Hostname: page-component-848d4c4894-x24gv Total loading time: 0 Render date: 2024-06-03T15:43:01.990Z Has data issue: false hasContentIssue false
  • English
  • Français

Domestic Responses to Free Trade and Free Finance in OECD Countries

Published online by Cambridge University Press:  20 January 2017

Daniel Verdier
Daniel Verdier*
Affiliation:
European University Institute
*
Department of Social and Political Sciences, European University Institute, via dei Roccettini 9, 1-50016 San Domenico di Fiesole (FI), Italy. Tel.: + 39 055-4685-244; Fax: + 39 055-4685-201; E-mail: verdier@datacomm.iue.it
Get access Rights & Permissions [Opens in a new window]

Abstract

For the first time in modern history, free trade coexists with free finance. Free trade and free finance (defined as the deregulation and internationalization of banking and finance) are not mutually reinforcing, but cause a mismatch between the demand and supply of financial instruments. Investors want more marketable instruments whereas entrepreneurs want more transaction-specific instruments. This mismatch potentially hurts small firms and local interests most. What can they do about it? It depends on state institutions. The more centralized the state, the fewer opportunities available to potential losers to curb free finance. Free finance is most successful in centralized countries, where resistance to free finance is least strongly felt. This hypothesis is systematically tested on a sample of OECD countries.

Type
Research Article
Information
Business and Politics , Volume 1 , Issue 3 , November 1999 , pp. 279 - 316
Copyright
Copyright © V.K. Aggarwal 1999 and published under exclusive license to Cambridge University Press 

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

Ackland, Robert and Harper, Ian R. 1992. Financial Deregulation in Australia: Boon or Bane? In Microeconomic Reform in Australia, edited by Forsyth, Peter J., pp. 45–71. St Leonards, Australia: Allen & Unwin.Google Scholar
Alt, J. and Gilligan, M. 1994. The Political Economy of Trading States: Factor Specificity, Collective Action Problems, and Political Institutions. Journal of Political Philosophy 2: 165–192.Google Scholar
Aoki, Masahiko and Patrick, Hugh (Eds). 1995. The Japanese Main Bank System: Its Relevance for Developing and Transforming Economies. New York: Oxford University Press.Google Scholar
Aoki, Masahiko. 1988. Information, Incentives, and Bargaining in the Japanese Economy. Cambridge: Cambridge University Press.Google Scholar
Bagnasco, A. 1977. Tre Italie. Bologna: Il Mulino.Google Scholar
Bairoch, Paul. 1996. Globalization Myths and Realities: One Century of External Trade and Foreign Investment. In States against Markets: The Limits of Globalization, edited by Boyer, Robert and Drache, Daniel, pp. 173–192. London: Routledge.Google Scholar
Beath, John and Katsoulacos, Yannis. 1991. The Economic Theory of Product Differentiation. Cambridge: Cambridge University Press.Google Scholar
Berger, A. N. and Udell, G. 1995. Relationship Lending and Lines of Credit in Small Firm Finance. Journal of Business 65.Google Scholar
Berger, A. N., Kashyap, A. K. and Scalise, J. M. 1995. The Transformation of the US Banking Industry: What a Long, Strange Trip it's Been. Brookings Papers on Economic Activity 2. Washington, DC: The Brookings Institution.Google Scholar
Berger, A. N., Saunders, A., Scalise, J. M. and Udell, G. 1998. The Effects of Bank Mergers and Acquisitions on Small Business Lending. Journal of Financial Economics 50: 187–229.Google Scholar
Bollen, Kenneth A. and Jackman, Robert. 1990. Regression Diagnostics; An Expository Treatment of Outliers and Influential Cases. In Modern Methods of Data Analysis, edited by Fox, John and Long, J. Scott, pp. 257–291. Newbury Park, CA: Sage.Google Scholar
Bordo, Michael D., Eichengreen, Barry and Kim, Jongwoo. 1998. Was There Really an Earlier Period of International Financial Integration Comparable to Today? Working Paper 6738. Cambridge, MA: National Bureau of Economic Research.Google Scholar
Cerasi, Vittoria. 1996. An Empirical Analysis of Banking Concentration. Working Paper 96.04-luglio. Milan: Dipartimento di Economia Politica e Aziendale, Universita degli Studi di Minalo.Google Scholar
Cerny, Philip G. 1989. The ‘Little Big Bang’ in Paris: Financial Market Deregulation in a Dirigiste System. European Journal of Political Research 17: 169–192.Google Scholar
Cesarini, Francesco. 1994. The Relationship between Banks and Firms in Italy: A Banker's View. Review of Economic Conditions in Italy 48 (1): 29–50.Google Scholar
Cohen, Benjamin J. 1996. Phoenix Risen: The Resurgence of Global Finance. World Politics 48(2): 268–296.Google Scholar
Coleman, William D. (1993). Reforming Corporatism: The French Banking Policy Community, 1941–1990. West European Politics 16(2): 122–143.Google Scholar
Cooke, Philip and Morgan, Kevin. 1994. Growth Regions under Duress: Renewal Strategies in Baden Württemberg and Emilia-Romagna. In Globalization, Institutions, and Regional Development in Europe, edited by Amin, Ash and Thrift, Nigel, pp. 91–117. Oxford: Oxford University Press.Google Scholar
Davis, Philip. 1995. Pension Funds: Retirement-Income Security and Capital Markets. An International Perspective. Oxford: Clarendon Press.Google Scholar
De Long, J. Bradford. 1991. Did J.P. Morgan's Men Add Value? An Economist's Perspective on Financial Capitalism. In Inside the Business Enterprise: Historical Perspectives on the Use of Information, edited by Temin, Peter, pp. 205–236. University of California Press.Google Scholar
Deeg, Richard. 1996. Economic Globalization and the Shifting Boundaries of German Federalism. Publius 26(1): 27–52.Google Scholar
Deeg, Richard. 1999. Finance Capitalism Unveiled: Banks and the German Political Economy. Ann Arbor: University of Michigan Press.Google Scholar
Diamond, Douglas W. 1984. Financial Intermediation and Delegated Monitoring. Review of Economic Studies LI(166): 393–414.Google Scholar
Drees, Burkhard and Pazarbasioglu, Ceyla. 1995. The Nordic Banking Crises: Pitfalls in Financial Liberalization? Working Paper 95/61. Washington, DC: International Monetary Fund.Google Scholar
Downs, Anthony. 1957. An Economic Theory of Democracy. New York: Harper and Row.Google Scholar
Epstein, Gerald A. and Schor, Juliet B. 1992. Structural Determinants and Economic Effects of Capital Controls in OECD Countries. In Financial Openness and National Autonomy, edited by Banuri, Tariq and Schor, Juliet B., pp. 136–162. Oxford: Clarendon Press.Google Scholar
Commission, European. 1997. European Economy. Supplement A. No. 7, July.Google Scholar
Frieden, Jeffry and Rogowski, Ronald. 1996. The Impact of the International Economy on National Policies: An Analytical Overview. In Internationalization and Domestic Politics, edited by Keohane, R. O. and Milner, H. V., pp. 25–47. New York: Cambridge University Press.Google Scholar
Frieden, Jeffry. 1991. Invested Interests: The Politics of National Economic Policies in a World of Global Finance. International Organization 45(4): 425–452.Google Scholar
Fries, Steven M. 1993. Japanese Banks and the Asset Price ‘Bubble’. Working Paper 93/85. Washington, DC: International Monetary Fund.Google Scholar
Ganne, Bernard. 1995. France: Behind Small and Medium-Size Enterprises Lies the State. In Small and Medium-Size Enterprises, edited by Bagnasco, Arnaldo and Sabel, Charles F., pp. 115–133. London: Pinter.Google Scholar
Garrett, Geoffrey. 1995. Capital Mobility, Trade, and the Domestic Politics of Economic Policy. International Organization 49: 657–688.Google Scholar
Gilligan, Michael. 1997. Trade Policy Coalitions with Intra-Industry Trade. International Studies Quarterly 41: 455–474.Google Scholar
Green, David. 1997. Pensions, Class and Capital: An International Perspective. Review of Radical Political Economics 29(3): 144–155.Google Scholar
Grossman, G. M. and Helpman, E. 1991. Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press.Google Scholar
Haggard, Stephan and Maxfield, Sylvia. 1996. The Political Economy of Financial Internationalization in the Developing World. International Organization 50: 35–68.Google Scholar
Hallerberg, Mark and Clark, William R. 1997. How Should Political Scientists Measure Capital Mobility? Paper presented at the Annual Meeting of the American Political Science Association, 28–31 August, Washington, DC.Google Scholar
Hancké, Bob and Cieply, Sylvie. 1996. Bridging the Finance Gap for Small Firms. Discussion paper FS I 96–311. Berlin: Wissenschaftszentrum Berlin für Sozialforschung.Google Scholar
Harris, Stephen L. 1996. The Politics of Financial Services Liberalization: The Case of the Canadian Investment Dealer Industry. Paper presented at the Annual Meeting of the APSA, September, San Francisco.Google Scholar
Helleiner, Eric. 1994. States and the Reemergence of Global Finance: From Bretton Woods to the 1990s. Ithaca, NY: Cornell University Press.Google Scholar
Herrigel, Gary. 1996. Industrial Constructions: The Sources of German Industrial Power. Cambridge, MA: Cambridge University Press.Google Scholar
Holt Dwyer, Jennifer. 1997. The Dynamics of Financial Market Reform in Japan 1975–95. In The New World Order in International Finance, edited by Underhill, Geoffrey R. D., pp. 195–221. New York: St Martin's Press.Google Scholar
Krugman, Paul. 1987. Economic Integration in Europe: Some Conceptual Issues. In Efficiency, Stability, and Equity: A Strategy for the Evolution of the Economic System of the European Community, edited by Padoa-Schioppa, Tommaso, pp. 117–140. Oxford: Oxford University Press.Google Scholar
Krugman, Paul. 1991. Increasing Returns and Economic Geography. Journal of Political Economy 99(3): 483–499.Google Scholar
Kurzer, Paulette. 1993. Business and Banking: Political Change and Economic Integration in Western Europe. Ithaca, NY: Cornell University Press.Google Scholar
La Porta, Rafael, Lopez-De-Silanes, Florencio, Shleifer, Andrei and Vishny, Robert. 1997. Legal Determinants of External Finance. Journal of Finance LII(3) July: 1131–1150.CrossRefGoogle Scholar
Lütz, Susanne. 1996. The Revival of the Nation-State? Stock Exchange Regulation in an Era of Internationalized Financial Markets. Discussion Paper 96/9. Köln: Max Planck-Institut für Gesellschaftsforschung.Google Scholar
Magee, Stephen. 1980. Three Simple Tests of the Stolper-Samuelson Theorem. In Issues in International Economics, edited by Oppenheimer, Peter, pp. 138–153. London: Oriel Press.Google Scholar
Marks, Gary, Nielsen, François, Ray, Leonard and Salk, Jane. 1997. Competencies, Cracks and Conflicts: Regional Mobilization in the European Union. In Governance in the European Union, edited by Marks, Gary, Scharpf, Fritz W., Schmitter, Philippe C. and Streeck, Wolfgang, pp. 40–63. London: Sage.Google Scholar
Maxfield, Sylvia. 1990. Governing Capital: International Finance and Mexican Politics. Ithaca, NY: Cornell University Press.Google Scholar
Mény, Yves. 1998. The People, the Elites and the Populist Challenge. Jean Monnet Chair Paper 47. San Domenico di Fiesole, Italy: The Robert Schuman Centre at the European University Institute.Google Scholar
Mondello, Andrea. 1994. The Relationship Between Banks and Firms: An Industrialist's View. Review of Economic Conditions in Italy 48(1): 191–205.Google Scholar
Moran, Michael. 1991. The Politics of the Financial Services Revolution: The USA, UK and Japan. London: Macmillan.Google Scholar
Moran, Michael. 1994. The State and the Financial Services Revolution: A Comparative Analysis. In The State in Western Europe: Retreat or Redefinition? edited by Müller, Wolfgang C. and Wright, Vincent, pp. 158–177. Portland: Frank Cass.Google Scholar
Obstfeld, Maurice. 1995. International Capital Mobility in the 1990s. In Understanding Independence: The Macroeconomics of the Open Economy, edited by Kenen, Peter B., pp. 201–261. Princeton: Princeton University Press.Google Scholar
OECD. 1995. National Systems for Financing Innovation.Google Scholar
OECD. 1997. Institutional Investors. Statistical Yearbook 1997.Google Scholar
OECD. Financial Market Trends.Google Scholar
OECD. Financial Statistics Monthly. Section 2, Domestic Markets—Interest Rates.Google Scholar
OECD. National Accounts. Volume 1 and 2.Google Scholar
Pempel, T. J. 1998. Structural Gaiatsu: International Finance and Political Change in Japan. Paper presented at the American Political Science Association Annual Meeting, 2–6 September, Boston.Google Scholar
Petersen, Mitchell A. and Rajan, Raghuram G. 1994. The Benefits of Lending Relationships: Evidence from Small Business Data. Journal of Finance 49(1): 3–37.Google Scholar
Petersen, Mitchell A. and Rajan, Raghuram G. 1995. The Effect of Credit Market Competition on Lending Relationships. Quarterly Journal of Economics 110(2): 407–443.Google Scholar
Piore, Michael and Sabel, Charles F. 1984. The Second Industrial Divide: Possibilities for Prosperity. New York: Basic Books.Google Scholar
Porter, Michael E. 1990. The Competitive Advantage of Nations. London: Macmillan.Google Scholar
Porter, Michael E. 1992. Capital Disadvantage: America's Failing Capital Investment System. Harvard Business Review September-October.Google Scholar
Porter, Tony. 1993. States, Markets and Regimes in Global Finance. New York: St Martin's Press.Google Scholar
Quinn, Dennis P. 1997. The Correlates of Change in International Financial Regulation. American Political Science Review 91(3): 531–552.CrossRefGoogle Scholar
Quinn, Dennis P. and Inclán, Carla. 1997. The Origins of Financial Openness: A Study of Current and Capital Account Liberalization. American Journal of Political Science 41(3): 771–813.Google Scholar
Rajan, Raghuram G. and Zingales, Luigi. 1999. The Politics of Financial Development. University of Chicago. Unpublished manuscript, University of Chicago, Chicago, IL.Google Scholar
Reinicke, Wolfgang H. 1995. Banking, Politics and Global Finance: American Commercial Banks and Regulatory Change, 1980–1990. Aldershot: Edward Elgar.Google Scholar
Riesser, J. 1911. The German Banks and their Concentration in Connection with the Economic Development of Germany, 3rd edition. Washington, DC: Government Printing Office.Google Scholar
Rodrik, Dany. 1997. Has Globalization Gone Too Far? Washington, DC: Institute for International Economics.Google Scholar
Rogowski, Ronald. 1989. Commerce and Coalitions. Princeton: Princeton University Press.Google Scholar
Rogowski, Ronald. 1997. How Economies-of-Scale Trade Affects Domestic Politics. Working Paper 13. Los Angeles, CA: Center of International Studies, UCLA.Google Scholar
Ruggie, John G. 1982. International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order. International Organization 36(Spring): 379–415.Google Scholar
Rybczynski, Tad. 1994. The Development of European Capital Markets: The Main Trends and Their Implications. In The Changing Face of European Banks and Securities Market, edited by Revell, Jack, pp. 206–228. New York: St. Martin's Press.Google Scholar
Sabel, Charles F. 1989. Flexible Specialisation and the Re-emergence of Regional Economies. In Reversing Industrial Decline? Industrial Structure and Policy in Britain and Her Competitors, edited by Hirst, Paul and Zeitlin, Jonathan, pp. 17–70. Oxford: Berg.Google Scholar
Sabel, Charles F., Griffin, John R. and Deeg, Richard E. 1993. Making Money Talk: Towards a New Debtor-Creditor Relation in German Banking. Paper presented at the Conference on Relational Investing, Center for Law and Economic Studies, 6–7 May, Columbia University School of Law.Google Scholar
Scharpf, Fritz. 1996. Negative and Positive Integration in the Political Economy of European Welfare States. In Governance in the European Union, edited by Marks, Gary, Scharpf, Fritz W., Schmitter, Philippe C. and Streeck, Wolfgang, pp. 15–39. London: Sage.Google Scholar
Smith, Anthony. 1992. International Financial Markets. The Performance of Britain and its Rivals. Cambridge: Cambridge University Press.Google Scholar
Sobel, Andrew C. 1994. Domestic Choices, International Markets: Dismantling National Barriers and Liberalizing Securities Markets. Ann Arbor: The University of Michigan Press.Google Scholar
Thompson, John K. 1995. Securitisation: An International Perspective. Paris: OECD.Google Scholar
Tossutti, L. S. 1998. Globalization and Communitarian Identities in Three Industrialized States. Paper presented at the Annual Meeting of the American Political Science Association, 36 September, Boston.Google Scholar
Nations, United. 1995. World Investment Report 1995. Transnational Corporations and Competitiveness. New York: UNCTAD.Google Scholar
Verdier, Daniel. 1995. The Politics of Public Aid to Private Industry: The Role of Policy Networks. Comparative Political Studies 28(1): 3–42.Google Scholar
Verdier, Daniel. 1998. Domestic Responses to Capital Market Internationalization Under the Gold Standard, 1870–1914. International Organization 52(1): 1–28.Google Scholar
Verdier, Daniel. Forthcoming. The Rise and Fall of State Banking in OECD Countries. Comparative Political Studies.Google Scholar
Zeitlin, Jonathan. 1992. Industrial Districts and Local Economic Regeneration: Overview and Comment. In Industrial Districts and Local Economic Regeneration, edited by Pyke, F. and Sengenberger, W., pp. 279–294. Geneva: International Institute for Labour Studies.Google Scholar
Zeitlin, Jonathan. 1995. Why are there no Industrial Districts in the United Kingdom? In Small and Medium-Size Enterprises, edited by Bagnasco, Arnaldo and Sabel, Charles F., pp. 98–114. London: Pinter.Google Scholar
Zevin, Robert. 1992. Are World Financial Markets More Open? If So, Why and With What Effects? In Financial Openness and National Autonomy: Opportunities and Constraints, edited by Banuri, Tariq and Schor, Juliet B., pp. 43–83. Oxford: Clarendon Press.Google Scholar