Still Afraid of Footloose Finance? Exit and Voice in Contemporary Globalization

24 Pages Posted: 25 Oct 2017

See all articles by Layna Mosley

Layna Mosley

University of North Carolina (UNC) at Chapel Hill - Department of Political Science

Date Written: October 24, 2017

Abstract

To what extent and in what ways does mobile capital affect the policy decisions of national governments, and under what conditions are governments willing to privilege (or to ignore) the preferences of asset holders who can credibly threaten exit? There is a long tradition of analyses based on the state’s “structural dependence” on capital (both foreign and domestic), and on the “golden straightjacket” view of government-financial market relations. I discuss how we might understand the contemporary relationship between sovereign bond investors and governments, in terms of what “market pressures” are, when such pressures operate to affect government decisions, and when governments are willing to ignore investors’ demands (assuming they exist). I suggest that “the market” may not have a unified sense of what it wants in terms of fiscal and regulatory policy; that low interest rate/high global liquidity environments offer governments greater policymaking flexibility; and that governments may use “market pressures” and “market rewards” as a veil for other drivers of policy. I also note that the investors/capital owners in question may not be foreign actors – as we often assume them to be – but rather domestic actors who, by virtue of their embeddedness in the national political system, have greater stakes regarding a given government’s policy choices.

Keywords: Financial Globalization, Capital Market Openness, Sovereign Debt, Sovereign Finance

JEL Classification: H63, F34, F65, G15

Suggested Citation

Mosley, Layna, Still Afraid of Footloose Finance? Exit and Voice in Contemporary Globalization (October 24, 2017). Available at SSRN: https://ssrn.com/abstract=3058317 or http://dx.doi.org/10.2139/ssrn.3058317

Layna Mosley (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Political Science ( email )

361 Hamilton Hall
CB#3265
Chapel Hill, NC 27599
United States
919-962-3041 (Phone)

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