Francis Fukuyama and Michael McFaul present an argument for continued American efforts to promote democracy and a plan to strengthen policy tools for those efforts. They advocate a concept of dual-track diplomacy and the creation of a new Cabinet-level department of development, with distinct resources and programs for democracy promotion.

Proponents of oil-led development believe that countries lucky enough to have "black gold" can base their development on this resource. They point to the potential benefits from enhanced economic growth and the creation of jobs, increased government revenues to finance poverty alleviation, the transfer of technology, the improvement of infrastructure and the encouragement of related industries. But the experience of almost all oil-exporting countries to date illustrates few of these benefits. To the contrary, the consequences of oil-led development tend to be negative, including slower than expected growth, barriers to economic diversification, poor social welfare performance, and high levels of poverty, inequality and unemployment. Furthermore, countries dependent on oil as their major resource for development are characterized by exceptionally poor governance and high corruption, a culture of rent-seeking, often devastating economic, health and environmental consequences at the local level, and high incidences of conflict

and war. In sum, countries that depend on oil for their livelihood eventually become among the most economically troubled, the most authoritarian, and the most conflict-ridden in the world.

Stock market liberalizations lead private investment booms. In a sample of 11 developing countries that liberalized, 9 experience growth rates of private investment above their non-liberalization median in the first year after liberalizing. In the second and third years after liberalization this number is 10 of 11 and 8 of 11 respectively. The mean growth rate of private investment in the three years immediately following stock market liberalization exceeds the sample mean by 22 percentage points. The evidence stands in sharp contrast with recent work that suggests capital account liberalization has no effect on investment.

Capital account liberalization was once seen as an inevitable step along the path to economic development for poor countries. Liberalizing the capital account, it was said, would permit financial resources to flow from capital-abundant countries, where expected returns were low, to capital-scarce countries, where expected returns were high. The flow of resources into the liberalizing countries would reduce their cost of capital, increase investment, and raise output (Fischer, 1998; Summers, 2000). The principal policy question was not whether to liberalize the capital account, but when - before or after undertaking macroeconomic reforms such as inflation stabilization and trade liberalization (McKinnon, 1991). Or so the story went.

In recent years intellectual opinion has moved against liberalization. Financial crises in Asia, Russia and Latin America have shifted the focus of the conversation from when countries should liberalize to if they should do so at all. Opponents of the process argue that capital account liberalization does not generate greater efficiency. Instead, liberalization invites speculative hot money flows and increases the likelihood of financial crises with no discernible positive effects on investment, output, or any other real variable with nontrivial welfare implications (Bhagwhati, 1998; Rodrik, 1998; Stiglitz 2002).

While opinions about capital account liberalization are abundant, facts are relatively scarce. This paper tries to increase the ratio of facts to opinions. In the late 1980s and early 1990s a number of developing countries liberalized their stock markets, opening them to foreign investors for the first time. These liberalizations constitute discrete changes in the degree of capital account openness, which allow for a positive empirical description of the cost of capital, investment, and growth during liberalization episodes.

When developing countries announce debt relief agreements under the Brady Plan, their stock markets appreciate by an average of 60% in real dollar terms - a $42 billion increase in shareholder value. There is no significant stock market increase for a control group of countries that do not sign Brady agreements. The stock market appreciations successfully forecast higher future resource transfers, investment and growth. Since the market capitalization of US commercial banks with developing-country loan exposure also rises - by $13 billion - the results suggest that both borrower and lenders can benefit from debt relief when the borrower suffers from debt overhang.

Peter Henry and Anusha Chari use a new firm-level dataset to examine the efficiency of investment in emerging economies. In the three-year period following stock market liberalizations, the growth rate of the typical firm's capital stock exceeds its pre-liberalization mean by an average of 5.4 percentage points. Cross-sectional changes in investment are significantly correlated with the signals about fundamentals embedded in the stock price changes that occur upon liberalization. Panel data estimations show that a 1-percentage point increase in a firm's expected future sales growth predicts a 4.1-percentage point increase in its investment; country-specific changes in the cost of capital predict a 2.3-percentage point increase in investment; firm-specific changes in risk premia do not affect investment.

Writings on the macroeconomic impact of capital account liberalization find few, if any, robust effects of liberalization on real variables. In contrast to the prevailing wisdom, I argue that the textbook theory of liberalization holds up quite well to a critical reading of this literature. The lion's share of papers that find no effect of liberalization on real variables tell us nothing about the empirical validity of the theory, because they do not really test it. This paper explains why it is that most studies do not really address the theory they set out to test. It also discusses what is necessary to test the theory and examines papers that have done so. Studies that actually test the theory show that liberalization has significant effects on the cost of capital, investment, and economic growth.

Globalization involves a profound re-ordering of our world with the proliferation everywhere of rules and transnational modes of governance. This book examines how this governance is formed, changes and stabilizes. Building on a rich and varied set of empirical cases, it explores transnational rules and regulations and the organizing, discursive and monitoring activities that frame, sustain and reproduce them. Beginning from an understanding of the powerful structuring forces that embed and form the context of transnational regulatory activities, the book scrutinizes the actors involved, how they are organized, how they interact and how they transform themselves to adapt to this new regulatory landscape. A powerful analysis of the modes and logics of transnational rule-making and rule-monitoring closes the book. This authoritative resource offers ideal reading for all academic researchers and graduate students of governance and regulation.