ABSTRACT
A number of political and economic theorists in recent years have focused attention on capital market integration as a partial explanation of important political phenomena, particularly changes in states’ macroeconomic behavior. One particularly interesting argument about the effects of increasingly mobile capital has been advanced by a class of political economists employing what might best be described as system-level or structural analysis. Political economists such as Padoa-Schioppa (1985, 1987), Cohen (1993), Goodman and Pauly (1993), and most explicitly Webb (1991) identify the degree of international capital mobility as an important attribute of the international system. In essence, the central claim of these theorists is that when capital is highly mobile across international borders, the sustainable macroeconomic policy options available to states are systematically circumscribed. International financial integration, so the argument goes, has raised the costs associated with pursuing monetary policies that diverge from regional or international trends. While differences in national preferences, the causal beliefs of policymakers, and institutional affili-
ations may help shape particular patterns of adaptation, proponents of what may be termed the “capital mobility hypothesis” maintain that changes in the external constraint confronting all states constitute a structural cause of observed shifts in the patterns of states’ monetary policy behavior over time.l
Is the capital mobility hypothesis a sustainable proposition? If so, what are the analytical benefits of conceptualizing international monetary relations in structural terms? Following an overview of the literature on international finan cial integration, the conceptual case for regarding the relative degree of capital mobility as a structural feature of the international system is considered. Key terms are defined, and a heuristic model of the capital mobility hypothesis is introduced. Highlights from the monetary adjustment experiences of Japan and within Western Europe are then presented, both as a corroboration of the capital mobility hypothesis and in order to highlight some of the controversies raised by the structural approach. Both insights and limitations of this analytical ap proach are considered, and an agenda for future research is suggested.
