political science tools for assessing feasibility and sustainability of reforms

We were asked by the Independent Evaluation Office to outline political science methods for assessing the chances of reform implementation in an ex-ante fashion. We agreed to illustrate how these tools ‘work’ by using Pakistan as a case study. The recent literature on IMF-sponsored reforms points out that successful implementation not only depends on the nature and severity of the economic crisis and on the design of the reforms, but very much also on the political economy of reform politics. We have identified the following as salient political factors for identifying chances of reform success: - the power of sections of the economy and polity that will lose from effective implementation; - the political independence of reform-minded branches of government vis-à-vis politicians that depend on popular support; - the institutional capacity to implement reform; - a high degree of acceptance of the reforms among the major stakeholders (the ‘ownership’ factor). We have designed three tools that help forecast how these factors will develop in the future. Each tool comprises three dimensions of analysis: - how these factors will develop after signing an agreement, given visible trends in the immediate past (trend extrapolation); - how these factors would be influenced by an effective reform implementation (impact analysis); - how other political framework conditions will evolve and what impact this may have for the reform prospects (scenario building)