Spatial Interdependence in Comparative and International Political Economy

Abstract

Interdependence is ubiquitous, and often central, across political economy. In comparative political economy, for example, globalization and rising capital mobility imply tax competition that suggests the fiscal policies of one country must depend crucially upon those of other countries with which it competes for capital. In international political economy, to give another example, security concerns and the global structure of military alliances are likely to make trade flows interdependent across country dyads. We explain how any situation that involves externalities from one unit's actions on others' implies interdependence and show how to model such interdependent processes empirically. We discuss how to estimate properly specified interdependence models with spatial lags by maximum likelihood and how to interpret and present the resulting estimated spatio-temporal effects, response paths, and long-run steady-states, with their associated standard errors. We illustrate with replications of two noteworthy earlier studies from comparative and international political economy.

Keywords: Political Economy, Globalization, Interdependence, Strategic Interactions, Spatial Econometrics, Taxation, Trade

JEL Classification: C33, F59, P16