Crafting Payoffs: Strategies and Effectiveness of Economic Statecraft

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 develops and tests a theory of the determinants of the effectiveness of economic statecraft, focusing on positive inducements, which are understudied relative to sanctions. My theoretical framework shows how the effectiveness of economic statecraft 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, in which the provision of economic benefits works outside of established political processes and institutions; versus stakeholder cultivation, which entails engagement with key domestic actors and interest groups within established political processes and institutions. I argue that the effectiveness of economic statecraft is conditional on the level of public accountability in the target country. Public accountability is defined as the presence of robust societal institutions, such as the media, civil society, and public opinion. In an environment of high public accountability, these societal institutions can ensure transparency — via the freedom and ability to access information; and exercise oversight — via the ability to impose domestic political costs on political leaders and elites for policy decisions regarding the sender state.

Drawing on field interviews and survey experimental evidence, I examine the important case of China. Because of its rapid growth in material capabilities alongside an increasingly active foreign policy, and its exercise of economic statecraft across a diverse range of target countries, China presents an ideal case for understanding the conditions under which economic capabilities can be translated into geopolitical influence. I show that use of subversive carrots succeeds in low accountability countries, but has limited effectiveness in targets with high public accountability, where it leads to public backlash against China. On the other hand, 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. To test my theory, I draw on evidence from case comparisons of three Southeast Asian countries with varied levels of public accountability - Cambodia, the Philippines, and Myanmar - and another paired case study of varied inducement strategies in two high accountability countries, 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. My research emphasizes the domestic political institutions of target countries as an important condition for effectiveness. The findings from this book have important theoretical and policy implications for understanding the conditions under which economic capabilities can be translated into political influence, for understanding the role of economic instruments in national security policy, and for evaluating the geopolitical impacts of China’s overseas economic activities.

Chapters available upon request. Please email me at audryewong [at] gmail [dot] com.