Crafting Payoffs: Strategies and Effectiveness of Economic Statecraft

Abstract

Economic statecraft -- the use of economic tools to pursue political goals -- is an important foreign policy strategy for many major powers, and has been an increasingly important tool for China. This book provides a theoretical framework to explain the effectiveness of economic statecraft, focusing on positive inducements, which are understudied relative to sanctions. I argue that effectiveness is influenced by two independent variables: (a) the type of inducement strategy; and (b) the level of public accountability in the target country.

I distinguish between two types of economic inducements: subversive carrots, which circumvent established political processes and institutions; versus stakeholder cultivation, which engages with key domestic actors within established political processes and institutions. In addition, effectiveness depends on the level of public accountability in the target country. Public accountability ensures transparency -- via the ability to access information; and exercises oversight -- via the ability to impose domestic political costs on elites for policy decisions regarding the sender state.

Testing my theory using the important case of China's economic statecraft, I show that subversive carrots succeed in low accountability countries, but backfire in targets with high public accountability, where it leads to public backlash against China. In contrast, stakeholder cultivation is more likely to succeed in high accountability systems, because it creates domestic political coalitions that are more closely aligned with China's policy preferences.

I draw on evidence from field interviews, case studies, and a survey experiment. Using a mix of cross-country case comparisons, within-case process tracing, and within-country variation in inducement strategy as well as public accountability, I examine the cases of the Philippines, Malaysia, Cambodia, Myanmar, Australia, and Japan. In addition, I conduct a survey experiment in the Philippines to test the individual-level mechanisms of public accountability.

While this book focuses on China as an important case study, the arguments can be similarly applied to other countries seeking to wield economic statecraft. The findings from this book have important theoretical and policy implications for understanding the conditions under which economic capabilities can be translated into geopolitical influence, and for understanding the role of economic instruments in national security policy.