Thomas Oatley
Associate
Professor of Political Science
The Reductionist Gamble: Open Economy
Politics in a Global Economy
An unknown but potentially substantial share of the knowledge generated by open economy politics (OEP) scholarship is inaccurate. OEP employs a reductionist methodology to study the domestic political determinants of foreign economic policies in isolation from international political processes. Although some policy choices are purely the product of domestic politics, others result from the interaction between domestic and international processes. In these cases, ignoring the relevant international process causes the researcher to draw biased inferences about the domestic political relationships under investigation. OEP is thus engaged in what I call a reductionist gamble: the embrace of a reductionist method without due consideration to the downside risk (what are the consequences if reductionism is inappropriate?) and without calculating the odds (what is the likelihood that reductionism is appropriate in any given instance and in general?). Consequently, OEP scholarship generates biased empirical knowledge at some unknown frequency.
Exchange Rate Movements and the Demand for Protection in the United States,
1975-2004
Standard models of trade politics cannot explain the temporal variation in
protectionism evident in the United States during the last thirty years.
This paper builds a model that does explain this temporal variation. I incorporate
the real exchange rate into the standard model of sectoral trade policy preferences
to show how the number of sectors that benefit from protection grows as the
real exchange rate appreciates. I conceptualize the conditions under which
political institutions encourage producers to respond to real exchange rate
appreciation by demanding tariff protection rather than currency depreciation.
The theoretical model thus suggests that temporal variation in protectionism
is a consequence of how political institutions channel producers’ responses
to real exchange rate movements. I test the model using data on antidumping
and escape clause petitions in the United States between 1975 and 2004. The
empirical analysis yields robust support for the study’s principal hypotheses.
Exchange Rate Movements
and the Demand for Protection in Advanced Industrial Societies, 1978-2004
Real exchange rate movements are robustly related to the rise and fall of protectionist pressure throughout the advanced industrialized world. I demonstrate this by presenting a theoretical model that incorporates the real exchange rate into a standard factor proportions model of trade policy preferences. The model demonstrates why some firms’ trade policy preferences, and thus total demands for protectionism, change in response to real exchange rate movements. I evaluate the model with data on antidumping investigations in OECD countries and South Africa between the late 1970s and 2004. The exercise suggests that the real exchange rate hypothesis offers a more compelling explanation for protectionist waves than the business cycle hypothesis.