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Edited by Claude Ménard and Mary M. Shirley

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Claude Ménard and Mary M. Shirley

When New Institutional Economics (NIE) first appeared on the scholarly scene in the early 1970s, it was a transformative movement. NIE aimed to radically alter orthodox economics by showing that institutions are multidimensional and matter in significant ways that can be statistically measured and systematically modeled. In the decades since, thousands of articles and books have pursued this premise and NIE has evolved from an upstart movement to a major influence on researchers in economics, political science, law, management, and sociology. What made New Institutional Economics a radical idea was that it abandoned: [. . .]the standard neoclassical assumptions that individuals have perfect information and unbounded rationality and that transactions are costless and instantaneous. NIE assumes instead that individuals have incomplete information and limited mental capacity and because of this they face uncertainty about unforeseen events and outcomes and incur transaction costs to acquire information. To reduce risk and transaction costs humans create institutions, writing and enforcing constitutions, laws, contracts and regulations – so-called formal institutions – and structuring and inculcating norms of conduct, beliefs and habits of thought and behavior – or informal institutions. (Menard and Shirley, 2005, p. 1)

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Jane D’Arista

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Selwyn J.V. Moons

The author reviews 32 studies published between 1985 and 2012 that report 963 economic diplomacy coefficients by means of a meta-analysis. The meta-analysis shows (and corrects for) the influence of empirical design choices, the dependent variable under investigation and instruments of diplomacy used, on reported economic diplomacy coefficients. The reported results show that study characteristics and the instrument of diplomacy used in primary studies influence the reported outcome significantly. The meta-analysis shows that economic diplomacy research on average judges critically on the sign and significance of the lower ranked diplomatic establishments (consulates and export promotion agencies) and individual activities organized with the diplomatic network (trade missions and state visits). These establishments and activities are significantly more likely to report negative coefficients and less likely to deliver positive significant coefficients.

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Marcio Cruz, Daniel Lederman and Laura Zoratto

The number of export promotion agencies (EPAs) has increased substantially over the past decades. The authors describe the characteristics of EPAs around the world, using a novel database from the World Bank, in collaboration with the International Trade Centre in Geneva, covering the 2005–10 period. Most agencies are public-private institutions and have focused on assisting exporters in understanding and finding markets for their products. Several went through at least one type of institutional change in the short period between 2005 and 2010. EPAs spend more on small and medium firms, on established exporters (instead of new/occasional exporters or non-exporters), and on the provision of marketing services (e.g., trade missions) and export support services (e.g., training, technical assistance). Reviewing the recent literature, they find evidence of positive contributions of EPAs around the world in raising exports, through both, intensive and extensive margins of trade.

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Désirée M. van Gorp

Defining business (corporate) diplomacy as the management of interfaces between a global company (both SMEs and multinationals) and its multiple non-business counterparts and external constituencies, Désirée van Gorp, discusses how businesses have become important political actors that experience a growing responsibility to respond to global challenges. Discussing the Volkswagen emission scandal, the PUMA safe program and the Avaaz movement, the author distinguishes business diplomacy from spinning and issue management, discusses how local industry and international standards can be important building blocks of sustainable development chains and highlights the role and potential of civil society movements. The author argues that future research in business diplomacy needs to be inter-disciplinary and align the literature on business diplomacy in the fields of international relations and international (business) economics. It is important to incorporate the issue of how technological innovation impacts on the interfaces relevant to companies operating in internationally fragmented value chains.

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Andreas Fuchs

Research on the determinants and effects of China’s economic diplomacy is still in its infancy but is expected to gain in importance with China’s ongoing rise in the global economy. The author reviews the literature on the linkages between the bilateral political climate, economic diplomacy and international trade. The existing scholarly work suggests that the state of bilateral political relations plays an important role for trade with China. Since research suggests that political tensions adversely affect diplomatic activities between countries and that diplomatic exchanges promote trade, economic diplomacy is a likely channel linking the bilateral political climate to trade. Foreign governments’ positions on Taiwan and Tibet, for example, can determine the geography of state visits, the network of embassies and bilateral trade volumes. The chapter proceeds with a discussion as to why economic diplomacy should be more pivotal in economic exchange with China than with Western market economies.

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Arjan de Haan and Ward Warmerdam

The authors describe China’s development aid and analyse the economic and diplomatic determinants of the evolution of the Chinese aid system. China’s modern aid combines project aid, grants and loans, debt relief (but not budget support), humanitarian aid, human resource development and technical assistance. There are a growing number of Chinese initiatives, including its aid programme in Africa. Most recently, the 13th National People’s Congress in March 2018 announced the establishment of a separate international development cooperation agency, directed by the State Council. De Haan and Warmerdam discuss the impact of changing global economics on China’s foreign aid, the way it is used as its ‘soft power’, and how China contributes to the UN and Sustainable Development Goals, while it has gradually enhanced its position in international finance. They show how these issues are important for understanding the impact of Chinese aid and the way China’s aid is embedded in its broader political and economic international relations.

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Filippo Vergara Caffarelli and Giovanni Veronese

The authors analyse the public systems supporting firms’ internationalization in Italy, France, Germany and the UK. They review the economic motivations underlying public intervention and the available empirical evidence, analysing the structure of National Promotional Systems in 2012. The major difficulties of their cross-country comparison lie in different institutional arrangements and degrees of transparency. These problems are circumvented using a common methodology for all countries and drawing from all publicly available information, websites and official reports they could find, as well as direct contacts with national and regional authorities. While public financial resources in the four countries are roughly similar, after controlling for the size of the economy and exports the German system stands out as the one with the lowest expenditure. Despite regulatory improvements, the Italian system remains complex, with some competences overlapping among institutional actors, and second to the UK in terms of transparency.

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Kishan S. Rana

Developing states face difficulty in moving up the value chain in their efforts to reach world markets. With underdeveloped domestic economic institutions and infrastructure, they have to depend on their diplomatic machinery to provide support to business enterprises, chambers of commerce and other economic agents, who do not have the needed international connections, or the resources to hire consultants or advisers. For these countries, access and utilization of foreign aid is also conditioned by these factors. How this become an inhibiting factor in their economic development is understudied; rich states have moved much beyond, possessing their own internal and external institutions which sustain autonomous links with foreign counterparts. What are the stages that developing countries must traverse in their journey? How can they mobilize promotion methods, and also build their own institutions? How can these countries improve their aid management, in their dealings with donor institutions and countries?