The Political Economy of Developing Countries’ Responses to Economic Globalization

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How do governments and citizens in developing countries respond to the pressures of economic globalization? This panel illuminates substantial variation among developing countries in raising revenue, accumulating capital, and accessing international credit markets. Using diverse empirical strategies, the authors investigate how domestic political institutions alter elite and mass behavior toward globalization. 

Bastiaens and Rudra highlight the obstacles governments face in increasing revenue after slashing international trade taxes. Leaders in democracies are accountable to citizens, which limits their ability to raise taxes. Autocracies are more insulated from citizen lobbying and can increase their extractive capacity. Government revenues could be augmented by attracting foreign investment. Arias, Hollyer, and Rosendorff find that authoritarian regimes with weaker legal institutions use bilateral investment treaties as a signal of their competence and commitment toward protecting investments. The signing of investment treaties bolsters support for autocrats. Countries without the capacity to raise foreign capital or domestic revenue rely on foreign aid. Hafner-Burton, Rhee, and Victor focus on the influence of China in lending decisions at the World Bank. Scrutinizing World Bank data, they find the erosion of U.S. influence to provide aid to their allies. China, however, has not supplanted the U.S. 

The papers also explore the micro-level processes of developing countries in their ability to access credit markets and gain compliance over taxation. Ballard-Rosa, Mosley, and Wellhausen find considerable variation in developing countries’ ability to issue debt in their own currencies. Domestic political institutions, including regime type and partisanship, matter for whether governments choose to issue debt in their own currency. de la Cuesta, Martin, Milner, and Nielson tackle the question of why citizens in developing countries often choose not to hold their leaders accountable when they misuse government resources. They use lab-in-the-field experiments to highlight the scope conditions under which citizens punish poor government performance.