Globalization and the (Mis)Governance of Nations
CESifo, Munich, 2012
CESifo Working Paper No. 3715
We analyze whether or not the globalization of capital, ‘disciplines’ governments and improves governance. We demonstrate that globalization affects governance, by increasing a country’s vulnerability to sudden capital flight. This increased threat of capital flight can discipline governments and improve governance and welfare by placing countries in a ‘golden straitjacket’. However, globalization may also ‘overdiscipline’ governments - resulting in a perverse impact on governmental incentives that catalyzes (mis)governance. Accordingly, the paper suggests a novel (and qualified) role for capital controls. Finally, we provide some suggestive evidence consistent with the predictions from our theoretical framework.
Monetary Policy and International Finance
Trade Policy