Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-19T11:34:46.116Z Has data issue: false hasContentIssue false
  • English
  • Français

Real Exchange Rates and Competitiveness: The Political Economy of Skill Formation, Wage Compression, and Electoral Systems

Published online by Cambridge University Press:  14 September 2010

TORBEN IVERSEN  and
DAVID SOSKICE
TORBEN IVERSEN*
Affiliation:
Harvard University
DAVID SOSKICE*
Affiliation:
Duke University and Oxford University
*
Torben Iversen is Professor, Department of Government, Harvard University, 1737 Cambridge Street, Cambridge, MA 02138 (iversen@fas.harvard.edu).
David Soskice is Research Professor, Duke University, 326 Perkins Library, Box 90204, Durham, NC 27708, and Nuffield College, Oxford University, Oxford, United Kingdom (soskice@duke.edu).
Get access Rights & Permissions [Opens in a new window]

Abstract

A major puzzle in the open economy literature is why some countries have persistently higher real exchange rates than others. Even more puzzling is the fact that countries with high real exchange rates are strong export performers. We solve both puzzles with a model that integrates two central debates in the comparative political economy of advanced economies: one linking wage bargaining, incomes policy, and competitiveness, and the other linking partisanship, political institutions, and redistribution. We bring the two together by emphasizing the role of skill formation. We argue that union centralization is necessary for wage restraint and training on a large scale, but this in turn requires a political coalition that subsidizes such training. When both are present, wage restraint generates external competitiveness, whereas wage compression pushes up sheltered prices and hence the real exchange rate, and vice versa. We test the argument on data on export performance and real exchange rates.

Type
Research Article
Information
American Political Science Review , Volume 104 , Issue 3 , August 2010 , pp. 601 - 623
Copyright
Copyright © American Political Science Association 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Achen, Christopher. 2000. “Why Lagged Dependent Variables Can Suppress the Explanatory Power of Other Independent Variables.” Presented at the Annual Meeting of the Society for Political Methodology, Los Angeles.Google Scholar
Adolph, Chris. 2004. “The Dilemma of Discretion: Career Ambitions and the Politics of Central Banking.” Ph.D. diss. Harvard University.Google Scholar
Ahlquist, John S. 2010. “Building Strategic Capacity: The Political Underpinnings of Coordinated Wage Bargaining.” American Political Science Review 104 (1): 171–88.CrossRefGoogle Scholar
Ansell, Ben. 2008. “Traders, Teachers, and Tyrants: Democracy, Globalization, and Public Investment in Education.” International Organization 62: 289–322.CrossRefGoogle Scholar
Armingeon, Klaus, Engler, Sarah, Gerber, Marlène, Leimgruber, Philipp, and Beyeler, Michelle. 2009. Comparative Political Data Set 1960±2007. Institute of Political Science, University of Berne.Google Scholar
Aukrust, Odd. 1977. “Inflation in the Open Economy: A Norwegian Model.” In Worldwide Inflation: Theory and Recent Experience, eds. Krause, Lawrence and Salant, Walter. Washington, DC: Brookings Institution.Google Scholar
Balassa, Bela. 1964. “The Purchasing Power Parity Doctrine—A Reappraisal.” Journal of Political Economy 72 (6): 584–96.CrossRefGoogle Scholar
Bawn, Kathleen, and Rosenbluth, Frances. 2006. “Coalition Parties versus Coalitions of Parties: How Electoral Agency Shapes the Political Logic of Costs and Benefits.” American Journal of Political Science 50 (2): 251–65.CrossRefGoogle Scholar
Beck, Nathaniel, and Katz, Jonathan. 1995. “What To Do (and Not To Do) with Time-series Cross-section Data.” American Political Science Review 89: 634–48.CrossRefGoogle Scholar
Busemeyer, Marius. 2007. “Determinants of Public Education Spending in 21 OECD Democracies, 1980–2001.” Journal of European Public Policy 14 (4): 582–610.CrossRefGoogle Scholar
Castles, Frank G. 1994. “The Wage-earners Welfare State Revisited. Refurbishing the Established Model of Australian Social Protection: 1983–93.” Australian Journal of Social Issues 29: 120–45.CrossRefGoogle Scholar
Cukierman, Alex. 1992. Central Bank Strategy, Credibility, and Independence. Cambridge, MA: MIT Press.Google Scholar
Cusack, Thomas, Iversen, Torben, and Soskice, David. 2007. “Economic Interests and the Origins of Electoral Institutions.” American Political Science Review 101 (3): 373–91.CrossRefGoogle Scholar
Edgren, Gösta, Faxen, Karl-Otto, and Odhner, Carl-Erik. 1973. Wage Formation and the Economy. London: Allen and Unwin.Google Scholar
Erikson, Christopher L., and Ichino, Andrea. 1995. “Wage Differentials in Italy: Market Forces, Institutions and Inflation.” In Differences and Change in Wage Structures, eds. Katz, Lawrence and Freeman, Richard. Chicago: The Chicago University Press, 265–306.Google Scholar
Esping-Andersen, Gösta. 1990. The Three Worlds of Welfare Capitalism. Princeton, NJ: Princeton University Press.Google Scholar
Flanagan, Robert J., Soskice, David W., and Ulman, Lloyd. 1983. Unionism, Economic Stabilization, and Incomes Policies: European Experience. Washington, DC: Brookings Institution.Google Scholar
Frankel, Jeffrey A., and Rose, Andrew K.. 1996. “A Panel Project on Purchasing Power Parity: Mean Reversion within and between Countries.” Journal of International Economics 40 (1–2): 209–24.CrossRefGoogle Scholar
Freeman, Richard. 1988. “Labor Market Institutions and Economic Performance.” Economic Policy 6: 62–80.Google Scholar
Gallagher, Michael. 1991. “Proportionality, Disproportionality and Electoral Systems.” Electoral Studies 10 (1): 33–51.CrossRefGoogle Scholar
Hall, Peter A., and Franzese, Robert. 1998. “Central Bank Independence, Coordinated Wage-bargaining, and European Monetary Union,” International Organization 52: 505–35.CrossRefGoogle Scholar
Iversen, Torben. 1999. Contested Economic Institutions: The Politics of Macroeconomics and Wage Bargaining in Advanced Democracies. Cambridge: Cambridge University Press.Google Scholar
Iversen, Torben, and Soskice, David. 2006. “Electoral Institutions and the Politics of Coalitions: Why Some Democracies Redistribute More Than Others.” American Political Science Review 100 (2): 165–82.CrossRefGoogle Scholar
Iversen, Torben, and Stephens, John. 2008. “Partisan Politics, the Welfare State, and Three Worlds of Human Capital Formation.” Comparative Political Studies 41: 600–37.CrossRefGoogle Scholar
Iversen, Torben, and Wren, Anne. 1998. “Equality, Employment, and Budgetary Restraint: The Trilemma of the Service Economy.” World Politics 50: 507–46.CrossRefGoogle Scholar
Katzenstein, Peter. 1985. Small States in World Markets. Ithaca, NY: Cornell University Press.Google Scholar
Lane, P.R. 2001. “The New Open Economy Macroeconomics: A Survey.” Journal of International Economics 54 (2): 235–66.CrossRefGoogle Scholar
Lange, Peter, and Garrett, Geoffrey. 1985. “The Politics of Growth: Strategic Interaction and Economic Performance in the Advanced Industrial Democracies.” Journal of Politics 47 (3): 792–827.CrossRefGoogle Scholar
Lothian, James R., and Taylor, Mark P.. 1996. “Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries.” Journal of Political Economy 104 (3): 488–509.CrossRefGoogle Scholar
Melitz, Marc. 2003. “The Impact of Trade on Intra-industry Reallocations and Aggregate Industry Productivity.” Econometrica 71 (6): 1695–1725.CrossRefGoogle Scholar
Obstfeld, Maurice, and Rogoff, Kenneth. 1995. Foundations of International Macroeconomics. Cambridge, MA: MIT Press.Google Scholar
Oh, Keun-Yeob. 1996. “Purchasing Power Parity and Unit Root Tests Using Panel Data.” Journal of International Money and Finance 15 (3): 405–18.CrossRefGoogle Scholar
Osborne, Martin J., and Rubinstein, Ariel. 1994. A Course in Game Theory. Cambridge, MA: MIT Press.Google Scholar
Papell, David H. 1997. “Cointegration and Exchange Rate Dynamics.” Journal of International Money and Finance 16 (3): 445–59.CrossRefGoogle Scholar
Peltzman, Sam. 1976. “Toward a More General Theory of Regulation.” Journal of Law and Economics 19: 211–40.CrossRefGoogle Scholar
Rogoff, Kenneth. 1996. “The Purchasing Power Parity Puzzle.” Journal of Economic Literature 34 (2): 647–68.Google Scholar
Rogowski, Ronald. 1987. “Trade and the Variety of Democratic Institutions.” International Organization 41 (2): 203–23.CrossRefGoogle Scholar
Rogowski, Ronald, and Kayser, Mark Andreas. 2002. “Majoritarian Electoral Systems and Consumer Power: Price-level Evidence from the OECD Countries.” American Journal of Political Science 46 (3): 526–39.CrossRefGoogle Scholar
Rueda, David, and Pontusson, Jonas. 2000. “Wage Inequality and Varieties of Capitalism.” World Politics 52 (3): 350–83.CrossRefGoogle Scholar
Samuelson, Paul. 1964. “Theoretical Notes on Trade Problems.” Review of Economics and Statistics 46 (2): 145–54.CrossRefGoogle Scholar
Scharpf, Fritz W. 2000. “Welfare and Work in the Open Economy: Constraints, Challenges and Vulnerabilities.” Presented at the Annual Meeting of the American Political Association, Washington, DC.Google Scholar
Soskice, David. 1990. “Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries.” Oxford Review of Economic Policy 6 (4): 36–61.CrossRefGoogle Scholar
Soskice, David, and Iversen, Torben. 2000. “The Non-neutrality of Monetary Policy with Large Price or Wage Setters.” Quarterly Journal of Economics 115 (1): 265–84.CrossRefGoogle Scholar
Stigler, George J. [1971] 1975. “The Theory of Economic Regulation.” In The Citizen and the State: Essays on Regulation, ed. Stigler, George J.. Chicago: University of Chicago Press, 114–41.Google Scholar
Swenson, Peter. 1991. “Bringing Capital Back in, or Social Democracy Reconsidered: Employer Power, Cross-class Alliances, and Centralization of Industrial Relations in Denmark and Sweden.” World Politics 43: 513–45.CrossRefGoogle Scholar
Taylor, Alan M., and Taylor, Mark P.. 2004. “The Purchasing Power Parity Debate.” Journal of Economic Perspectives 18 (4): 135–58.CrossRefGoogle Scholar
Taylor, Mark P. 2004. “Is Official Exchange Rate Intervention Effective?” Economica 71 (1): 1–12.CrossRefGoogle Scholar
Thelen, Kathleen. 2004. How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States and Japan. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Wallerstein, Michael. 1990. “Centralized Bargaining and Wage Restraint.” American Journal of Political Science 34 (4): 982–1004.CrossRefGoogle Scholar
Wallerstein, Michael. 1999. “Wage-setting Institutions and Pay Inequality in Advanced Industrial Societies.” American Journal of Political Science 43 (3): 649–80.CrossRefGoogle Scholar
Wu, Yangru. 1996. “Are Real Exchange Rates Nonstationary? Evidence from a Panel-data Test.” Journal of Money Credit and Banking 28 (1): 54–63.CrossRefGoogle Scholar
Supplementary material: PDF

Iversen supplementary material

Appendix.pdf

Download Iversen supplementary material(PDF)
PDF 33.1 KB
Submit a response

Comments

No Comments have been published for this article.