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The Institutional Construction of Neoliberal Economic Globalization: The Case of Capital Market Liberalization in Latin America Jeffrey M. Chwieroth Alexander.

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Presentation on theme: "The Institutional Construction of Neoliberal Economic Globalization: The Case of Capital Market Liberalization in Latin America Jeffrey M. Chwieroth Alexander."— Presentation transcript:

1 The Institutional Construction of Neoliberal Economic Globalization: The Case of Capital Market Liberalization in Latin America Jeffrey M. Chwieroth Alexander M. Hicks Diogo Pinheiro London School of EconomicsEmory University

2 Introduction What are the causes of neoliberal economic globalization?  One component : capital market liberalization  One region: Latin America (an early liberalizer and seminal case) Some Key Forces: NGOs, IMF, Economic Professionals  Carriers of and mechanisms for policy diffusion, homogenization, and isomorphism We also explore the role of domestic political interests and economic vulnerability

3 Insights from Sociology New Institutionalism (Dimaggio and Powell)  Homogenization (isomorphism) driven by:  Coercive – external dependence  Normative – professional norms of personnel  Mimetic – imitation due to uncertainty World Polity Theory (Meyer, Boli, and Thomas)  Homogenization (isomorphism) driven by:  International legitimacy of a particular practice and connections to “world polity” (a form of mimetic isomorphism).

4 NGOs – Mimetic Isomorphism Connection to World Polity = Ties to International NGOs  Authoritative and Legitimate Actors  “Receptor Sites” – transmit cues from World Polity to local actors and governments Critical of Capital Market Liberalization (Example: Association for the Taxation of Financial Transactions for the Aid of Citizens – ATTAC) Hypothesis: Insofar as INGOs are inclined to dissent from neoliberalism, countries with close ties to INGOs are more likely to restrict international capital flows.

5 IMF – Coercive Isomorphism Proponent of capital market liberalization, though not uniformly or indiscriminately (Adbelal; Chwieroth) IMF Programs – vehicle for advocacy  Not formal conditionality, but…  An incentive-altering vehicle to provide financial support to domestic reformers (lower adjustment costs, raise non-compliance costs)  A persuasive vehicle to provide technical support to domestic reformers (policy dialogue) Hypothesis: Countries participating in IMF programs are more likely to liberalize international capital flows.

6 Economic Professionals – Normative Isomorphism Increasing incumbency of neoliberal economists in positions of policymaking clout has contributed to spread of capital market liberalization (Chwieroth) Content of Beliefs + Coherence of Policymaking Team Hypothesis: Countries with a greater number of neoliberal economists in key economic policymaking positions are more likely to liberalize international capital flows.

7 Summary Theoretical Hypotheses. Mimetic Isomorphism Ties to INGOs  -  liberalization Coercive Isomorphism IMF Program  +  liberalization Normative isomorphism Neoliberal Team  +  liberalization Possibility of dissident INGOs challenges World Polity Theory  Isomorphic forces are not truly universal and uniform, but rather potentially conflictual and partitioned

8 Methods TSCS data on 17 Latin American countries from Two stage analysis  First Stage: Selection equations for cabinet appointments and IMF program participation  Second Stage: Outcome equation with selection instruments Selection Equation: Event History Model (conditional elapsed time variant) Outcome Equation: Three Specifications  LDV, PCSEs, Fixed Effects  LDV, Robust SEs, Fixed Effects  FGLS, PCSEs, Fixed Effects

9 Data I Dependent Variable: Chinn-Ito Index of capital market openness Independent Variables:  Number of INGOs with country nationals as members  IMF Program Participation  Professional Characteristics of Finance Minister and Head of the Central Bank

10 Data II Control Variables  Mean Regional Capital Market Regulations for each country – “competitive deregulation” and “social learning”  Left Chief of Government  Left Legislature  Legislative Fragmentation (Herfindahl index)  Domestic Money Bank Assets / GDP  Trade / GDP  GDP Growth  Public and Publicly Guaranteed Debt / GDP  Current Account / GDP  Real Investment / GDP  GDP Per Capita  Currency Crisis  Global Foreign Borrowing  Time Trend

11 Data III Selection Variables – Neoliberal Cabinet Appointments  Political Model  Left Chief of Government  Left Legislature  Neoliberal Chief of Government  Turnover of Central Bank Governors (low turnover = free market norms?)  Veto Players – Checks  Credibility Model  Average Private Interest Rate – Eurodollar/LIBOR  Debt Service / Exports  Reserves / Imports  IMF Program  Turnover of Central Bank Governors (high turnover = low credibility?)  Economics  Inflation  Currency Crisis

12 Data IV Selection Variables – IMF Programs  Macroeconomic Conditions  Current Account Balance / GDP  GDP Per Capita  Real Investment / GDP  Debt Service / Exports  Reserves / Imports  Short-term Debt / Total External Debt  “Sovereignty Costs” (Vreeland)  Cumulative Number of Years of IMF Program Participation  Total Number of Countries Participating in IMF Program  Politics  Election  U.S. U.N. Affinity Score  U.S. Commercial Bank Exposure

13 Results – Cabinet Appointment Selection Equations Political Model  Neoliberal Chiefs of Government = more likely FM and CB Credibility Model  Official and Private Creditors = Divergent Outcomes  IMF Program: more likely FM  Private Interest Rate & Debt Service Burden: less likely FM  Neoliberal appointments stronger impact on official sentiment  Governments more sensitive to official sentiment  High Central Bank Turnover = FM  A substitute for CBI Economics  Reserves / Imports = more likely FM  Neoliberalism in “good times” or during “overheating”  Inflation = less likely  Appeal of “structuralism” and “heterodox” approaches

14 Results – IMF Program Participation Selection Equations Macroeconomic Conditions  Current Account Deficits = more likely  GDP Per Capita = more likely

15 Results – Policy Outcome Equation Isomorphic Variables  Neoliberal Policy Teams+  IMF Program Participation+  INGOs- (strongest) Control Variables  Leftist Chief of Government- (one spec)  Domestic Money Bank Assets /GDP-  Trade / GDP+ (one spec)  Public and Publicly Guaranteed Debt / GDP -  GDP Per Capita- (two specs)  Global Foreign Borrowing+ (one spec)  LDV+  Time Trend+  Finance Minister Selection Instrument+  Central Banker Selection Instrument-

16 Conclusion Principal Findings  Neoliberal Policy Teams = normative isomorphism  FM and CB Appointments: Neoliberal COG and Inflation  FM Appointment: Divergent influence of official and market sentiment  FM Appointment: Substitute for CBI  IMF Program Participation = coercive isomorphism  Current Account Deficits and GDP Per Capita  INGOs = mimetic isomorphism Are these salient forces for/against globalization worldwide? Isomorphic forces can operate in a conflictual manner and partitioned sense Neoliberalism may have been only partially institutionalized in global economic culture


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