International Regimes, Domestic Veto-Players, and Capital Controls Policy Stability

Abstract

States' decisions about regulating international capital movements are shaped in part by institutions and partisanship at the domestic level, but the effects of domestic-level variables are themselves contingent on the constraints imposed by the international system. We amend the vetoplayers hypothesis to account for the effects of international regimes on the political influence of domestic players in state decision-making. The history of changes in international financial regulations over the past four decades provides an ideal case to study the interaction of international regimes and domestic decision-making systems. We create a data set of all capital controls policy changes that 19 OECD parliamentary democracies made during the years 1951-1998. Using these new data, we find that states with a higher number of veto-player parties in government enact fewer capital controls policy changes. Furthermore, ideologically right-of-center governments in these industrialized countries are more likely than others to enact capital controls liberalizations. We also find, however, that the independent effects of these domestic-level variables disappear after the mid-1980s, when the systemic constraints imposed on individual states increased substantially.

International Institutions and Domestic Compensation: The IMF and the Politics of Capital Account Liberalization

“…This suggests that right-leaning governments tend to favor higher levels of capital account openness. The estimate of Veto Players is negative but weakly significant, which supports Kastner and Rector's (2003) finding in a smaller sample that veto players tend to reduce or block change of capital account policies that favor liberalization. This finding is also consistent with Chwieroth's (2007a) argument that more veto players provide greater voice to domestic opposition to financial reform.…”

“…A more recent line of scholarship suggests that international diffusion-in which countries are influenced by their "peers" due to geographical proximity, emulation, or financial market pressures-is a powerful determinant of capital account liberalization (Brune and Guisinger 2007;Garrett et al 2001;Simmons and Elkins 2004). And finally, scholars have focused on a variety of domestic political and institutional characteristics, such as partisanship (e.g., Brooks and Kurtz 2007;Kastner and Rector 2003;Quinn 1997;Quinn and Inclán 1997), societal interest groups and voter preferences (e.g., Frieden 1991;Smith 2002a, 2002b;Quinn and Toyoda 2007; 19721974197619781980198219841988199019921994199820002002 Advanced OECD countries Developing Countries…”

“…Data for this variable are from Barth, Caprio, and Levine (2003) and Bank for International Settlements (2006). Finally, we control for Veto Players (Kastner and Rector 2003) and the level of Democracy (Marshall and Jaggers 2007).…”

Assessing Measures of Financial Openness and Integration

“…Since the data are monthly, they can be useful for analyzing higher-frequency variables such as stock prices. Kastner and Rector (2003) offer a chronology of policy changes for 19 OECD countries from 1951 to 1988. While this indicator does not measure the magnitude of change, the daily frequency of the data has the advantage of offering specific dates for policy shifts.…”

Ruling capital: emerging markets and the reregulation of cross-border finance

“…Scott Kastner and Chad Rector (2003) show how right-of-center parties played a large role in liberalizing capital accounts in nineteen industrialized countries over the period 1951 to 1998. Geoffrey Garret (1995) shows that global capital mobility still leaves room for left-of-center governments to maneuver but that those governments are penalized through higher interest rates than are their right-wing counterparts.…”