Political barriers to market convergence: Electoral systems, political coalitions, and corporate governance

This dissertation is about the political causes and the economic consequences of corporate governance. I began this project with a big question: why have significant reductions in geographical and technological barriers to international trade and investment not led to greater market integration. Building on a two-step sequential causal model running from electoral systems, via corporate governance to national competitive prices, I answer three specific questions: how electoral systems shape political coalitions among corporate stakeholders (entrepreneurs, workers and rentiers); how government regulations from the political coalition reformulate the market environment; and how films adapt themselves to the market environment? Formalization of the theories and empirical tests are conducted in three independent but interrelated essays of the dissertation.;The first essay, titled "Why People Pay Less under Majoritarian Systems" demonstrates two points: (1) majoritarian electoral systems tend to produce a corporate governance structure that favors rentiers in the financial capital market while proportional electoral systems tend to produce a corporate governance structure favoring workers in the labor market; and (2) firms set different prices in goods and service markets depending upon the corporate governance structure which determines the level of market competition. To confirm this two-step sequential causation, I conduct two-stage least square regression analysis of cross-national variation of purchasing power parity.;The second essay, titled "Corporate Governance under Proportional Electoral Systems." I elaborate upon the first step of the theoretical model in the previous essay by detailing the political process involved in electoral competition. Based on a multi-stage game-theoretic model of three-party competition under proportional electoral systems, I find that the electoral threshold---a minimum percentage of votes a party must receive to acquire at least one seat in parliament---has a negative effect on the degree of minority shareholder protection and ownership dispersion. This finding represents an important modification to formal models in the political economic literature that tend to omit the political process for convenience's sake during optimization. Using simple regression analyses, empirical tests confirm the effect of electoral threshold on minority shareholder protection and ownership structure.;The third essay is titled "Asset Specificity, Corporate Governance and Market Competition: Consumer Price Implications." This essay refines the second-step of the theoretical model in the first essay linking corporate governance types to competitive price levels. Based on oligopolistic competition models whether there is competition with or without delegation between owners and managers, I show that firms under blockholder type corporate governance set prices higher than counterparts under the shareholder type of corporate governance. Utilizing industry level observations, empirical tests confirm the effect of corporate governance on industry level-prices measured by industrial concentration, but only with a subset of advanced countries. By relaxing a theoretical assumption about firms' choice of competition strategy, I show that corporate governance exerts a nonlinear effect on price levels between middle-income developing countries and high-income advanced countries.