Financial Globalization, Public Goods and Democracy
Working Paper #316
This paper discusses the impact of financial globalization on the transition from an immature democracy (based on a simple technology and pure redistribution) to a mature democracy (based on a complex technology and the provision of public goods). The model includes two countries in the international economy with two different production functions, a Solovian South and a Schumpeterian North. It also considers two different international regimes of capital mobility, the Bretton Woods regime (BG) and Rodrik’s hyperglobalization (HG) regime. It is argued that a) HG compromises the emergence of a mature democracy in the South by reducing the ability of the citizens to tax and provide public goods which are crucial for technical change; b) barriers to capital mobility applied at a national level may encourage the elite to stage a coup to impose financial liberalization. The results of the model are consistent with the empirical evidence showing that financial globalization is associated with democracy mostly in countries which already provide public goods; that countries that democratize at lower levels of income per capita tend to have less stable democracies; and that there exists a positive association between economic diversification and more stable democracies.
About the Author
Gabriel Porcile is Economic Affairs Officer of the Economic Commission for Latin America and the Caribbean (ECLAC). He was Professor of Economics at the Federal University of Parana in Brazil and visiting scholar in the University of Sao Paulo, Columbia University and the New School for Social Research. He has published extensively on the topics of Structuralist and Keynesian models of growth and distribution. Gabriel Porcile holds a PhD from the London School of Economics (PhD). He was also educated at the UNICAMP (Master) in Brazil and UDELAR in Uruguay. His last publication is “A technology gap interpretation of growth paths in Asia and Latin America”, Research Policy, vol 48, co-authored with Mario Cimoli and Joao Basilio Pereima.