A populist backlash to globalization has ushered in nationalist governments and challenged core features of the Liberal International Order. Although startling in scope and urgency, the populist wave has been developing in declining regions of wealthy countries for some time. Trade, offshoring, and automation have steadily reduced the number of available jobs and the wages of industrial workers since at least the 1970s. The decline in manufacturing employment initiated the deterioration of social and economic conditions in affected communities, exacerbating inequalities between depressed rural areas and small cities and towns, on the one hand, and thriving cities, on the other. The global financial crisis of 2008 catalyzed these divisions, as communities already in decline suffered deeper and longer economic downturns than metropolitan areas, where superstar knowledge, technology, and service-oriented firms agglomerate. We document many of these trends across the United States and Europe, and demonstrate that populist support is strongest in communities that experienced long-term economic and social decline. Institutional differences in labor markets and electoral rules across developed democracies may explain some of the variation in populists’ electoral success. Renewed support for the Liberal International Order may require a rejuvenation of distressed communities and a reduction of stark regional inequalities.

We analyze the factors that increase the likelihood that other nations will follow China's global economic leadership. While our theoretical framework incorporates the conventional argument that China pulls in followers with economic benefits, we focus on grievances with the current global order that have the effect of pushing countries toward the rising new leader. We find that grievances about global financial instability are particularly important push factors. Our results show that countries that have experienced more financial crises, more variable capital account policies, more volatile portfolio capital outflows, and more social unrest during IMF programs are more likely to support China's global leadership than leaders of nations that have been less exposed to these problems. We find no evidence that grievances about global governance, or grievances about discriminatory US trade policies, are related to foreign support for China's global economic leadership. Overall, our evidence is consistent with the interpretation that leaders want to reform and preserve the WTO and the IMF, which have worked reasonably well for them under US leadership. At the same time, they have incentives to follow China's economic leadership on global capital flows, emphasizing long-term infrastructure and development finance over short-term flows which, under the current order, have imposed large costs on many economies.

The recent confrontation between China and the United States over currency policy illustrates a broader phenomenon: exchange-rate misalignments tend to spill over into trade policy. Although previous studies have shown that aggregate protectionist activity is positively related to the level of the real effective exchange rate, we explore this relationship at the industry level. Several industry-specific characteristics determine the protectionist response to exchange rate changes, including the degree of exchange-rate pass-through, the level of import penetration, and the share of imported intermediate inputs in total industry inputs. We find that the marginal effect of currency appreciation on the number of industry-level antidumping petitions is positive and significant only for industries with high pass-through. Therefore, exchange rates appear to induce demands for trade barriers only in industries where competitiveness is directly harmed by currency appreciation.

Analyses of monetary policy posit that exchange-rate pegs, inflation targets, and central bank independence can help anchor private-sector inflation expectations. Yet there are few direct tests of this argument. We offer cross-national, micro-level evidence on the effectiveness of monetary anchors in controlling private-sector inflation concerns. Using firm-level data from eighty-one countries (approximately 10,000 firms), we find evidence that “international” anchors (exchange-rate commitments) correlate significantly with a substantial reduction in private-sector concerns about inflation while “domestic” anchors (inflation targeting and central bank independence) do not. Our conjecture is that private-sector inflation expectations are more responsive to exchange-rate anchors because they are more transparent, more constraining, and more costly than domestic anchoring arrangements.

We address the question of how international public goods are financed by analyzing voting in the U.S. Congress on legislation to increase the U.S. contribution to the International Monetary Fund (IMF). We argue that legislators are more likely to vote in favor of an increase (1) the more campaign contributions they obtain from banks that specialize in international lending, and (2) the greater the share of high-skilled “proglobalization” workers in their districts. The first argument supports the inference that a financially strong IMF mitigates the risks of international lending, to the benefit of the lending banks. The second reflects our claim that voters view the IMF as a positive force for global economic integration that—following Stolper-Samuelson reasoning—benefits high-skilled workers. Lastly, we analyze IMF loan decisions and find modest support for the claim that IMF policy reflects the interests of major international banks. Overall, our results suggest that private actors within the United States have individual stakes in funding the IMF.We presented earlier versions of this paper at the 8th Annual International Society for New Institutional Economics Conference (ISNIE), Tucson, Ariz., September–October 2004, and at the Delegation to International Organization Conference, Del Mar, Calif., September 2003. We thank participants for comments. We also thank Michael Hiscox, Mathew McCubbins, J. R. DeShazo, David Lake, Jeffry Frieden, James Vreeland, William R. Clark, Erica Gould, Joseph Joyce, Devesh Kapur, Louis Pauly, Shanker Satyanath, Beth Simmons, and Michael Tierney for suggestions; and Mark Farrales and Molly James for excellent research assistance.

In recent decades, countries have experimented with a variety of monetary institutions, including alternative exchange-rate arrangements and different levels of central bank independence. Political economists have analyzed the choice of these institutions, emphasizing their role in resolving both the time-inconsistency problem and dilemmas created by an open economy. This “first-generation” work, however, suffers from a central limitation: it studies exchange-rate regimes and central bank institutions in isolation from one another without investigating how one monetary institution affects the costs and benefits of the other. By contrast, the contributors to this volume analyze the choice of exchange-rate regime and central bank independence together and, in so doing, present a “second generation” of research on the determinants of monetary institutions. The articles incorporate both economic and political factors in explaining the choice of monetary institutions, investigating how political institutions, democratic processes, political party competition, and interest group pressures affect the balance between economic and distributional policy objectives.

Central bank independence (CBI) and fixed exchange rates are alternative monetary commitments that differ in transparency. While CBI is opaque and difficult to monitor, a commitment to a fixed exchange rate is easily observed. Political systems also vary in terms of transparency. I argue that the transparency of monetary commitments and the transparency of political systems are substitutes. Where political decision making is opaque (autocracies), governments must look to a commitment that is more transparent and constrained (fixed exchange rates) than the government itself. The transparency of the monetary commitment substitutes for the transparency of the political system to engender low inflation. Where the political process is transparent (democracies), a formal commitment to CBI can produce lower inflation because private agents and the political opposition are free to detect and punish government interference with the central bank. Statistical results indicate that (1) autocracies are more likely to adopt exchange-rate pegs than democracies, and (2) CBI is effective in limiting inflation in nations with high levels of political transparency.

The Federal Reserve System was established in 1913 to provide the public good of domestic financial system stability. Its main purpose was to safeguard the nation from banking panics and other economically costly financial disturbances. In this article, I explain the collective action behind the Federal Reserve Act by way of the joint products (selective incentives) model. The selective inducement that motivated lobbying for the Federal Reserve was the desire to internationalize usage of the U.S. dollar, a benefit restricted primarily to money-center bankers. Bankers internalized the costs of producing the Federal Reserve because the private gains associated with internationalizing the currency could not be disassociated from production of domestic financial stability. The article provides a road map of the joint products model and demonstrates empirically the supply technology that bound together the public and private goods of the Federal Reserve Act.

This article explains (1) the origins of central banking and (2) variations in the spread and durability of central banks across nations. Early central banks helped bind governments to honor their debts and thereby furthered governments' capacities to efficiently finance military expenditures. The origins of central banking are problematic because government credit-worthiness and efficient wartime fiscal policy are public goods, subject to the free-rider problem. Applying a variant of the joint-products model, I argue that governments offered private benefits (monopoly privileges) to select creditors to induce participation in central banks. To explain cross-national differences, I argue that the level of domestic political decentralization negatively affected the incidence and durability of central banking. Countries with decentralized political systems faced regulatory competition from strong local authorities as licensers of banking monopolies, making it difficult to adopt or sustain central banking. Qualitative and statistical evidence from Europe and the United States to about 1850 support the arguments.