Weingast B.R., Wittman D. The Oxford Handbook of Political Economy

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822 t rade, immigration, and cross-border investment

absolute advantage is greatest (since precisely those sectors have wages most above

world levels and hence will attract the most immigrants and see their terms-of-

trade advantage erode most quickly).

Conversely, in LDCs: (a) if labor is mobile,

all should favor migration; and (b) if labor is immobile among sectors, emigration

should be favored most by those whose comparative disadvantage is greatest.

The testable implication of note is that, quite in contrast to the HO, SJ, or even RV

models, attitudes toward free trade and free migration in advanced economies will in

general be negatively correlated. More precisely, the speciﬁc-factor version of the DW

model suggests for such economies that, the more productive any given sector, the

more it should (a)favorfreetrade,but(b) oppose immigration.

4 Economies of Scale Trade

.............................................................................

While these models

have somewhat lost favor in recent years, and while the Krug-

man monopolistic competition variant predicts unambiguous welfare gains from

broader trade via greater variety,

two other classes of such models may still be rele-

vant and do predict unambiguous distributional eﬀects. First, one cannot understand

something like the USA–EU conﬂict over Boeing and Airbus without a picture of

economies of scale internal to the ﬁrm. In essence, it appears, world demand for

big civilian aircraft intersects the ﬁrm average-cost curve well before it minimizes,

so that in the end only one ﬁrm will survive. As in the older Brander–Spencer

picture, sizable monopoly rents will accrue to the ﬁrm (and the country) that wins the

competition, motivating both ﬁrms and governments, not to protect against imports,

but to subsidize exports. Most scholars no longer see this model as having very general

applicability, but we cannot leave it altogether out of consideration.

More important are probably models of locational or network economies of scale:

for the former, think Hollywood; for the latter, the Qwerty keyboard or the Windows

operating system. In these cases, there can be a lot of competition among ﬁrms—

Hollywood has many studios and even more producers of such intermediate services

as casting, editing, lighting; and lots of vendors oﬀer Windows-based software—but

it’s just too daunting, at least for a long time, for anybody to set up a rival Hollywood

(Bollywood? China?) or a rival operating system (pace Linux). Welfare losses can

easily ensue, as the dominant locale or network extracts monopoly rents (Hollywood

wages, Microsoft prices), and these losses can actually grow as barriers to trade erode.

In the Qwerty version of this story, an inferior and/or higher-cost product or locale

¹² A particularly counterintuitive implication is that brain drain—migration of highly skilled labor

from less to more productive societies—should be opposed by high-skill workers in the developed

countries but favored by high-skill ones in LDCs.

¹³ Common to all of them is the assumption that, whether at the level of the ﬁrm, the locale, or the

country, there are increasing returns to scale, i.e. doubling all inputs more than doubles output. Hence,

taking factor prices as ﬁxed, the biggest producer can always produce most cheaply.

¹⁴ For the standard textbook treatment, see Krugman and Obstfeld 1994,ch.6.

ronald rogowski 823

repeatedly crushes superior and cheaper rivals. There is probably no easy answer to

this story, as the EU’s antitrust eﬀorts against Microsoft suggest; but it seems clear that

the countries, locales, and even ﬁrms that wind up losing such a struggle are harmed

and, in the strongest variant of the story, world welfare is suboptimal also: we’d all be

more productive (allegedly) with Linux, or would get cheaper watches from Thailand

than from Switzerland, if we could just make the switch.

In the locational variants of this model, incentives to immigration persist even (or

especially) under free trade: migration and trade are complements, not substitutes,

and a NAFTA or an expanded EU can actually increase migration into, and invest-

ment in, existing centers of production (cf. Krugman 1991). Such migration improves

world, national, and likely even sectoral welfare.

5 Summary

.............................................................................

Looking at all of this another, and perhaps more helpful, way, we can see eﬀects at

the level of the world, the country, the factor, and the sector; and we can think of

the coalitional and redistributional mechanisms that might ameliorate distributional

conﬂicts.

(a)Theworld is better oﬀ from trade and migration except in some locational and

network economies-of-scale cases. This means that, in theory, global redistribution,

were it possible, could nearly always handle the distributional issues surrounding

globalization—although, in something like the Davis–Weinstein picture, the redis-

tribution would have to be from poor to rich countries!

(b)Inthegreatmajorityofmodels,eachcountry is also made better oﬀ by migra-

tion and trade, i.e. per capita income rises. Only in the economies of scale models

does trade sometimes make a nation worse oﬀ;butmigration can reduce the welfare

of receiving countries even in the classical HO model, and deﬁnitely does so in the

neo-Ricardian cases. Concretely, this means that coalitions in favor of free migration

willbehardertobuildthanonesinfavoroffreetradeinproducts,andwillbevirtually

impossible where trade is based on technological superiority rather than diﬀerences

in factor endowments.

along factoral lines in the HO and in the SJ speciﬁc-factors models, abundant factors

normally favoring, and scarce factors normally opposing, free movement of products

and factors. (In the SJ case, the position of the mobile factor cannot be predicted ex

ante by its relative abundance: skilled workers in the USA, precisely because of their

mobility in an otherwise speciﬁc-factors economy, can conceivably lose from trade.)

Perhaps more importantly, however, factor owners’ preferences on trade will correlate

almost perfectly with their preferences on migration and foreign investment: free

traders will favor free migration (again, abstracting away from any ﬁscal or cultural

impact) and free movement of capital, and protectionists will also oppose migration

824 trade, immigration, and cross-border investment

and foreign investment. The diﬀerence, as indicated earlier, is that under free trade

the winners’ gains will outweigh the losers’ losses; under migration this need not be

the case.

(d) In the RV, the neo-Ricardian speciﬁc factors, and the ﬁrm-speciﬁc EOS models,

gains and losses from trade will divide very much along sectoral lines, but with very

diﬀerent speciﬁc implications. In both the RV and the neo-Ricardian pictures of the

world, the most productive, export-successful sectors should most favor free trade;

the least productive, most import-threatened ones should be protectionist. Under

RV, however, workers should most oppose immigration (and owners should most

favor it) in the least productive, most import-pressured sectors; while workers in a

neo-Ricardian speciﬁc-factors world will most oppose immigration in precisely the

economy’s most productive sectors.

Where economies of scale are internal to the ﬁrm (again, think Boeing or Airbus)

workers and owners should again unite, not on behalf of protection but in favor of the

subsidies and opening of foreign markets that will permit them to achieve an eventual

world monopoly. Where EOS are external to the ﬁrm, workers and owners will favor

free trade and, in most cases, free immigration.

6 Important Research Questions

.............................................................................

Given this theoretical background, we can isolate several topics as important for

current and future research.

(a) What kind of trade? Sometradeinfactorsandproductsisdrivenbydiﬀerences

in factor endowments, some by diﬀerences in technology, some by economies of

scale. Surely China’s exports of labor-intensive toys and Mexico’s of low-skill labor are

driven by factor endowments; but America’s or Sweden’s imports of high-skill labor,

with which they are already abundantly endowed, must be a result of technological

superiority or of locational economies of scale. The theories imply unambiguously

that these diﬀerent kinds of trade will have diﬀerent distributional eﬀects, and hence

quite diﬀerent political consequences: factor-endowments trade (e.g. with China)

is likely to alienate low-skill workers in advanced economies, but it should prove

possible (see below) to blunt their resistance through compensation; immigration,

particularly where it is based on technological superiority, may not be politically

resolvable; while trade based on economies of scale will ignite few domestic conﬂicts

but major ones between nations.

(b) How speciﬁc are the factors? This has been a major line of enquiry, implicated for

example in the work of Scheve and Slaughter, Mayda and Rodrik, and most promi-

nently Michael Hiscox. Fortunately both direct and indirect measures (cross-sectoral

diﬀerences in wage and proﬁt rates; observed patterns of sectoral vs. factoral opinion

andlobbying)canbedeployedtogoodeﬀect. But recent work reminds us also that

the extent of factor speciﬁcity is in large part endogenous (conditioned by welfare and

ronald rogowski 825

labor-market mechanisms, educational systems, capital markets, social insurance,

union contracts, etc.); and these may themselves be aﬀected by the pressures of global

competition.

Generous welfare states and retraining subsidies, for example, or powerful unions,

make it less risky for young workers to invest in sector-speciﬁc skills, even where the

odds are high that these will soon be obsolete. American printing trade apprentices,

for example, rushed out of linotype training as soon as computers began to show

their word-processing skills; but German apprentices, conﬁdent that printers’ unions

could hold back the new technology, or if that failed that the state would provide

generous unemployment insurance and retraining support, continued to master what

would soon be the equivalent of the horse and buggy. On the other hand private

companies, aware of the moral hazards, will not insure against technological skill

obsolescence (how do I prove that technology, and not merely my own laziness, has

made me unemployable?); so it is likely that, in terms of social welfare, a stingy welfare

state like that of the USA encourages too little investment in speciﬁc skills.

At the same time, increasing global competition arguably makes it harder for coun-

tries to maintain generous social insurance schemes—implying, if this perspective is

correct, that many countries where workers once invested extensively in speciﬁc skills

will now switch to a more general skill portfolio, at least among younger workers or

those still in the educational system.

The interesting research question is the degree of endogeneity, i.e. how rapidly

do people readjust their investment patterns (particularly in human capital) when

incentives change. The most traction on this question may be gained by looking

particularly at cases where the degree of speciﬁcity has recently changed or is changing

(Denmark, Germany, France, China, Japan).

to Burgoon and Hiscox (2004), is that women, controlling for virtually all other

factors, including particularly education, tend to be more protectionist than men.

The most plausible explanation, though one that is hard to pin down empirically,

is simply women’s greater vulnerability to rapid economic change: for family or

personal reasons, most are still less likely to move to a job in a new region, have fewer

private savings to fall back on when a job is lost, and worry more about the eﬀects of

economic dislocation on present or future children. One test of this hypothesis, which

so far as I know has not yet been done, is to compare attitudes of women in stingy

welfare states (e.g. the USA) with those of women in generous, and particularly in

family-friendly welfare states (e.g. Christian democratic Europe), where women are

more cushioned against economic disruption.

According to most factor-endowments models, age should also matter: pensioners,

or even those approaching retirement age, should be concerned mostly about the

economy’s productivity, hence should favor free trade—except where important re-

tirement beneﬁts (e.g. pensions, health care) are linked to the fate of a particular ﬁrm

or sector. Hence in countries with generous state pension schemes, ﬁnanced by taxes

on the whole economy (e.g. a VAT), the older the worker, the more she or he should

support free trade; while in less generous countries, and particularly among workers

826 t rade, immigration, and cross-border investment

with deﬁned-beneﬁt pensions funded by individual ﬁrms (e.g. General Motors or

United Airlines), we might expect rising age to correlate weakly or even negatively

with support for free trade.

(d) What are existing compensation mechanisms, and how eﬃcient and reliable

are they? Losers from globalization may accept it if they will be compensated from

the social gains (assuming those exist, as in most theories they do). On the other

hand generous mechanisms may make factors more speciﬁc or impede adjustment.

It’s important to gauge (a) how generous the mechanisms are, (b)whatincentives

they create, and (c)howeﬀective and reliable people judge them to be (i.e. are they

conﬁdent that they will be compensated for any losses from trade or migration?).

Regimes clearly diﬀer in the credibility and reliability of their promises of com-

pensation. Iversen and Soskice (2002, 2004) argue that disciplined parties and

proportional representation (PR) combine to make long-term promises credible.

Persson and Tabellini (2003)showthatPRregimesoﬀer more general compensation,

while majoritarian electoral systems focus on geographically separable “pork-barrel”

spending; and Fiona McGillivray (2004) suggests why such spending will ﬂow, in

majoritarian systems, predominantly to marginal districts. A logical implication of

both strands of work is that, when the marginality of a district changes, whether from

a shift in preferences or via gerrymandering, previous assurances may be abandoned.

Most recently, and in a similar vein, Grossman and Helpman (2004) ﬁnd, in an

elegant and convincing modeling exercise, that protection increases under majori-

tarian electoral institutions as party discipline weakens. To the extent that this line of

research is correct, and that certain regime types impede or favor welfare-improving

bargains in trade policy—e.g. by making promises of compensation more reliable—a

question of “feedback” obviously arises: as globalization increases countries’ exposure

to world markets, and thus raises the welfare losses from protection, do political

entrepreneurs ﬁnd incentives to change political institutions (cf. Hiwatari 2001)? Or

does increasing inequality, very likely a consequence of globalization in the advanced

economies, lead more indirectly to change in political institutions (cf. Ticchi and

Vindigni 2003)?

Again, empirical research can focus most usefully on recent changes, whether in

institutions (the shift from PR to largely majoritarian electoral systems in Italy and

Japan, the reverse shift in New Zealand, the expansion of the European Union) or

in policies (tightening of the welfare state in the Netherlands and, more controver-

sially, in Germany; the whole issue of “structural reform” throughout the European

economies). Have the policy shifts been driven by trade-related issues, by global

competition, or more indirectly by growing inequality? Have they resulted from, or

been connected with, changes in (or proposals to change) institutions?

(e) Support for/opposition to free trade, migration, investment. Obviously this is the

meat of the matter. Popular attitudes have usually not been well tapped by survey

instruments (or, to put it another way, framing eﬀects are enormous) but have

nonetheless given some extremely useful insights. Voting behavior, elite opinion,

lobbying, and politicians’ positions and maneuvering have been even less reliably

ascertained. Fortunately a major eﬀort is under way, led by Michael Hiscox and Helen

ronald rogowski 827

Milner, to undertake more reliable cross-national research on all of these aspects.

The basic question is clear: are the observed patterns well predicted by the theories,

and does the accuracy depend, in the way argued, on country, factor, and industry

characteristics? Do positions (e.g. on trade and migration) correlate with one another

as predicted?

7 Conclusion

.............................................................................

I take for granted that the backdrop to all of this is growing global economic inte-

gration. But it may also be worth noting that the pace of that integration has varied

greatly, even in recent years, and that the pace of integration has varied signiﬁcantly

across countries. The great majority of the developed economies have been open

for decades, but a few have opened more recently and with astonishing rapidity:

Canada, New Zealand. In the developing world, even more countries have opened,

recently and more rapidly: China and the former Soviet-bloc countries of course,

but even more recently Mexico and India. Have the distributional conﬂicts and the

political alignments, coalitions, and compensation schemes in such cases accorded

with theoretical predictions, or do they call them into question? (One issue that

has attracted most attention is the seeming failure of rapid opening to diminish

inequality in developing countries—for the HO model, as already noted, certainly

predicts exactly such a diminution in inequality.)

Empirical research will succeed in this area to the extent that it is informed by, and

sheds light on, the well-developed theories of IPE. Precisely because our theories of

the distributional consequences are so good, and so linked to speciﬁc assumptions

about things like technology, economies of scale, and factor speciﬁcity, well-designed

enquiries can rapidly advance (and in many cases have rapidly advanced) our overall

understanding of trade’s political eﬀects.

References

Burgoon,B.,andHiscox,M.J.2004. The mysterious case of female protectionism: gen-

der bias in attitudes toward international trade. Available at: www.people.fas.harvard.edu/

∼hiscox/BurgoonHiscoxFemaleProtectionism.pdf.

Davis,D.R.,andWeinstein,D.E.2005. Technological superiority and the losses from

migration. Available at: www.international.ucla.edu/cms/ﬁles/DavisMigrationDraft.pdf.

Estevez-Abe,M.,Iversen,T.,andSoskice,D.2001. Social protection and the formation of

skills: a reinterpretation of the welfare state. Ch. 4 in Varieties of Capitalism: The Institutional

Foundations of Comparative Advantage, ed. P. A. Hall and D. Soskice. Oxford: Oxford

University Press.

Grossman,G.M.,andHelpman,E.2004. A protectionist bias in majoritarian politics.

Available at: www.princeton.edu/∼grossman/protectionistbias120804gg.pdf.

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Hanson,G.H.,Scheve,K.F.,andSlaughter,M.J.2005. Public ﬁnance and individ-

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www.nber.org/papers/w11028.

Hiscox,M.J.2002. International Trade and Political Conﬂict: Commerce, Coalitions, and

Mobility. Princeton, NJ: Princeton University Press.

Hiwatari,N.2001. Why electoral reform and party system reorganization? The impact

of global capital mobility on the consensus democratic institutions of Italy and Japan.

Tokyo: Institute of Social Sciences, University of Tokyo. Available at: http://web.iss.u-

tokyo.ac.jp/∼hiwatari/papers/010802.pdf.

Iversen,T.,andSoskice,D.2002. Political parties and the time-inconsistency problem in

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—— —— 2004. Electoral institutions, parties, and the politics of class: why some democra-

cies redistribute more than others. Paper presented at the Annual Meeting of American

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Soskice2004d.pdf.

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publications seminarpapers/726.pdf.

part xii

..............................................................

INTERNATIONAL

RELATIONS AND

CONFLICT

..............................................................

chapter 46

..............................................................

CENTRAL ISSUES

IN THE STUDY OF

INTERNATIONAL

CONFLICT

..............................................................

bruce bueno de mesquita

1 Introduction

.............................................................................

The study of international conﬂict is undergoing a rapid and dramatic transforma-

tion. Some of the ﬁeld’s most venerable beliefs now confront fundamental challenges

to their logic and their empirical reliability. For example, the idea that a balance of

power promotes peace and an imbalance war traces back more than two millennia to

Thucydides’ History of the Peloponnesian War. It is a belief that continues to permeate

the thinking of secretaries of state or defense in the United States and of foreign

ministers and defense ministers throughout the world. Yet careful research makes it

clear that the distribution of power, whether balanced or not, by itself bears neither a

logically nor an empirically compelling relationship to the likelihood of international

instability or conﬂict (Niou, Ordeshook, and Rose 1989; Bueno de Mesquita and

Lalman 1992;KimandMorrow1992;Powell1996).

The study of conﬂict was long thought of as high politics, with states as the central

actors pursuing grand strategies designed to maximize national security. In fact, the

view of the state as the key player in the international arena is so strong that the Eng-

lish language does not provide a common word or phrase to describe international

relations without invoking the nation as the object of study. Now the subject is being

recast as part of the everyday pulls and tugs of domestic aﬀairs, integrating the study