The Political Economy of International Financial Regulation: A Model of Foreign and Domestic Pressures

In terms of international financial regulations, most extant works ascribed the domestic regulatory regimes either to global power distribution, domestic political institutions or interest structure underlying each specific issue. Such way of interpretations inevitably lead to the limitation of over-reliance on studying industrialized and democratic western financial powers while ignoring cases beyond western hemisphere.

To overcome this drawback, as well as giving equal importance to both global power distribution and domestic politics, this paper proposes a theoretical framework that explains the effect of interaction between foreign and domestic pressures on the subsequent national financial regulations. I hypothesize that an ideal set of financial regulations for each country is a function of governments’ intention of striking a balance between foreign and domestic pressures while seeking aggregate pressure as low as possible. The hypothesis is tested by an two case studies of Japan’s and China’s financial regulations before and after 1997 Asian financial crisis. Evidences show that the variation of both countries’ financial regulations were the results of changing nature of both foreign and domestic pressures.

Keyword: Financial Regulation, Capital Adequacy Ratio, Power, Domestic Politics

Author: Ian Tsung-yen Chen

Status: Working paper

History: This paper will be presented at the International Studies Association Annual Convention, Toronto, March 27, 2014.

Full Text: Upon request