Globalization, Domestic Stability and Freedom of the Press

Transcription

1 Globalization, Domestic Stability and Freedom of the Press Orion A Lewis Rohatyn Center for International Affairs Middlebury College olewis@middlebury.edu Last Revised: March 2009 Abstract This chapter empirically models the determinants of press freedom, which is an important, if understudied, institution of good governance. A free press plays a vital economic role in aggregating information, facilitating coordination, reducing transaction costs, increasing transparency, and holding economic and political elites accountable. Therefore actors who believe in sound economic governance should support the creation of an independent press, while those that seek to obscure bad information should oppose it. Drawing on the literature on the nexus of economic globalization and democracy, this study explains economic globalization s impact on states calculations regarding press freedom. Economic globalization is modeled not as a single unified process, but rather as a disaggregated interrelated set of economic and political processes. Using panel data from the period , it finds empirical support for the significant influence of investment ratings, market seeking foreign direct investment, and international aid in promoting press freedom. However these positive influences are countered by with the negative effects of trade liberalization, efficiency-seeking FDI, and social instability. Thus economic globalization generates contradictory pressures with respect to press freedom. This is because only certain types of international investment have an interest in greater transparency, while other processes such as trade liberalization can lead to a social backlash and instability, indirectly undermining globalizations positive influences. These results are robust with respect to different estimation techniques and alternative specifications. 0

2 1. Introduction This project outlines the determinants of a free press an institution that is central to economic coordination and good governance. It integrates, expands upon and tests hypotheses derived from research in the globalization literature, which has repeatedly found that integration into the global economy influences the development of economic governance and domestic institutions. 1 This chapter has the same fundamental research focus on the kinds of political institutions promote a strong and efficient economy. While a free press is not traditionally considered as part of the standard political economy equation, the theoretical discussion below outlines why it should be the focus of analysis, and the empirical analysis in the second half of the paper shows how the pressures of the global economy significantly impact the emergence of a free press. These findings indicate that integration into the global economy does create pressures for press freedom, but this pressure toward liberalization may be undermined by the political backlash against economic globalization. This chapter is also consistent with recent research that has increasingly moved away from discussions of democracy and in the aggregate to focus on questions of economic governance. In this line of research analysts have explored the economic determinants of specific governance outcomes such as such as the welfare state, 2 financial regime, 3 corruption, 4 rule of law, 5 transparency, 6 and economic governance. 7 In general, this trend towards disaggregating components of good governance has promoted greater conceptual clarity regarding the relationships between economic and political reform. A second line of research in the globalization literature has explored the specific ways integration into international economy drives domestic governance outcomes. 8 The basic logic is that as countries become more integrated into the global economy, they face greater pressure to harmonize their practices with the norms and rules of the international system. As Sachs and Warner state, Integration means not only increased market-based trade and financial flows, but 1 Sachs and Warner 1995, Keohane and Milner 1996, Rodrik 1996, Rodrik 1998, Rigobon and Rodrik Rodrik Simmons and Elkin Knack & Azfar 2003, Alt et al Rigobon and Rodrik Grigorescu Al-Marhubi 2005, Islam Rogowski 1987, Sachs and Warner 1995, Keohane and Milner 1996, Rodrik 1996, Rodrik 1998, Garrett This strain of research also fits within the international relations literature on the second image reversed, which argues that the pressures of international audiences and constituencies are an important part of domestic political calculations. See Gourevitch 1978, Keohane and Milner

3 also institutional harmonization with regards to trade policy, legal codes, tax systems, ownership patterns and other regulatory arrangements. 9 Similarly Eichengreen and Leblang argue: The democracy-globalization nexus is... reinforced by positive feedback from economic and financial globalization to political democratization. The exchange of goods and services is a conduit for the exchange of ideas, and a more diverse stock of ideas encourages political competition. In financially open economies, the government and central bank must be transparent in order to retain the confidence of the markets, and transparency spells doom for autocratic regimes. 10 In brief, it is widely believed that economic globalization generates pressure on states become more like the liberal democracies that dominate the global economy and failure to do so will be punished by a withdrawal of capital and business interests. While there is a robust literature on economic globalization s effect on democracy, 11 the findings have been somewhat mixed, prompting an ongoing debate about whether or not economic globalization promotes democracy. I argue that part of the problem lies in the fact that these studies often utilize aggregated concepts and measures, making it difficult to parcel out the sometimes contradictory interrelationships. This study gains critical leverage on this debate by focusing on a specific democratic institution the news media rather than democratization as a whole. This is an appropriate puzzle for studying the nexus of economic and political reform because the news media is simultaneously an economic and political institution. A free press is a key institution that provides a number of public goods that facilitate coordination and reduce transaction costs, processes that are central to an efficient economy. However, the emergence of a free press has been understudied because full information is often assumed in economic models. At the same time, the press is a political institution which helps to govern an economy by providing transparency and accountability. Political scientists have long considered the news media a requisite of democracy, 12 so it is surprising that so few political science studies have systematically and empirically explored the determinants of this key institution. Recent studies have explored the role of related-concepts such as civil liberties, coordination goods, and regime type as important independent variables in a variety of economic 9 Sachs and Warner 1995, Eichengreen and Leblang 2008, Li & Reuveny 2003a, 2003b, Eichengreen & Leblang 2008, Milner & Mukherjee forthcoming. 12 Lipset 1959, Habermas 1962, Lipset 1994, March and Olsen 1994, Diamond and Morlino

4 governance outcomes, 13 but rarely have these studies focused on the news media specifically. This chapter fills this gap. First, I review theory regarding the media s role in economic governance, after which I present an empirical analysis that tests hypotheses derived from various aspects of the globalization literature. 2.Theory This section makes the case for concentrating on a free press as a dependent variable by outlining its governance roles. In brief, it highlights how a free press creates transparency that facilitates coordination and accountability, simultaneously promoting both economic and political efficiency. All social scientists intuitively understand that a free press is an important governance institution, but traditionally it is grouped together as a component of more aggregate concepts, such as civil liberties, voice and accountability, or transparency. 14 Rarely is the press itself the focus of analysis in political economy studies. This is problematic because it assumes a free press is simply a forum for interest group conflict instead of a pro-active arbiter between various political voices. In other words, the news media has its own unique logics and pressures that are independent of broader process of democratization. Thus it should be analyzed independently. 2.1 The Role of Media in Economic Efficiency The central premise of this analysis is that an independent news media is fundamental to an efficient economy. While the news media s importance for democratic development is fairly well established, 15 researchers have focused less on the economic logic of media independence. Increasingly though, political economists and international financial institutions such as the World Bank have started to recognize the importance of an independent news media and communications infrastructure for economic development. 16 The role of a free press in good economic governance is considerable. Information is a coordination good that helps economic agents to make more efficient decisions. As Islam states, It is clear how economic data helps economic markets function better. Investors, 13 Bueno de Mesquita and Downs 2005, Busse and Hefeker 2007, Antonis and Fillippaios For example press freedom is a component of Freedom House s Civil Liberties Index and WGI s Voice and Accountability measures. Both of these indicate a bias for thinking about the news media as infrastructure for civil society development. While this is certainly true, these measures fail to capture the other roles that news media play, which are highlighted here. 15 There are a number of good area specific studies of the news media as well as discussions of its role in the governance and democratization process. See for example Patterson 1996, Lawson Islam 2002, Islam 2003, Islam

5 consumers and producers can make better business decisions by better assessing market conditions for their products. 17 Without independent information prices do not reflect economic realities and markets often experience panics based on new revelations. The 1997 East Asian Financial Crisis is often referred to as an example of information asymmetries fostered by untransparent cronyism, which exaggerated both the influx and dramatic outflow of capital. A similar case can be made about the sub-prime lending crisis of 2008, where information about quality of loans was obscured by securitization and the transparency of financial decisions was considerably impaired. In most cases, greater disclosure of information and consistent reasoned analysis of the part of the news media can prevent the wild swings of financial manias and panics. 18 As Vishwanath & Kaufmann point out, Contagion, exemplified in bank panics, can occur when troubles of one institution contaminate public perceptions about the entire industry...[economic downturns] increase uncertainty in the financial markets, worsen information asymmetries, and aggravate adverse selection problems. 19 Thus, to the extent that a free press provides better information and reasoned analysis, economic agents are better able to adjust their behavior and avoid the wild reversals brought on by sudden changes in perception. In addition economic coordination, a free press plays an important role in the reduction of transaction costs. Many economists have pointed to transaction costs as one of the barriers to economic efficiency, and information asymmetries are one of the key causes. As political economist Douglass North argues, The costliness of information is the key to the costs of transacting, which consist of the costs of measuring the valuable attributes of what is being exchanged and the costs of protecting rights and policing and enforcing agreements. 20 Indeed, since many actors have incentives to hide information, tearing down barriers to information reduces the transaction costs of acquiring information, decision-making, facilitating improved economic efficiency and growth. 17 Islam 2003, 4. Indeed, in many respects, the growth of the global economy was a major impetus for the development of media pamphlets that detailed economic information for traders. For example, Islam et al. (2002) argue, After the invention of the printing press... in the mid-15 th century, international commerce became the main impetus for newspapers in Europe. (181). For a detailed theoretical treatment of how economic logics led to the creation of a free press, see Habermas (1962). 18 While this chapter is primarily about information freedom, it is also worth questioning how the quality of discourse and analysis in the news media affects financial decisions. For example, one might argue that greater sensationalism and un-professional commentary in the news media may also exacerbate financial panics. For a more in-depth discussions of these issues, see chapter 4 of this dissertation. 19 Vishwanath & Kaufmann 2001, Douglass North 1990, 27. 4

6 In recent years Nobel-prize winning economist, Joseph Stiglitz has been instrumental in incorporating many of these ideas in an information theory of economics. This perspective highlights one of the key causes of market failure: information asymmetries. Stiglitz points out that In a modern, complex economy, contrary to the standard theories of conventional (pre-information theory) economics, prices do not convey all the relevant information. 21 In other words, economic agents also need to know about regulations, unemployment, social unrest, income inequality, etc. all of the variables that might affect their economic prospects but are not necessarily conveyed by prices. The problem, as Stiglitz argues, is that this economic information also affects people s judgments about the government. If data suggest that unemployment is soaring, they will be concerned that the government is mismanaging macroeconomic policy. 22 This dual role of information is even more problematic, because as Islam points out, the state often has the capacity to suppress information, because much of the information relevant to decision-makers in political and economic markets, government is in fact the sole repository (and producer). 23 Therefore, the state, as well as other powerful economic actors, often has clear incentives to suppress certain types of information that are damaging, while promoting information that is supportive, creating information asymmetries in economic markets. In sum, a free press is a key elements of a country s economic infrastructure because news and information are a important public goods, and the state plays an important role in either facilitating or suppressing information. 24 However, unlike other public goods, state involvement is not necessarily the best way to ensure transparent and accurate information. For that there needs to be an independent and free news media that provides a correction to the information asymmetries created by state and private actors. Instead of assuming perfect information, researchers must focus on the institutions that generate credible economic information and recognize that the news media is central to that process. As Dyck and Zingales argue, traditionally the process of information diffusion plays a small role in economic models There is no role for information aggregators, which selectively 21 Stiglitz 2002, Ibid., Islam 2003, Krueger

7 reduce the cost of acquiring information. In the real world the media play this role. 25 Whereas, Adam Smith s metaphor of an invisible hand of the market evokes a notion of effortless coordination among actors, the reality is that, like other types of infrastructure, a free press is necessary to ensure sound economic development. Indeed, this fact is acknowledged by developmental economists, such as Krueger, who argue that the provision of information is one of the large scale public goods that the government should be involved in. 26 In sum, information economics posits that information is a key component of a well functioning economy because it reduces the costs that actors face in acquiring that information, allowing prices to accurately reflect economic conditions, and help economic agents to adjust and coordinate their actions accordingly. Those actors with a preference for efficient economic development should support its creation. Yet the importance of a free press goes beyond simple market logics it also plays a governance role, providing an important check against abuse. 2.2 The Role of Media Economic Governance Transparency Whereas the previous section argued that an independent news media is information infrastructure for an economy, this section outlines its governance role. In generating public supervision by bringing to light important economic information, and critiquing the actions of political and economic elites, the news media is central to providing transparency and pressing for accountability. In other words, the fourth branch of government provides an additional check on corporate and political malfeasance. This is crucial to good governance since both political and corporate leaders have clear incentives to suppress disadvantageous information. 27 For example, in their chapter on the corporate governance role of the media, Dyck and Zingales highlight the numerous ways that media publicity can constrain corporate behavior and prevent corruption. They provide an example of a government commission in the United Kingdom that defined corporate governance standards and developed mechanisms to compel the disclosure of performance relative to standards, allowing the force of public pressure generated by disclosure and news stories to change practices. 28 This example illuminates how public information can affect corporate images, create public pressure and in turn help to govern behavior. Similarly, 25 Dyck and Zingales 2002, Krueger 1990, Stiglitz Dyck and Zingales 2002,

8 fieldwork interviews as well as recent research in China reflect the fact that the leadership recognizes the corporate governance role of the press, and the state has consequently allowed economic news to become one of the least sensitive as areas open for media scrutiny. 29 Finally, a study by Coyne and Leeson argues that an independent press and transparency is necessary for the adoption and coordination of successful economic reforms. 30 These findings all indicate that the news media plays an important governance role in providing transparency that facilitates public critique of the economic policymaking process that serves as a check on power. Accountability While transparency is often considered an end in itself by political reformers, it is really just the first step towards the true goal of economic governance accountability. Transparency facilitates public supervision so that good behavior can be reinforced and bad behavior punished. However, in democratic theory accountability mechanisms are what turns the grabbing hand of the state into the helping hand, thereby promoting more efficient economic and political outcomes. 31 Besley et al. argue that the news media perform a number of important functions in this regard, such as disciplining illegal behavior, determining issue salience, both of which help publics to decide on leadership. 32 Indeed news media are often uniquely positioned as a the primary public voices that passes judgment, and via their framing and argumentation in editorials, help to hold power accountable. This view of the media as a mechanism of accountability is supported in the democratization literature by Diamond et al. who argue that the horizontal mechanisms of the state is complimented by additional mechanisms of vertical accountability, such as the news media. 33 As Diamond and Morlino argue: Civil and political rights are thus critical to the vigorous participation and competition of parties, interests, and organizations that make for vertical accountability and responsiveness. They are necessary as well for horizontal accountability, in that these state agencies become more active 29 Interview with editor at prominent financial magazine, Beijing, June 1, 2007., See also Zhou Coyne and Leeson Schedler et al Besley et al. 2002, 49. While their argument is principally focused on facilitating a electoral sorting of leadership, this concept is increasingly salient even in authoritarian settings, where bad press can bring down certain leaders. For example, the concept of public supervision ( 社会监督 ) is increasingly used in China to describe the role of the press. 33 Diamond et al

9 and effective when they are reinforced, beseeched, and informed by agents of vertical accountability, particularly mass media, NGOs, and other actors in civil society. 34 Interestingly, in their discussion democracy, Diamond and Morlino mention the mass media nine times in their article, yet not once is the role of the media ever the focus. 35 The news media s provision of transparency makes it a mechanism of vertical and horizontal accountability. Vishwanath and Kaufmann argue that the public good properties of information mean that governments must set standards to ensure transparency. However, requirements for information disclosure may be insufficient to ensure economic actors comply, so in such cases there may be a need to enforce accountability through enforcement. 36 In the event that the state lacks the willingness to enforce transparency standards in the economy, then news media organizations can help to fill this gap. While not necessarily a panacea for information asymmetries that develop in the market, an independent news media has the ability to investigate and judge the behaviors of actors. In this regard, a free press is different than simply creating mechanisms of transparency, because it is an institution that actively shapes public opinion. Summary: The Economic Logic of Media Reform This chapter argues that the economic governance logic of media reform is central for understanding interests in press freedom. Thus one can hypothesize international investors chose to invest in and trade with countries where they are more certain of an information environment that will protect their economic interests. Given the complexity of the global economy, it is easy to see why international economic actors agencies like the IMF, international investors, and MNCs face particularly acute information asymmetries since they do not have the same access to domestic sources of information and must rely even more heavily on media information. At the domestic level, we can assume that state decision-makers who prefer to restrain corruption, construct a more efficient economy, and promote sound economic governance would also support a more independent media system. In addition, modernization theory tells us that a rising middle class will seek to place more pressure and demands on the state for information freedoms, as they seek ways to protect their economic interests. In sum, a free press is a public 34 Diamond & Morlino 2004, Ibid. 36 Vishwanath and Kaufmann 2001, 45. 8

10 good that is important for both domestic and international agents that have an interest in sound economic governance. While the economic logic of media reform provides clear reasons for state decisionmakers to allow greater media freedom, there are also political reasons to oppose it. This is because the news media simultaneously an economic and political institution, which is central to political control. This is why press freedom is a key indicator of the degree of democratic liberalization of a political system. For example, in a recent article Bueno de Mesquita and Downs have argued that the restriction of coordination goods such as the news media is a key determinate in the ability of new savvy authoritarian countries to maintain their power. 37 Thus press freedom is a double edged sword from the perspective of the state it can serve to coordinate economic activity and improve efficiency, but it can also help coordinate political actors in the event of crises. Consequently the economic logic of media freedom may conflict with the political logic of media control. 38 This tension between the economic and political logics of media freedom determines press outcomes, and the following section empirically models these competing logics. 3. Modeling Press Freedom Given the importance of the news media constructing the information environment of the global economy, it is surprising that there have been so few quantitative studies of the causal logics and determinants of an independent press. The World Bank volume, The Right to Tell, is one of the few publications to systematically evaluate this topic. While many of the contributors point to outside empirical studies, and many explore the basic statistical relationships between press freedom and other factors such as corruption and ownership, none of the studies puts forward a more comprehensive empirical model. While there have been empirical political economy studies that utilize press freedom as an independent variable, for example Brunetti and Weder s analysis that shows press freedom reduces corruption, 39 political economy analyses that focus press freedom as the dependent variable are very rare Bueno de Mesquita and Downs In addition, there are a great many questions surrounding the quality of news. Even free media systems may be prone to sensationalism and hyperbole, which could undermine economic stability (Patterson 1996). For now I bracket question of information quality. This chapter thus assumes that a free press is also characterized by a better, more transparent economic information environment. 39 Brunett and Weder Chappell Lawson (2002) points out that Despite [the] burgeoning literature on democratization, there has been little serious research on the emergence of independent media. 9

11 This paper seeks to expand upon the empirical work that has been done recently on the impact of information and a free press on economic markets. 41 At the same time, given the media s dual role as an economic and political institution, this project also addresses the literature on the links between globalization, democracy and good governance. 42 Using the most available panel data from the years , this analysis tests a set of plausible hypotheses, outlined below, regarding the relationships between different aspects of economic globalization, political stability, international aid and freedom of the press. 43 As such it evaluates the relative importance of both international and domestic factors for explaining independence of the press. The basic theoretical framework, outlined in figure 1, builds off of a two level games model of state decision-making. It posits that the state is key actor that structures the news media and the information environment. As such, the empirical model focuses on factors that might influence state preferences with respect to the news media, as it seeks to meet the demands of the international economy on the one hand, while attempting to stay in power at home. 41 Islam Eichengreen and Leblang 2008, Milner and Mukherjee forthcoming. 43 Press freedom is defined as the ability of the press to make decisions regarding the content and framing of the news without economic, legal and political restraints on their choices. The Freedom House definition goes further, stating that everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive, and impart information and ideas through any media regardless of frontiers. 10

12 Figure 1: Open Economy Model of Media Independence 44 International Pressures: Investor preference for transparent information, economic returns. Market seeking FDI investment in transparent states. Efficiency seeking FDI has interest in suppressing information. State: Structures Media Institutions Domestic Pressures: Political pressure to control and cover-up disadvantageous information. Modernization creates demands from a rising middle class for information freedoms that protect public interests. 44 This logic of two level games is outlined by Gouervitch (1978) and Putnam (1988), who show that state actions affect the international system and vice versa. This model is also a simplified version of that outlined by Garrett & Lange (1996) which outlines how changes in the preferences of international actors creates pressure that is filtered through domestic institutions, resulting in policy change. 11

13 3.1 Hypotheses: Economic Globalization and Press Freedom This analysis starts with the fundamental premise that the more a country is integrated into the international economy, the more pressure they will face to provide a sound information environment, and reduce restrictions on the press. International companies and financial institutions rely on the news media to aggregate information and inform them about important events that may affect their investments and bottom line. As with other types of economic infrastructure, investment, financing and trade will flow to those countries that provide the necessary foundations for successful business, including an independent press. The set of hypotheses outlined below seeks to parcel out the disparate influences of economic globalization. Instead of making generalizations about the influence of economic globalization as a whole, this paper seeks to highlight the different logics, and sometimes contradictory pressures created by these different types of integration. 45 For example, analysts have increasingly sought to differentiate between the different causal logics associated with various economic processes trade and investment as well as different types of investment portfolio and FDI. The empirical literature on economic globalization and a variety of democratic outcomes has been mixed, with some research showing globalization and democracy to have mutually reinforcing positive relationships. 46 However, another line of research has found there to be contradictory pressures created by trade and financial opening, finding no significant relationship or even a negative one. 47 For example, Rigobon and Rodrik find that trade openness is negative associated with incomes and democracy, but positively associated with rule of law. 48 In contrast to the more general findings of Eichengreen and Leblang, this line of research indicates there is not a unidirectional process of causality between economic globalization and democracy. I argue this is due to the varying causal logics and political pressures created by this complex process. Theoretically, political economists have spent significant energy trying to 45 As Milner and Mukherjee (forthcoming) point out, economic globalization is used to describe phenomena as diverse as trade and financial liberalization, immigration flows, cultural globalization and the revolution in information technology, political scientists and economists focus on two aspects of globalization: the adoption of free trade policies, namely trade liberalization, and the move toward greater financial openness, i.e. capital account liberalization. (1). 46 See Eichengreen and Leblang Bussmann 2001, Li and Reuveny 2003, Rigobon and Rodrik 2004, all find no relationship between trade openness and democracy or at times a negative relationship. 48 Rigobon and Rodrik 2004.

14 disentangle the causal mechanisms behind these findings. For example, trade openness, driven by the internationalization of production, is assumed to generate more efficient economic outcomes, but has also been shown to upset domestic stability and provoke nationalist or political backlash. Rodrik argues that this is due to the increased pressure that trade openness places on industries at a competitive disadvantage and the fact that an open economies more vulnerable to the vacillations of world markets. 49 Again, this line of reasoning argues that economic globalization may create negative political outcomes just as readily as it creates the positive outcomes of increased economic efficiency. To the extent that economic globalization also creates lower incomes, social instability, and a general backlash, then the resulting political insecurity will increases domestic pressures to control information and the news media. Financial integration on the other hand, is often assumed to pressure developing countries to harmonize policies and offer incentives as they compete to attract foreign direct investment. Thus, as Garrett states, the integration of financial markets is more constraining than either trade or the multinationalization of production. But even here, one must be very careful to differentiate among various potential causal mechanisms. 50 In sum, while we generally hypothesize that economic globalization has a positive relationship with press freedom, a review of the empirical literature clearly indicates that there are a variety of pressures created by which may undermine the basic logic of media reform. Thus this project puts forward the following hypotheses. International Investment One of the most important aspects of the modern global era has been the widespread adoption of capital account liberalization. While there are few studies that directly link international investment to media freedom, there is a robust literature showing an empirical relationship between international investment and political institutions, which promote stability and growth. 51 For example, Busse and Hefeker find that the quality of institutions is an important factor in reducing information asymmetries, coordinating economic activity and thereby encouraging international investment. 52 The model presented here builds on this literature by testing the proposition that he news media is another institution of good governance 49 Rodrik Garrett 1998, Li & Reuveny 2003b, Cerra et al. 2005, Antonis and Fillippaios 2007, Busse, and Hefeker 2007, Eichengreen and Leblang Busse and Hefeker

15 that attracts foreign investment, and we should expect that higher levels of investment to be associated with a free press. The theoretical rationale behind these findings lies in the basic assumption that developing countries compete to offer incentives for FDI, perpetuating either a race to the bottom in some cases or the creation of virtuous cycles. On the positive side, we can assume that countries offer positive incentives such as improved rule of law to or mechanisms of accountability in order protect private property and provide a better information environment. If this is correct, then we should expect that political risk assessments and investment ratings from reporting agencies such as Political Risk Services, should have a positive influence in encouraging press freedom. Thus we can also test the influence of various measures of political risk on the improvements in press freedom. Alternatively, one could also argue that MNCs have different reasons for directly investing abroad, as FDI can be attributed to both market-seeking and efficiency-seeking motivations. It is often assumed that the latter is negatively associated with greater political freedoms. Indeed, Antonis & Fillippaios find that the repression of civil liberties, of which media freedom is a component, is positively associated with FDI. 53 These findings indicate that efficiency seeking FDI may have interests in suppressing information, along with the ability of labor to coordinate. Thus the alternative hypothesis is that FDI which flows to non-oecd countries are associated with less independent media systems. Trade Openness A second major focus of the economic globalization literature has been on trade liberalization. Again we find a robust debate about the effect of trade openness, with different analysts focusing on different aspects of the process. Those emphasizing trade openness positive influence on good governance and democracy often point to increased competition, and opportunities for the exchange of ideas and practices. 54 In contrast, some have argued that trade integration exerts a negative relationship on democratic outcomes because it increases the vulnerability of populations to competitive pressures. In this framework, trade liberalization may in fact disrupt social stability, creating a 53 Antonis & Fillippaios See Wei 2000; Islam Additionally Rigobon and Rodrik (2005) find that trade openness positively associated with rule of law, however it is negatively associated with democracy. This finding underscores the contradictory pressures set off by trade liberalization. 14

16 backlash against the process among those sectors of the economy that are losers in the process. This may explain why Rodrik finds that trade liberalization is associated with larger welfare states that defray the shocks created by the process, 55 and Rigobon and Rodrik find that trade openness is negatively associated with democracy. 56 Again, while these findings do not speak directly to the causes of press freedom, they do imply a competing set of hypotheses about influence of trade openness on press freedom. The first strain of the empirical literature creates expectations of a positive relationship on press freedom, while the second implies a negative one. 57 Social Stability A third strand of literature focuses on the effect of social instability on governance outcomes. This literature implies that social instability can exert adverse influence of economic governance reforms. For example, La Porta et al. (1999) find that ethnic diversity causes poor quality of government service and public goods. 58 Busse & Hefeker find that government stability, internal and external conflict, corruption and ethnic tensions are all important determinants of FDI flows. 59 This means that investors avoid countries that pose a high degree of risk in terms of domestic stability as these assessments are naturally reflected in political risk studies. What might this mean for independence of the press? First, it highlights that states have an additional incentive to control information in the event of domestic crises just as much as it desires to control social unrest itself, in part because it is concerned about how such events will affect international investors. Secondly, we can turn this proposition around to say that states that do not compete for international investment, perhaps because they already have high domestic instability, have even less incentive to allow media freedom, thereby perpetuating a vicious cycle of information repression, poor governance and domestic instability. Based on these findings, we should thus expect that greater domestic stability is positively associated with a more independent media, while domestic instability creates pressures for the state to control information. 55 Rodrik Rigobon and Rodrik One problem with testing these propositions is that trade openness (total trade as a percentage of GDP) is collinear with FDI (also as a percentage of GDP). The bivariate correlation within the dataset is La Porta et al Busse and Hefeker

17 Development Aid In addition to the economic factors outlined above, one might put forward an alternative hypothesis that improvements to press freedom are the result of aid programs, which often come with structural re-adjustment conditions. Aid organizations often trumpet their role in democracy promotion, and their efforts to promote transparency and accountability improve freedom of the press as well. However, these arguments are often undercut by empirical studies that find little or no relationship between aid and democracy. 60 The lack of a positive relationship is often attributed to the idea that aid props up poor regimes, increasing rent-seeking and reducing accountability. Indeed, Knack (2001) finds that increasing levels of aid are negatively associated with quality of governance. 61 Thus, while there are compelling reasons to hope that aid agencies, who often focus on issues of governance and a free press, may encourage such changes in policy, the empirical findings to date invite skepticism. On the other hand, while Knack finds that there to be no relationship between international aid and democracy, it is possible that aid can work at a more micro level, causing changes in specific types of institutions like the press, without showing substantial effects on more aggregate measures of democracy. Modernization Outside of the primary line of analysis focused on economic globalization, one can also put forward a number of alternative hypotheses that must be controlled for. One of the most fundamental lines of research looks at the influence of modernization and income growth on a variety of governance outcomes. One of the central findings of the modernization literature is that economic modernization is positively associated with the emergence and survival of democratic regimes. 62 The theoretical rationale behind such findings often points to the emergence of an educated middle class which demands more rights and freedoms from the state. 63 In addition, domestic economic agents may increasingly seek protection of their property rights as the economy gorws, which can be achieved with the additional checks on power and abuse provided by a free press. Thus we should expect wealthier countries to be more likely to have a free press. 60 Collier 1997, Dollar & Pritchett 1998, Knack Knack Burkhart and Lewis-Beck 1994, Przeworski et al See Lipset 1959, Acemoglu et al. 2000, Acemoglu et al. 200, Islam As Islam states, as income increases not only can countries afford better institutions but the demand for them is posited to increase as well. (125). 16

18 The empirical case for this hypothesis is bolstered by a robust literature linking institutional quality and economic growth. 64 While the causes of weak institutions in this literature focuses on ethnic fractionalization, social instability and economic shocks, the fundamental premise is that countries that wish to achieve economic growth adopt economic institutions, such as a free press, that support sound economic governance. Based on this discussion of the influences of economic globalization, domestic stability, aid and modernization this analysis puts forward the following set of hypotheses regarding the determinants of a free press. These hypotheses, summarized in table 1, may not be an exhaustive list of independent variables, indeed the multifaceted role of the press implies that there are many competing logics, however, it does provide a useful baseline model for future empirical studies. 64 Easterly and Levine 1997, Acemoglu et al. 2001,

19 Table 1 : Principal and Alternative Hypotheses Principal Hypothesis: Those countries that are more integrated into the global economy are on average more likely to have a free press. This is expressed in the model by the following hypotheses: H1: Those countries with greater trade openness are more likely to have an independent media. H2: Those countries that receive more international investment in the form of Foreign Direct Investment (FDI) and Portfolio investment, measures as a percentage of GDP, are more likely to have an independent media. H3: Those countries that face greater domestic instability will be less likely to have an independent media, as the state seeks to control the information investors receive. Alternative Hypotheses: The following represent competing explanations and factors that could also play a role in the process of media liberalization. H4: Media freedom is a function of a countries involvement in international aid, which often requires institution restructuring and greater press freedom. H5: Countries with a higher proportion of international debt are more vulnerable to international pressures to reform media systems. H6: Less democratic countries, with fewer constraints on executive power, are less likely to have a free press as the state seeks to dominate information dissemination to preserve its position. H7: As countries modernize and incomes grow, they are more likely to adopt a more independent press as a rising middle class places more demands on the state for information. 4 Data In general the models presented in this paper take the following form: Y= k + βg + βs + βa + βd + ε In this framework, each of the betas represent the effect of a set of variables, where G are those variables that represent the influence of economic globalization, S represents those variables measuring social stability an internal conflict, and A tests the hypothesis that international aid causes structural adjustment in the media sector. Finally, D is a set of developmental control variables that focus on economic development in the form of per capita incomes, as well as political development in terms of greater democracy and checks on authoritarian power.

20 This project employs panel data for the years , which is drawn from various sources. First, press freedom is operationalized using Freedom House s Freedom of the Press: A Global Survey of Media Independence. This data has been widely used by those assessing media freedom. 65 Since 1993 Freedom House has published the results as an index measure, ranging from 0-100, with lower scores indicating greater press freedom. 66 For the purposes of clarity, this study has reversed this scale to be more intuitive, so that higher numbers indicate more press freedom. This paper also uses a variety of standard measures of economic globalization: trade openness, FDI investment, portfolio investment, all of which show how integrated a country is into the global trading and financial system. These indicators are all taken from the World Bank s World Development Indicators (WDI) database, which covers most countries in the world. Trade openness, calculated as total trade imports and exports as a percentage of GDP, is widely used in the political economy literature as the standard indicator of trade liberalization. 67 FDI and portfolio investment are both calculated as a percentage of GDP. 68 In order to further evaluate the influence of economic globalization, and the competition for investment that it entails, this analysis also incorporates political risk data from Political Risk Services International Country Risk Guide (ICRG), which publishes data on twelve different indicators of political risk. Most of these variables ranges from 0-6 with higher numbers indicating less risk. Based on the theoretical premise that countries compete to attract international investment, this analysis focuses on investment profile which gauges the extent to which a state protects property and the likelihood of contract enforcement and expropriation. 69 This variable is used to further gain leverage on whether the pressure from international investment is exerted through investment ratings, eventually influencing domestic outcomes. If countries are competing for international investment, and therefore higher investment profile 65 See Besley 2002, Islam Since 1980 Freedom House has been the most prominent organization to publish an annual survey of press freedom. These scores are calculated based on 23 survey questions administered to regional experts, which seeks to address the numerous ways that freedom of information and the press can be controlled. While there have been criticisms of this indicator, particularly regarding the transparency of its methodology, it remains the only one that has been calculated consistently for over a decade. 67 Frankel and Romer 1997, Rodrik Since the data on portfolio investment is much more limited than FDI, thereby limiting the number of observations, I have included full specifications with portfolio investment data as well as those without. 69 Investment profile includes risk to operations, taxation, repatriation and labor costs. As ICRG states, it is intended to capture the government s attitude toward investment. 19

21 ratings, then we should expect states to offer incentives such as an independent media as a means to help protect property rights. I also use ICRG data to address the issue of domestic stability. In particular, this analysis uses internal conflict and ethnic tensions to capture the influence of domestic instability. Internal conflict looks at incidence of political violence, while the latter variable measures the degree of tension attributed to ethnic, national and linguistic differences. In addition to these variables, this paper uses economic governance indicators constructed by Kaufmann, Kraay and Zoido-Lobodan (KKZ) as a robustness check on the influence of stability. While this data incorporates elements of the ICRG data and is widely used in the political economy literature, it has come under significant criticism because the index measure is highly correlated with indicators of economic development and democracy. 70 As table A2 of the methodological appendix shows, the ICRG data has the benefit over the KKZ measures of domestic stability because it is not highly correlated with other independent variables such as income. 71 Nevertheless the KKZ stability index provides a useful robustness check on the influence of domestic stability factors taken together. In addition to these political and economic factors, this analysis also addresses the literature of international aid and structural re-adjustment. This model uses figures on aid drawn from the WDI, where foreign aid calculates the total measures of official development assistance and aid, and has been transformed as a percentage of GDP. 72 Finally, a number of control variables are included related to economic and political development: per capita GDP, 73 democracy and constraints on executive power. Per capita GDP tests the central tenet of modernization theory that economic growth leads to greater demands for political freedom. In this regard, it can also be considered an instrument for democracy. 74 Yet, in order to account for possible critiques and provide a hardest test case for the arguments presented here, I also employ other variables that control for the degree of democratization. In particular the polity score in 70 See Kaufmann et al The KKZ index integrates a number of subjective survey indicators into a composite index and includes ICRG data on internal conflict mentioned here. For this reason, these indices are utilized as a substitute. 72 Finally, alternative model specification further assess the role of economic globalization by testing the influence of debt service, measured as a percentage of total trade and bank lending which looks and bank and trade related lending. Again both of these measure the extent to which countries are indebted to international investors and whether this economic exchange exerts pressure on states for reform. 73 This data is drawn from WDI. 74 Bussman