1. The 2007-9 Financial Crisis and the Future of International Relations Leslie Elliott Armijo Leslie.armijo@cal.berkeley.edu March 2011

2. FIVE THESES 1. Not much contagion for emerging markets (EMCs) 2. Due to a combination of virtue—and luck 3. Significance for international relations is that the wealthy democracies (finally) notice convergence 4. Emerging powers (EPs) is a more useful concept for IR than is emerging markets 5. Political regime type will influence the IR profile of EPs

3. ADVANCED INDUSTRIAL COUNTRIES’ FLU and Emerging Market Countries’ hiccups

4. Cumulative Annual Growth Rates percent, weighted average Country Group Pre-Crisis 2000-6 Crisis 2007-9 Drop All advanced economies 2.6-0.1-2.7 G72.3-0.5-2.8 EU2.5-0.1-2.7 All developing economies 6.2+5.7-0.5 Asia8.0+8.6+0.6 Latin America3.4+2.7-0.7 CE Europe4.9+1.6-3.3 MENA5.0+4.3-0.7 Sub-saharan Africa5.8+5.0-0.8

5. Cumulative Annual Growth Rates * All AIC aggregates shrank, 2007-9 All developing country aggregates had positive growth, 2007-9 * The only developing country aggregates that dropped as much or more as the AICs were those closely tied: CCE and Mesoamerica and Caribbean

6. EMERGING MARKET COUNTRIES’ VIRTUE And their luck

7. Sources of EMCs’ Virtue--and Luck High commodity prices (esp LAC & SSA) * EMC financial crises in 1990s  banking reforms (esp Brazil, Mexico, Korea, Thailand, Indonesia?) * Capital controls (China, India, Brazil, Chile) * Less sophisticated home financial markets  no involvement in CDSs, securitized mortgages, etc (esp Andean countries, SE Asia, SSA)

8. THE IMMEDIATE POLITICAL CONSEQUENCE OF THE CRISIS Advanced countries wake up to convergence

9. The advanced countries take notice In 1980s developing Asia grew faster than the G7 In 1990s developing Asia, LAC, and MENA grew faster than the G7 In 2000s every developing region grew faster than the G7 BUT THESE TRENDS ESCAPED NOTICE in the G7 foreign policy community In Fall 2008, G.W. Bush administration realized a coordinated global stimulus required a G20 summit, not the G7

10. Cumulative Annual Growth Rates (%, weighted averages)

11. EMERGING POWERS Not just emerging markets

12. “Emerging Markets” v. “Emerging Powers” For analysis of development trajectories, “one country, one case” research works For analysis of IPE and IR, it may help to focus on larger, more capable countries There is growing self-consciousness within the set of “emerging powers”

13. “Correlates of War” Power Index Composite index of global capabilities by J. David Singer, Stuart Bremer, and John Stuckey Most used in International Relations scholarship Calculated continuously 1820-2001 National shares in world totals in six hard power capabilities: Population Urban population Iron & steel production Energy consumption Military personnel Military expenditure

14. “Correlates of War” Power Index

15. Armijo Power Index COW index has these problems: No GDP Positive valence for energy consumption, not production No indicators of high technology Armijo index is global shares in 6 components: GDP Population No. of telephone subscriptions (fixed & mobile) Industrial value-added Foreign exchange reserves Total military spending

16. Armijo Power Index

17. POLITICAL REGIME TYPES And emerging powers’ behavior in the international system

18. Political Regime Types

19. Variations in Political Contestation Authoritarian regimes bifurcate into growth miracles and disasters Increases in democratic contestation: Have a U-shaped relationship with inward foreign investment (Bayulgen) Predict lower growth volatility (Mobarak; Chandra and Rudra; Armijo and Gervasoni) Predict fewer growth crises (Armijo and Gervasoni) Predict steady, positive growth, though not miracles

20. Variations in Political Inclusion Transition from low to moderate inclusion regime leads incumbents to prioritize economic growth Transition from moderate to high inclusion leads incumbents to prioritize both growth and stability (avoid crises) See Dreze and Sen; Armijo & Gervasoni

21. Democratic Peace Theory Revisited? Democratic partners in global negotiations may find it easier to resolve problems of collective action than will partnerships containing one or more authoritarian states (Armijo and Gustafson; Armijo forthcoming) Transparency of deliberations Trust Need to convince domestic populations  difficult to reverse or cheat Multiple veto players