Colombia 1990-2010: Cooperation in the War on Drugs
in Proxy Wars: Suppressing Violence Through Local Agents
edited by Eli Berman & David A. Lake
Ithaca, NY: Cornell University Press, pp. 80-109, 2019.
“Geopolitics and the 21st Century Global Financial Safety Net”
“Ties that Bind: The Geopolitics of Bilateral Currency Swap Agreements”
In multilateral lending, political ties between lenders and borrowers create perverse incentives for economic misbehavior by recipient states. These problems should be exacerbated in the context of bilateral currency swap agreements (BSAs), where borrowers and lenders engage in deep cooperation without explicit conditionality statements designed to reduce moral hazard. Despite these limitations, BSAs are rapidly proliferating and now match IMF agreements in both number and value. Why are lenders and borrowers shifting to an inherently risky financial instrument? I resolve this discrepancy by introducing and offering empirical support for a theory in which international political linkages allow providers to exert leverage rather than favoritism. In short, BSA providers can use existing linkages—such as alliances and strategic partnerships—to credibly threaten punishment against recipients that misbehave, thereby inducing those recipients to adopt more responsible economic policies. I support the mechanism using a newly-created data set of all currency swap agreements offered by the U.S. Federal Reserve, the People's Bank of China, and the Bank of Japan between 2000 and 2016. My results contrast with prevailing theories on the benefits of central bank independence and the relationship between international political ties and moral hazard in financial relations.
“A Bilateral Seal of Approval: Financial Stability through Geopolitics”
Bilateral emergency assistance is a rapidly-proliferating fixture of the global financial architecture. How do markets react to announcements of bilateral bailouts? On the one hand, a bilateral bailout may reassure markets by signaling that the recipient state has a powerful backer willing to provide the liquidity necessary to avert a financial crisis. On the other hand, investors may fear that the lender’s decisions are politically-motivated and that borrowers will continue to pursue risky or expansionary economic policies as a result of moral hazard. I provide an empirical answer to the question of how markets interpret these contrasting signals using new data on bilateral currency swap agreements (BSAs) formed between 2000 and 2016. Using a difference-in-difference design, I leverage three types of market responses to assess whether BSA recipients with political ties to providers are treated differently from BSA recipients who lack such connections. In contrast to previous work on IMF bailouts, I find no evidence that markets penalize politically-connected BSA recipients, suggesting that in bilateral lending contexts political ties act as a seal of approval for markets rather than a reason for skepticism.
“How Economic Interests Still Matter for Trade Policy Preferences”
How do voters appraise the effect of trade on their own economic welfare? I argue that previous studies of trade policy preferences use an overly narrow definition of individual economic self-interest. In particular, existing work does not account for the influence of an individual’s social financial network, such as family and dependent obligations or support. Using a survey experiment of American citizens, I find evidence that social financial networks influence respondents’ perceptions of the economic impact of trade. I further demonstrate that financial relationships jointly matter in determining an individual’s overall trade policy preference. These findings add a new perspective to debates regarding the role of self-interest and sociotropism in trade preferences, because trade policies that affect social financial networks may indirectly influence an individual’s personal pocketbook.
“New Lenders of Last Resort? Examining the Rise of Bilateral Currency Swaps”
Over the past two decades, the rapid proliferation of bilateral currency swap agreements (BSAs) has marked a fundamental transformation in the global financial safety net. To facilitate analysis of this new instrument, this paper introduces a comprehensive data set on all BSAs formed between 2000 and 2016. I provide a descriptive analysis of two aspects of the data. First, I demonstrate that BSAs represent a distinct departure from traditional forms of multilateral liquidity provision. Second, I show that significant variation exists in BSA allocation among providers: some prominent providers—such as the People’s Bank of China—extend BSAs to a wide range of recipients, while other providers—such as the U.S. Federal Reserve—appear more constrained in their selection criteria.
Conferences and talks
2019: APSA, IPES (scheduled)
2018: APSA, ISA, SPSA, Yale University
2016: George Washington University