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Essays in Political Economy

Vadlamannati, Krishna Chaitanya

German Title: Aufsätze in Politische Ökonomie

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This thesis consists of five essays in the field of political economy. The first part of the thesis includes three essays covering various aspects of the political economy of globalization and economic reforms, which are linked in several ways. The second part of the thesis includes two essays on the political economy of development in India. The aim of this introductory section is to give a brief and non-technical overview of the essays, as well as to explain the links between them. The discussion of the contribution of the research to the existing literature will be carried out separately in each essay. Globalization and economic reforms are two important concepts in the international political economy field. Explaining the social effects of both has been at the center of the international political economy literature for an extensive period of time. Much has been written about the effects of globalization on social outcomes (Dreher, Gaston, and Martens 2008, Schneider, Barbieri, and Gleditsch 2003) and there are at least two distinct trains of thought in academia and the public discourse. One view is that the structural changes towards more liberal economic policy can positively transform the economy and polity, increasing economic growth and welfare, as well as bringing much required modernization (Bhagwati 2004, Wolf 2004, Friedman 1999). On the other hand, more pessimistic voices, which include mainstream economists such as Nobel laureate Joseph Stiglitz, and Marxist critical theorists, believe that globalization can simultaneously promote a ‘race to the bottom’ in social standards that degrades communitarian bases of social stability and welfare (Rodrik 1997, Stiglitz and Charlton 2006). In fact, the global financial crisis of 2008, where people took to the streets in both developing and developed countries, has made the issue of whether or not globalization and economic reforms create socially undesirable consequences, ever more crucial. The first part of the thesis sheds new light on various aspects of the social effects of globalization and economic reforms, reviewing findings in the literature to date and extending existing theories. A major contribution of the thesis is the rigorous and thorough empirical evaluation of the human rights effects of economic reforms, and to what extent globalization has induced a race to the bottom in labour standards, while also contributing new empirical findings to extend the research surrounding the side effects of participating in IMF programs. The thesis is structured as follows. In chapter 1, we focus on the impact of economic reforms and economic freedom on human rights. It is argued that economic policy reforms will benefit most people in terms of better access to goods, lower inflation, and better economic opportunities (Murphy et al. 1991). However, critics of market reforms see the majority as losers from such reforms, expecting resistance that would lead to political repression (Przeworski 1991). Using the change in the Index of Economic Freedom as a measure of market liberalization reforms, employing data from a panel of 117 countries for the 1981–2006 period, the results show a strong positive association between reforms towards more free markets and governments’ respect for human rights, controlling for a host of relevant factors, including the possibility of endogeneity. These results lend support to those who argue that freer markets generate better economic conditions and higher levels of social harmony. In fact, halfhearted measures at implementing reforms could be dangerous to human rights. After exploring the impact of economic reforms on human rights, we continue by linking economic liberalization policies prescribed by international organizations such as the IMF to the outbreak of civil war in chapter 2. As the global economic downturn has heightened concerns over intervention by international financial institutions, as well as political stability, a prominently published work by Hartzell, Hoddie and Bauer (2010) purports to show that signing on to an IMF Structural Adjustment Program (SAP) increased the risk of civil war during the 1970–1999 period. They claim that the IMF’s SAPs push economic liberalization to the point where some people are so negatively affected as to foment civil war. We advance this debate by critically examining their theoretical and empirical evidence, particularly questioning their crucial assumptions about the impact of IMF programs on the economic environment in terms of the actual winners and losers from economic liberalization, and who might be in a position to rebel. Separating the effects of crises from IMF interventions is crucial since crises also generate losers in their own right. With only minor adjustments to their study, we find the exact opposite of what they conclude. We show that their measure of signing on to an IMF program remains consistently insignificant in explaining the outbreak of civil war, using the threshold of 25 battle deaths when defining the onset of a civil war. These results suggest that their operationalization of the IMF variable, as well as the utilization of large-scale civil wars (1000 deaths and above), captures the effect of ongoing war rather than the effects of liberalization. After extending the time period under study from 1970–1999 to 1970–2008, as well as making some minor changes to operationalization, again we find that IMF involvement is at worst a poor predictor of conflict, and at best, an alleviator of the risk. The next chapter turns to a topic which is currently the focus of both politicians and the labour unions in general. We analyze whether inter-country competition for investment has adverse effects on labour standards. Among the many concerns over globalization is that as nations compete for international firms, they will relax labour standards as a method of lowering costs and attracting investment. Using spatial econometric estimation on panel data for 148 developing countries over 18 years, we find that the labour standards in one country are indeed positively correlated with labour standards elsewhere (i.e., a reduction in the labour standards of other countries reduces the labour standards of the country in question). This interdependence is more evident in labour practices (i.e., enforcement) than in labour laws. Furthermore, competition is most fierce in those countries which already have low standards. Since there has been a decline in the labour practices and laws across all three groups, this is possible evidence of a race to the bottom as nations compete for investment. The second part of the thesis focuses on essays on the political economy of development in India. India is often hailed as one of the success stories of globalization (Basu 2008). Indeed, after the inception of market economic reforms in 1991, economic growth has been both sustained and impressively robust in terms of national economic indicators (Basu 2008). However, despite rapid economic growth during the post-1990 period, the benefits of economic growth are unevenly distributed, and some areas and groups of people have seen their living standards decline (Banerjee 2010). One could argue that this is somewhat surprising given the rapid surge in economic growth in recent years (Bardhan 2010). In connection with this, two critical issues have attracted a lot of attention, both within and outside India. First is the issue of corruption which is seen as a hindrance to prosperity and development, and the second is the emergence of India as one of the major donors of development aid. In chapter 4, we focus particularly on the influence of the timing of elections on controlling corruption. Firstly, we develop a conceptual framework that extends theories of political budget cycles to corruption, where an incumbent government considers controlling corruption based purely on political considerations. More specifically, we investigate whether the timing of elections affects the responsiveness of the incumbent government to control corruption. Secondly, we empirically test the predictions of the conceptual framework using 30 Indian states during the 1988–2009 period. Consistent with the conceptual framework developed, i.e., an incumbent politician might exert greater effort in an election year to control corruption, the findings show that scheduled elections (and not unscheduled elections) are associated with an increase in the number of corruption cases registered. In addition, we find that corruption cases registered tend to increase as a scheduled election year draws closer. Furthermore, the effects are found to be stronger in ‘swing states’ (where the margin of victory of the incumbent in the previous election was 5% or less), and in state scheduled election years which coincide with national elections. On the other hand, there is no effect of scheduled elections on corruption cases being investigated by anti-corruption agencies. The following chapter examines a puzzling question about India. Here, we analyze what determines Indian development aid. It is indeed puzzling to note that India, which has a large domestic population suffering from underdevelopment, chronic poverty and mal-governance, is emerging as an important aid donor. With the intension of learning why poor countries provide foreign aid, this is the first work to econometrically analyze India’s aid allocation decisions. We utilize cross-sectional data on aid commitments to 128 developing countries by the Ministry of External Affairs and the Export-Import Bank of India, obtained in US dollars from AidData for the 2008-2009 period. We then compare India’s bilateral aid allocation with that of other donors to examine if India is any different regarding the motivation behind its allocation decisions. The findings show that India’s aid allocation decisions are largely driven by commercial and political self-interest. While recipient need does not seem to be a key determinant, neighboring countries receive considerable attention.

Item Type: Dissertation
Supervisor: Dreher, Prof. Dr. Axel
Date of thesis defense: 29 August 2012
Date Deposited: 10 Sep 2012 13:55
Date: 2012
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Controlled Keywords: Politische Ökonomie, Indien
Uncontrolled Keywords: Politische Ökonomie, IndienPolitical Economy, India
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