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Summary Chapter 3 - International politics and development
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3. International politics and development (G. De Luca)Development in the right context
- We concentrated on incentives for development within the country
- Economies experience a number of outside influences
- Some are positive: foreign investment, foreign aid (?)
- Some are negative: foreign influence in domestic economic policies, war, debt
By no means, we are claiming that:
- US/China are evil, or any more evil than any other governments
- Underdevelopment is entirely/mainly determined by oppressive policies from the developed world
- Economics does not matter
1. Impact of CIA actions on US trade figures
Paper 1: Berger et al. (AER 2013)
CIA was intervening in the period of the Cold War. It wants to quantify the advantages that the US got from
trade from these external interventions.
They measure whether and how far US political dominance over a government of a country influences the
pattern of its trade
It uses data from declassified CIA documents that relates to the Cold War era (1947-1989)
- Map to show what the places are in which the US and the CIA are mostly active in the period that we
are considering.
- The darker the shadowing, the more extensive the influence has been during that period.
- The US influence (estimate the effect of trade patterns) is a dummy that is defined for every year and
country. Every country year in which there is influence form the US, has a dummy 1 (otherwise it is
dummy 0).
- It gives the share of years in which CIA was involved in actions within the country.
- South Korea, Greece, Philippines, Middle East, … had strong involvement from the US!
- F.e.: giving funds and expertise for political campaigns, specific target or capital, supply of weapons, …
CIA in Chile to political candidate. He got support from the US. So US influence equals 1 for all the years.
,Primarily they estimate an equation of the form:
Where:
- the dependent variable is the log of imports into country c from US in period t normalized by country
c’s GDP in period t.
- USinfluence for a country c in period t (in the cold-war period: 1947-1989) is measured as: whether
CIA has successfully (secretly) intervened in installing a government in the country in that period t
and/or provided covert support in maintaining the government in power in the period t
Main result:
- We estimate the model
- Column 1-3: the dependent variable is the normalized imports from the US
- Row 1: variable of interest: US influence
- 0,283: in intervention years (when US was intervening), a countries import from the US is 28.3%
greater than in non-intervention years.
- The US intervenes in a certain country, that changes the approach of that country towards
internationalizing its economy. In reality, there can be a trade creation.
- Column 4: imports from the world: if it is trade createion (economy is more international), then
following the US intervention also imports from the rest of the world should increase. BUT in the
empirics, the effect is negative and not significant. So there is no effect in overall import from the rest
of the world of a country that has experienced the US influence!
- Column 5: exports to the US from that specific country: exports are not effected by the US intervention
in these countries.
- Column 6: exports to the world: there is no trade creation, it is trade diversion!
, Causal mechanisms:
- The decisions are mostly from the local government
- As a payback for the support that the US gives, the government of that country might start buying
more intensively with the US in terms of the country trade
- Show if this effect is stronger in countries where the government is representing a local share of the
local GDP. The part of the economy that runs through the government is larger in relation to their
GDP.
- Column 2 & 3: add US influence*government share of GDP that is managed directly by the
government. The result is driven by the government share of GDP. It is in countries where the
government is active in the local economy (larger share of GDP), that we have the trade diversion
more. So it is indeed the government decision that pays back from the support that the US gives which
gives more trade diversion.
- Country-year-industry level. Can we find evidence in which industries where the government is the
main supporter/importer? Larger change in the import from the US?
- Column 4: interaction between US influence*dummy for all industries for which the government is the
main purchaser. We still have an estimate for the main US influence variable that is similar to what we
had before. Now: 0,245 (before: 0.242). It is positive and significant. So for those industries, the effect
is even larger.
- Column 5: even more the case that trade pattern are bent to the benefits of the US.
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