Skip to main content
main-content

Über dieses Buch

New Institutional Arrangements for the World Economy Hans-Jiirgen Vosgerau, Konstanz I. The Problem During the first days of July 1987 the newly established Sonderforschungs­ bereich 178 "Internationalisierung der Wirtschaft" held its first symposium in Konstanz/Bodensee. "New Institutional Arrangements for the World Economy" were discussed by a group of economists and lawyers working in the fields of interna­ tional trade, international monetary economics, international finance, international public choice, and international economic law. Cooperation between these areas of research is an important condition for attaining the long-term aim of the Sonderforschungsbereich, viz. analysis of the complex interdependencies between international economic transactions of various kinds and international economy­ related institutions in a broad sense. The nature of these interdependencies seems to be crucial for the world economy's further development. A better understanding of their characteristics will be helpful for the solution of most imminent international economic problems. Four problem areas were especially addressed during the conference, each con­ sisting of three or four contributions. The revised papers are presented in this volume, each followed by a comment of the invited discussant, or by a summary of the discussion. The last contribution is meant as a summary conclusion and has no comment. The four problem areas discussed were: (1) Exchange rate stabilization and econ­ omic policy coordination, (2) International financial markets and their regulation, (3) Protectionism and the Uruguay GAIT-round, and (4) The institutional frame­ work for international production.

Inhaltsverzeichnis

Frontmatter

Introduction

New Institutional Arrangements for the World Economy

Abstract
During the first days of July 1987 the newly established Sonderforschungsbereich 178 “Internationalisierung der Wirtschaft” held its first symposium in Konstanz/Bodensee. “New Institutional Arrangements for the World Economy” were discussed by a group of economists and lawyers working in the fields of international trade, international monetary economics, international finance, international public choice, and international economic law. Cooperation between these areas of research is an important condition for attaining the long-term aim of the Sonderforschungsbereich, viz. analysis of the complex interdependencies between international economic transactions of various kinds and international economy-related institutions in a broad sense. The nature of these interdependencies seems to be crucial for the world economy’s further development. A better understanding of their characteristics will be helpful for the solution of most imminent international economic problems.
Hans-Jürgen Vosgerau

Exchange Rate Stabilization

Frontmatter

1. A Public Choice Analysis of Strategies for Restoring International Economic Stability

Abstract
By almost any measure the world economy over the past decade and a half has been disappointing. Thus the current concerns with the possible need for major reforms in our international institutional arrangements are quite understandable. However, it is argued in this paper that proposals for such reforms frequently are seriously defective because their authors have failed to consider adequately the types of political considerations emphasized in public choice analysis.
Thomas D. Willett

Comments

Abstract
When I agreed to be a discussant of this paper, I had only the title in front of me, which referred to “international economic stability”. However, the text of the paper is concerned with international monetary stability. This term, however, is not defined in the paper. Surely if we are to discuss it we must have a way of identifying it and measuring it from observable data -of being able to say that the amount of it has increased or decreased since last year — unless indeed it is one of those phenomena once described by Fritz Machlup as being like a pretty girl: I can’t define the concept but I know one when I see one.
John S. Chipman

2. Implications of Alternative International Exchange Rate Arrangements for the Developing Countries

Abstract
Contrary to what was expected by the proponents of freely fluctuating exchange rates, the abandonment of the Bretton Woods system in the early 1970s has not resulted in a more stable international economic environment. In fact, in the recent years the degree of volatility of some of the key variables has increased substantially with respect to the 1950s and 1960s. As a result of this a number of economists, both in academia and in policy circles, have recently argued that the international economic system is ripe for a new reform. Most of these reform proposals call for institutions that would result in a more active nominal exchange rate management by the U.S. and the key OECD countries (i.e. the establishment of a target zone for the dollar) or even in a return to the gold standard.1
Sebastian Edwards

Comments

Abstract
Sebastian Edwards has presented an interesting and convincing empirical study. It gives strong support to the hypothesis that real exchange rate instability has greatly increased for developing countries after the end of the Bretton Woods regime. Moreover, strong evidence is provided that this greater variability of real exchange rates has had a sizable negative impact on average real growth and on average real per capita growth in these countries. The influence on investment ratios turns out to be much weaker, whereas no such influence seems to exist on the growth of exports. The latter result is in accordance with earlier research, notably a study of the International Monetary Fund.
Peter Bernholz

3. The European Monetary System: A Regional Bretton Woods or an Institutional Innovation?

Abstract
The breakdown of the Bretton Woods regime and the shift to floating exchange rates in 1973 was a response to changing circumstances and policy behaviour due to real shocks and inflationary pressures. Experience with flexible exchange rates reveals a number of weaknesses for which the new system cannot be blamed entirely — and there is a growing clamour for exchange rate stability and even for a more systemic reform of the existing international monetary regime.
Manfred Wegner

Comments

Abstract
Manfred Wegner’s description and appraisal of the European Monetary System (EMS) shows only one side of the coin: its success in reducing exchange rate fluctuations among the member currencies participating in the exchange rate mechanism (ERM). What is the other side of the coin? Let us compare the years before and after the establishment of the EMS.
Roland Vaubel

International Financial Markets

Frontmatter

4. Domestic Bank Regulation in a World of International Banking

Abstract
It is a commonplace that the economic environment in which financial institutions operate has changed radically in the last two decades. Technological advances in the computer and communication industries have drastically lowered the costs of transmitting and processing information and thus of executing financial transactions. Financial services products have been re-defined; the efficient scale of operation has been increased, enlarging geographical market areas. The result has been a trend toward a world-wide integration of credit and capital markets.1
Kenneth E. Scott

Comments

Abstract
To complement Professor Scott’s contribution to our symposium focused on crucial questions of the present U.S. deposit insurance system, I would like to concentrate my remarks on the legal problems national authorities face in consequence of the internationalization of banking operations and will demonstrate this by using the pertinent reform of German legislation, effective since January 1, 1985, as an example. I shall shortly present its main features as a concrete example of Domestic Bank Regulation in a World of International Banking. This will give us the possibility to raise some difficult legal questions originating in the worldwide integration of banking markets.
Karl Kreuzer

5. The Internationalization of Financial Markets and the Regulatory Response

Abstract
Domestic and international finance — markets, institutions, and practices — is undergoing a major transformation in response to changes in economic and technological conditions. Markets have expanded through the increased securitization of the liabilities of non-financial entities, through the increased internationalization of participants, and through the globalization of trading in certain securities. Changes in the relative importance of various activities (both on- and off-balance sheet), and the emergence of new activities, is transforming the industrial organization of financial firms. Finally, and perhaps most important has been the institutionalization of innovation in financial products and practices. Financial engineering, in the form of new products and practices, and financial entrepreneurship, in the form of restructuring of the balance sheets of non-financial firms through mergers, acquisition, leveraged buy-outs, and divestitures, has become institutionalized with the growth of new-products departments and merchant-banking departments alongside the traditional departments in financial institutions. These on-going developments, more advanced in some countries than in others, have made fundamental modification necessary, and in some instances a complete redesign, of national and international financial supervisory and regulatory policy. Some countries, most notable the United Kingdom, have successfully implemented such a complete restructuring of their supervisory and regulatory policy, while others have taken a more gradualist approach.
David Folkerts-Landau

Comments

Abstract
The paper discusses recent developments in financial markets and the implications of these developments for financial policy. Emphasis is placed on the internationalization of finance and its implication for national supervisory and regulatory policy as well as for the coordination of such policies.
Nikolaus K. A. Läufer

6. Economic Analysis of Debt-Equity Swaps

Abstract
The prospects to solve the financial problems of the heavily indebted less developed and developing countries are dim at present. With a few exceptions, these countries face substantial difficulties to pay the interest on their loans, not to speak about repayment of the principal. Apart from debt relief, economic growth of the indebted countries is viewed as the primary means of improving their financial status. Therefore debt-equity swaps (DES) have been greeted with enthusiasm in the financial press as a device to improve economic growth and, at the same time, to reduce the foreign currency-denominated debt of the troubled countries (see e.g. Economist, 1987, Schubert, 1987).
Günter Franke

Comments

Abstract
The paper before us is a showpiece of modern economic analysis: it starts with a real-world problem, applies simple but sound economic analysis to it and draws clear-cut conclusions. In other words, G. Franke’s paper is highly relevant, analytically sharp and logically stringent. So why not stop here? G.F. places the debt-equity swaps into a framework of efficient financial markets. He shows that the debt-equity swap (DES) is a special case of a multiple exchange rate system and leads to a “loan currency” substitution (LCS). By assuming efficient international capital markets it is not surprising that a “twist” like a debt-equity swap does not really matter much — or at all. This result immediately calls to our minds the Modigliani/Miller Theorem.
Silvio Borner

7. Competitive Performance, Regulation and Trade in Banking Services

Abstract
A dominant feature of the global financial services industry today is intensified competition facing banks and other financial institutions. Among the important environmental forces driving this change are continued exchange-rate and interest-rate volatility, persistent financial disintermediation and securitization, progressive financial deregulation and market interpenetration, and rapid technological evolution in financial processes and products. It is an environment that is increasingly forcing a radical reassessment in strategic positioning on the part of firms in the industry, and an equally radical reassessment of public policies toward the financial services industry.
Anthony Saunders, Ingo Walter

Comments

Abstract
As a representative of the public economics branch, although called “Finanzwissenschaft” in the traditional German terminology, I cannot exhibit any major competence in topics dealing with financial markets or bank services especially. The paper of Saunders and Walter shows that it is becoming increasingly difficult to describe the manifold and more and more specialized services of financial institutions and their nonfinancial competitors, much less to criticize and to judge them.
Bernd Genser

Protectionism and the Uruguay GATT Round

Frontmatter

8. Does The World Need a GATT for Services?

Abstract
There appears to be very little controversy now among economists about the proposition that institutions do matter to the performance of market economies and the international economy generally. Unresolved is how much they do matter and what kind of institutions matter most. I congratulate the Konstanz conference organizers for providing a forum for the discussion of these issues. They deserve much more attention than they are getting from the vast establishment of North American researchers that is preoccupied with the formalization of economic knowledge.
Herbert G. Grubel

Comments

Abstract
Grubel’s answer to the question raised in the title of his paper is a resounding “no”: There is no need for a GATT for services. This conviction is based on two arguments which are thoroughly elaborated. According to the first argument “all internationally traded services are crossing borders after embodiment in people or material substances” (Introduction); therefore, liberalizing trade in goods automatically brings along liberalization of international trade in most of what conventionally are called service trade transactions. The remaining types of service trade concern the “right to establishment”.
Helmut Hesse

9. Policy Motives and International Trade Restrictions

Abstract
The case for free trade is quite compelling. Certainly there are qualifications, as for example the infant-industry and optimum tariff arguments. But these qualifications are not severe. The infant-industry argument on further consideration has been shown to yield little in the way of implications for trade policy (Baldwin 1969). The optimum tariff argument which is the application of monopsony power in international trade provides no assurances that foreign retaliation will not result in an outcome inferior to free trade. Some defence-related arguments have also been suggested for departure from free trade.1 However, as a general proposition, free trade maximizes an economy’s national income and is the Pareto-efficient policy course. Yet the institutional framework governing the conduct of the developed countries’ international trade policies is generally constituted in a manner which facilitates protectionist responses. As an empirical matter, departures from free trade are of course pervasive (Baldwin 1984).
Arye L. Hillman

Comments

Abstract
As we have come to expect from his previous work, Arye Hillman’s paper offers us a stimulating contribution to the literature on the political economy of international trade policy. I agree strongly with the central theme of his paper that the standard market failure and optimum tariff arguments for trade restrictions explain only a minor portion of actual trade barriers. The major contribution of this paper in my judgment is Hillman’s critique of the recently developed literature which seeks to find an efficiency basis for trade restrictions in terms of failures in the market for social insurance. While I would be inclined to see somewhat greater informational barriers to the provision of private insurance against adverse trade developments than may be suggested by Hillman’s discussion, I believe that he has offered us an extremely useful and basically sound critique of the pure efficiency based social insurance arguments for trade protection.
Thomas D. Willett

10. Protectionist Rules and Internationalist Discretion in the Making of National Trade Policy

Abstract
The post-World War II deliberations on institutional arrangements for the world economy were successful in leading to the establishment of the International Monetary Fund and the World Bank. However, the proposed International Trade Organization which would regulate international trade was not to be. There was a general reluctance among governments to accept institutionalized restrictions on the conduct of countries’ national trade policies. At the same time the ITO negotiations over the “rules” of the trading system were unsuccessful, the community of nations reached agreement on a significant package of reciprocal tariff reductions. The document or contract which gave legal effect to the agreed reduction of tariffs included three functional parts. The first of these committed each participating country to allow other participants access to its market at least as favorable as the schedule of its import restrictions it annexed to the agreement. When agreement involved reductions of tariffs, the negotiated reductions over previous rates were reflected in this schedule. Each schedule, the parties agreed, would be subject to MFN treatment within the group.1
J. Michael Finger

Comments

Abstract
It is well known that the General Agreement on Tariffs and Trade contains two major components:
(1)
The trade liberalization component this includes the framework for trade negotiations and tariff bindings, the unconditional most-favored-nation rule, and the national treatment rule;
 
(2)
The mercantilistic component: this includes national rights to raise non-bound tariffs, to impose countervailing and antidumping duties, to exclude government procurement from national treatment, and so forth.
 
Gary C. Hufbauer

Institutional Arrangements for International Production

Frontmatter

11. Institutional Arrangements for Natural Resources

Abstract
World wide, institutional arrangements for natural resources have undergone a major redesign in the last twenty years. Property rights for reserves of oil and minerals have effectively gone over from international firms to the resource countries. For some renewable resources threatened by extinction such as endangered species new property rights have been established. The “High Sea”, the “res nullius” (Hugo Grotius 1601) or a non-property up to now, has different subsets of property titles attached to it such as the 200 mile economic zones, international fishing commissions and schemes for using the minerals of the sea bottom. Environmental scarcity — another aspect of nature’s resources — has forced the industrial nations to introduce major laws regulating the national use of the environment as a receptacle of waste. A series of transfrontier pollution problems like the acid rain in Europe or global issues such as the protection of the ozone layer still have to be solved. Eventually, property rights for the atmosphere or outer space will have to be developed.
Horst Siebert

Summary of the Discussion

Abstract
The paper identifies six specific features of natural resource industries, namely a long-time horizon, vertical stages of production, high set-up costs, private risks, idiosyncratic investment, and social risk. It is argued that these features have implications for the institutional arrangements. These features are perhaps largely characteristic of national resource markets, but there are other features which are important in international markets. Firstly, property rights tend to be much less well defined, consider for example orbital slots for satellites. At a national level, common property problems are being sorted out, but not at the international level. In the absence of transaction costs, it is true that it does not matter a great deal who gets the original property rights. But with transaction costs it is important to have institutional arrangements which allocate the rights to those who can best use them. Secondly, exchange rate risks should be mentioned, although these of course are not specific to resource markets. Finally, political risks need to be taken into account in international markets, although it is not clear that companies take more political risks in international markets than they do in the domestic market. For example, Chevron at the moment has probably got more political power in communist governed Angola than in the U.S. — it is quite possible that property rights in Angola are less exposed to political risks.
Jonathan P. Thomas

12. Property Rights in Information and the Multinational Firm: The Case of Technical Learning in a Multiplant System

Abstract
The growing literature on the multinational enterprise (Buckley 1981), (Dunning 1971), (Kindleberger 1969), (Vernon 1977) indicates that, at the simplest level, the MNE can be understood as a firm that owns income generating assets in more than one country. Accepting this definition, certain questions follow. We should like to know, inter alia, why this type of structural arrangement comes into existence, and why foreign direct investment may seem attractive to a firm. Current explanations of these matters differ somewhat but tend to emphasize the role of organizational economics and, thus, suggest that the MNE emerges as the solution to the problem of deciding whether firms or markets should be used for allocating resources.1 Characteristically, it is argued that, even when other factors are favorable, the appearance of the MNE depends on the condition that: ...the internalization of international transactions must be preferable to the arm’s length use of markets (Ethier 1986, p. 805).
Eirik G. Furubotn

Comments

Abstract
Professor Furubotn argues that learning curve effects provide an additional argument for the growing emergence of multinational enterprise (MNE). He first develops a model which includes technical learning as a cost reducing shift parameter in an oligopolistic optimization calculus. The specification of the model is such that augmenting cumulative output over any given period of time leads to greater profits. Because exporting to foreign markets is excluded explicitly, adding foreign production to domestic output follows straightforwardly. He then evaluates alternative modes of exchanging information across markets or within internal organizations. The exchange of information leading to higher efficiency in production (learning) has high costs in arm’s length market transactions and internal governance structures are more efficient in transmitting the required information. Thus: technical learning is an additional driving force for MNE.
Heinz Hauser

13. New Institutional Arrangements in International Economic Law: The Working of Codes of Conduct

Abstract
New institutional arrangements for the world economy are in many instances legal institutions like the International Monetary Fund (IMF), the General Agreement on Tariffs and Trade (GATT), bank regulations, long-term contracts in resource economics and so on. These legal institutions are of interest for economists because they affect the functioning of the international economic system; institutional changes may lead to more efficiency of the world economy or reduce it. These institutions are of interest for lawyers as well, because they are part of the overall legal framework of the world economy. They are centre-pieces of what is called international economic law 1. International economic law poses various difficult and complex problems to lawyers: the lawmaking process differs from national legislation, the binding force of legal or semi-legal rules of international economic law often is different from that of national law. And the relationship between lawmaker and addressee may be quite different on the international level as compared to the level of the nation state. The problems mentioned are not too difficult to deal with, if there is an international treaty between nations establishing an international organization like the IMF or the GATT. The problem is still manageable if private actors, on the basis of consensus, create their own contract law as in international investment contracts.2 The complexity of the problem situation fully comes into play when the lawmaker is an international organization without lawmaking powers established by an international treaty, and if the output of this lawmaking process is a legally not binding code of conduct, and if the addressees are not only nation states but private enterprises as well.
Christian Kirchner

Comments

Abstract
This is a strange paper.
William A. Niskanen

14. Competing Institutional Arrangements and Internationalization

Abstract
In the past couple of decades, the relevance of national markets in determining economic policies has largely disappeared; a globalization of markets has taken place. Several factors made this internationalization possible:
(1)
The “technological revolution” in transport and communication;1 transport of both goods and information became easier and national markets became interdependent.
 
(2)
The economic advances of the newly industrializing countries such as the South-East Asian countries, Brazil and Argentina, created a new international division of labour. The strong influence of this shift on the growth of the world trade volume was witnessed in the 1970s2, when world trade grew at an annual average of 6.7%. During the recession at the beginning of the ‘80s, growth in world trade volume decreased considerably, but picked up strongly from 1983 again.3
 
(3)
Increased foreign direct investment contributed to an integration of markets, too. Foreign direct investment makes markets more homogeneous, broadens the perspective of firms operating in different markets at the same time, induces the division of labour along vertical lines in the production process and thereby creates trade flows.
 
(4)
Cross-border financial claims not only increased with foreign direct and portfolio investments, but also with increased international borrowing and lending. The expansion of the Euromarkets facilitated a tremendous expan­sion of the lending to developing countries, which reached an estimated $1,200 billion in 1987.4
 
Carsten-Thomas Ebenroth

Backmatter

Weitere Informationen