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Political economy.

The NBER sponsored a conference on Political Economy in Cambridge on November 15-16. Faculty Research Fellow Alberto Alesina and Morris Fiorina, both of Harvard University, and Roger Noll, Stanford University, organized the program:

Alberto Alesina; Sule Ozler, NBER and University of

California, Los Angeles; Nouriel Roubini, NBER

and Yale University; and Phillip Swagel, Harvard

University, "Political Instability and Economic


Discussant: John Londregan, Princeton University

Roberto Perotti, Columbia University, "Income

Distribution and Growth: Theory and Evidence"

Discussant: Nathaniel Beck, University of California,

San Diego

Thierry Verdier and Gilles Saint-Paul, DELTA

Institute, "Education, Democracy, and Growth"

Discussant: Raquel Fernandez, NBER and Boston


Alex Cukierman, Tel Aviv University, and Bilin

Neyapti and Steven Webb, World Bank, "The

Measurement of Central Bank Independence and Its Effect

on Policy Outcomes"

Discussant: James E. Alt, Harvard University

Kathleen Bawn, University of California, Los Angeles,

"The Social Choice of Electoral Institutions:

German Wahlgesetz, 1949-53"

Discussant: Kenneth A. Shepsle, Harvard University

Susan R. Smart, Indiana University, "The Policy

Consequences of Appointment Methods and Party


Discussant: William R. Keech, University of North


Susanne Lohmann and Sharyn O'Halloran, Stanford

University, "Delegation and Accommodation in

U.S. Trade Policy"

Discussant: Linda Cohen, University of California,


Geoffrey Garrett and Barry R. Weingast, Stanford

University, "Ideas, Interests, and Institutions:

Constructing the EC's Internal Market"

Discussant: Nouriel Roubini

Gregory Hess and Athanasios Orphanides, Federal

Reserve Board, "War Politics: An Economic,

Rational Voter Framework"

Discussant: Howard Rosenthal, Carnegie-Mellon


Alesina, Ozler, Roubini, and Swagel study the relationship between political instability and growth of per capita GDP in 108 countries from 1950-82. They define "political instability" as the propensity of a government to collapse. Their main result is that in countries and time periods with a high propensity of government collapse, growth is significantly lower than elsewhere. This effect remains strong when the definition of "government change" is restricted to cases of substantial change in the political orientation of the government. The authors also find that low economic growth tends to increase the likelihood of government changes, and that economic growth is not significantly different in democracies than in nondemocracies.

Perotti analyzes the impact of income distribution on growth, when investment in human capital is the source of growth, and individuals vote on the degree of redistribution in the economy. He finds that high growth is associated with very different patterns of income distribution at different levels of per capita income.

Verdier and Saint-Paul construct a model in which redistribution, determined by a political equilibrium, is in the form of public education. Public education increases growth because it increases the level of human capital. It also produces a more even income distribution. At given levels of political rights, more inequality may stimulate growth if it implies more political support for education, they find. Increased political rights increase growth and also imply a more nearly equal income distribution. Growth and inequality tend to decrease along the convergence path in the absence of political or distributional shocks.

Cukierman, Neyapti, and Webb measure central bank independence (CBI) for a sample of up to 70 countries between 1950 and 1989. They examine measures of legal independence; the turnover of central bank governors; and variables derived from a questionnaire on CBI for the 1980s. The authors find that inflation is related to legal independence in developed countries and to governors' turnover in less developed countries. Also, there is a two-way causality between inflation and CBI. Legal limitations on government's borrowing from the central bank are not adhered to closely. Finally, higher turnover of parties in office within a given political system leads to higher legal independence, but greater instability of the system leads to lower legal independence.

Bawn analyzes the choice of an electoral system in Germany after World War II. She notes that parties choose electoral institutions that maximize their future policy influence, and that this explains both the adoption of proportional representation in 1949 and the switch to a two-vote ballot in 1953. She finds that the balance of power induced by existing institutions was preserved in the new institutional choice.

Smart studies the effect of political institutions on regulatory outcomes. Since the introduction of pro-competitive federal policies in telecommunications, major differences in the policies of state regulators have emerged. Smart finds that different methods for selecting state public utility commissioners can explain differences in the relative influence of the executive and legislative branches over commissioners.

Lohmann and O'Halloran model delegation and accommodation in U.S. trade policy. While levels of protection are lower when the president controls trade policy, a constrained president implements more protectionist trade policy measures than an unconstrained one. For 1950-88, after controlling for the effect of changes in economic conditions, Lohmann and O'Halloran find that U.S. trade policy has been less protectionist when the same party controlled both White House and Congress than when control was divided.

Garrett and Weingast note that the European Community's (EC's) post-1985 internal market cannot be explained well by conventional theories of international cooperation. Two types of ambiguities make it unlikely that cooperation will "evolve" through the mechanisms of repeated play, retaliation, and reputation alone. First, members may disagree about what behaviors constitute compliance with internal market rules. Second, the rules of the market may be unclear for specific cases unforeseen by members at the formation of the market. The idea of "mutual recognition" played a critical role in the negotiations over the definition of compliance and defection in the internal market. The "direct effect" of EC law in national jurisdictions, and its "supremacy" over domestic laws, are central to the effective application of the general principles of the internal market.

Hess and Orphanides find that U.S. presidents are more likely to begin foreign conflicts during their first term if the economy is in recession than during other periods. They theorize that if a leader's ability to wage war and his competence in handling the economy jointly determine voter preferences, then an incumbent leader with an unfavorable economic record may initiate a war to dramatize his leadership abilities and thus to salvage his reelection. Surprisingly, this result obtains despite voter rationality and informational symmetry.

Also attending the conference were: Abhijib Banarjee, Princeton University; Olivier J. Blanchard, NBER and MIT; Michael Bruno, NBER and Hebrew University; Geoffrey Carliner, NBER; Gerald D. Cohen, Alan Gerber, Michael Gilligan, and Joseph P. Kalt, Harvard University; J. Bradford De Long, Elhanan Helpman, and Richard J. Zeckhauser, NBER and Harvard University; Herschel I. Grossman, NBER and Brown University; Douglas A. Hibbs, Jr., Trade Union Institute for Economic Research; Richard Rogerson, NBER and University of Minnesota; Ron Schachar, Tel Aviv University; and Charles Stewart, MIT.
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Title Annotation:Conferences
Publication:NBER Reporter
Date:Dec 22, 1991
Previous Article:Economic growth.
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