Ideas are strangely absent from modern models of political economy. In most prevailing theories of policy choice, the dominant role is instead played by "vested interests"—elites, lobbies, and rent-seeking groups which get their way at the expense of the general public. Any model of political economy in which organized interests do not figure prominently is likely to remain vacuous and incomplete. But it does not follow from this that interests are the ultimate determinant of political outcomes. Here I will challenge the notion that there is a well-defined mapping from "interests" to outcomes. This mapping depends on many unstated assumptions about the ideas that political agents have about: 1) what they are maximizing, 2) how the world works, and 3) the set of tools they have at their disposal to further their interests. Importantly, these ideas are subject to both manipulation and innovation, making them part of the political game. There is, in fact, a direct parallel, as I will show, between inventive activity in technology, which economists now routinely make endogenous in their models, and investment in persuasion and policy innovation in the political arena. I focus specifically on models professing to explain economic inefficiency and argue that outcomes in such models are determined as much by the ideas that elites are presumed to have on feasible strategies as by vested interests themselves. A corollary is that new ideas about policy—or policy entrepreneurship—can exert an independent effect on equilibrium outcomes even in the absence of changes in the configuration of political power. I conclude by discussing the sources of new ideas.
Written jointly with Pinar Dogan, this is an update of our 2010 book (see below) on the infamous Sledgehammer case in Turkey. In addition to the Sledgehammer trial, the book covers the Ergenekon and other court cases that were stage managed by the Gulen network, in cooperation with the Erdogan government. It provides detailed evidence on the framing of innocent victims by police and prosecutors in an evident attempt to politically redesign the country. It also examines the role of the media and intelligentsia in shaping public opinion over the trials.
Unlike economies as a whole, manufacturing industries exhibit strong unconditional convergence in labor productivity. The article documents this at various levels of disaggregation for a large sample covering more than 100 countries over recent decades. The result is highly robust to changes in the sample and specification. The coefficient of unconditional convergence is estimated quite precisely and is large, at between 2–3% in most specifications and 2.9% a year in the baseline specification covering 118 countries. The article also finds substantial sigma convergence at the two-digit level for a smaller sample of countries. Despite strong convergence within manufacturing, aggregate convergence fails due to the small share of manufacturing employment in low-income countries and the slow pace of industrialization. Because of data coverage, these findings should be as viewed as applying to the organized, formal parts of manufacturing.
The nation-state has long been under attack from liberal economists and cosmopolitan ethicists alike. But it has proved remarkably resilient and remains the principal locus of governance as well as the primary determinant of personal attachments and identity. The global financial crisis has further under- scored its centrality. Against the background of the globalization revolution, the tendency is to view the nation-state as a hindrance to the achievement of desirable economic and social outcomes. Yet it remains indispensable to the achievement of those goals.
Government use policy to achieve certain outcomes. Sometimes the desired ends are worthwhile, and sometimes they are pernicious. Cross-country regressions have been the tool of choice in assessing the effectiveness of policies and the empirical relevance of these two diametrically opposite views of government behavior. When government policy responds systematically to economic or political objectives, the standard growth regression in which economic growth (or any other performance indicator) is regressed on policy tells us nothing about the effectiveness of policy and whether government motives are good or bad.
A short paper on the (mis)use of growth regressions.
Rodrik D. Do We Need to Rethink Growth Policies?. In: Blanchard O, Romer D, Spence M, Stiglitz J In the Wake of the Crisis: Leading Economists Reassess Economic Policy. Cambridge: The MIT Press ; 2012. pp. 157-167.PDF
The global financial crisis has demonstrated that a financially open economy has many areas of vulnerability. Even when a country keeps its own house in order, it remains at the mercy of developments in external financial markets. So, one lesson to bear in mind is that policymakers need to guard against not just domestic shocks, but also shocks that emanate outward from financial instability elsewhere. To accomplish this, complete financial openness is not the best policy. A second lesson is that Turkey's prevailing growth strategy can neither be sustained nor generate enough employment. Therefore, it would be a mistake for the country to return to the status quo ante and resuscitate a model that fails to make adequate use of domestic resources. Most importantly, Turkey has to learn to live with a reduced reliance on external borrowing. The paper discusses the needed realignments in fiscal and exchange-rate policies.
The objective of international economic arrangements must be to attain the maximum amount of integration or the maximum thickness in economic transactions that are consistent with maintaining space for diversity in national institutions and the arrangements. The objective would be to create enough policy space to allow rich countries to rework their social compacts at home, poor countries to restructure and diversify their economies so that they can position themselves better to benefit from globalisation, and all nations, rich and poor alike, to establish financial systems and regulatory structures that are more attuned to their own needs. A better managed globalisation will be a better globalisation, argues the paper.
Unlike economies as a whole, manufacturing industries exhibit unconditional convergence in labor productivity. The paper documents this finding for 4-digit manufacturing sectors for a large group of developed and developing countries over the period since 1990. The coefficient of unconditional convergence is estimated quite precisely and is large, at 3.0-5.6 percent per year depending on the estimation horizon. The result is robust to a large number of specification tests, and statistically highly significant. Because of data coverage, these findings should be as viewed as applying to the organized, formal parts of manufacturing.
In some countries structural change enhances economy-wide productivity, in others it reduces it. Why? Dataset and Employment VA data. Published as Chapter 2 of "Making Globalization Socially Sustainable."
Surveying three centuries of economic history, a Harvard professor argues for a leaner global system that puts national democracies front and center. From the mercantile monopolies of seventeenth-century empires to the modern-day authority of the WTO, IMF, and World Bank, the nations of the world have struggled to effectively harness globalization's promise. The economic narratives that underpinned these eras—the gold standard, the Bretton Woods regime, the "Washington Consensus"—brought great success and great failure. In this eloquent challenge to the reigning wisdom on globalization, Dani Rodrik offers a new narrative, one that embraces an ineluctable tension: we cannot simultaneously pursue democracy, national self-determination, and economic globalization. When the social arrangements of democracies inevitably clash with the international demands of globalization, national priorities should take precedence. Combining history with insight, humor with good-natured critique, Rodrik's case for a customizable globalization supported by a light frame of international rules shows the way to a balanced prosperity as we confront today's global challenges in trade, finance, and labor markets.
Written in Turkish with my wife Pinar Dogan, this book covers the most important political trial in Turkey in at least five decades, which opened in December 2010. It is based on our blog on the topic. Balyoz is a legal and political exposé. It details a brazen effort to frame more than 300 officers for crimes they have not committed. It documents the roles that groups within the judiciary, police, media, intelligentsia, the national science and technological institute, and (last but not least), the AKP government have played in creating what can best be called an “alternative reality.” (Balyoz means “sledgehammer” in Turkish; it refers to the code name of the fictional coup plot on which the book is based.) This is a book I never thought I would (have to) write.
This is the new edition of the Handbook of Development Economics. Compared to previous versions, it focuses more on policy questions. The Handbooks in Economics series continues to provide the various branches of economics with handbooks which are definitive reference sources, suitable for use by professional researchers, advanced graduate students, or by those seeking a teaching supplement.With contributions from leading researchers, each Handbook presents an accurate, self-contained survey of the current state of the topic under examination. These surveys summarize the most recent discussions in journals, and elucidate new developments.Although original material is also included, the main aim of this series is the provision of comprehensive and accessible surveys.The Handbooks are indispensable reference works which belong in every professional collection, and form ideal supplementary reading for graduate economics students on advanced courses.