Despite a rich literature on the determinants of democracy, the influence of one theoretically important factor has been neglected thus far. Unlike factors such as development, growth, and inequality, the concentration of economic power and its correlate, business unity, have not received systematic empirical treatment. We argue that this factor may act as a deterrent to democracy. Using a dataset covering 120 countries over 23 years, from 1988 through 2010, we find evidence for a negative effect of economic concentration on a nation’s level of democracy. We also show evidence suggesting that corporate political activity may provide a mechanism through which this negative effect is exercised. Our results point to the need to further understand the processes through which business elites undermine democracy.

This introduction grounds the middle-income (MI) trap by looking at the empirical realities of firms, sectors, national, and subnational institutions embedded in global value chains (GVCs). While MI-trap scholarship has shed light on macro-structural constraints, it often overlooks international production structures and micro-level agency. GVC research, in turn, captures firm strategies and governance structures but tends to underplay the role of domestic institutions and political coalitions. This Special Issue brings these two traditions into dialogue in order to examine how upgrading is (partially) attained—or how it fails—in MI countries.

The articles in the Issue focus on six countries—Argentina, Brazil, Chile, China, Malaysia, and Mexico—to analyze how public and private actors pursue upgrading strategies under MI-trap conditions. We develop a typology of Actors’ Upgrading Strategies along two dimensions: loci of agency (state vs. firm/chain) and modes of action (transformative vs. adaptive). This yields four conceptual categories: Transformative Policy Entrepreneurs, Adaptive Policy Implementers, Transformative Firm Upgraders, and Incremental Firm Repositioners. Collectively, the contributions offer a more textured and politically attuned understanding of upgrading under the MI trap in a world of GVCs, and bring us closer to understanding what it means to be caught in—or to find pathways out of—the trap.

What drives elite capital flight into offshore destinations? While existing literature focuses on regulatory gaps or global tax competition, international bailouts themselves can catalyze elite capital flight. Specifically, we examine how two instruments of the Global Financial Safety Net (GFSN)—the International Monetary Fund (IMF) and the People’s Bank of China (PBoC)’s swap lines—impact elite incentives to move wealth offshore. We develop a two-dimensional framework centered on Disbursement Control and Elite Threat Perception to theorize when and how elites extract and expatriate wealth. Using data from 201 countries between 1990 and 2018, we find that the anticipation of IMF programs increases offshore bank deposits by 14.2%, consistent with elites responding to rising threat perception. By contrast, the introduction of PBoC swap lines increases offshore deposits by 92.3%, reflecting extraction under low disbursement control, enabling moral hazard. We illustrate the core mechanisms of our argument through mini-case studies of Angola, Tajikistan, and Mongolia. Our findings reveal a structural vulnerability in the GFSN stemming from regulatory fragmentation and uncoordinated oversight.

This article examines how subnational fiscal competition over foreign direct investment affects both the siting of new projects and the ability of local governments to raise tax revenue for social spending. We leverage a quasi-natural experiment, an unexpected declaration by the Brazilian Supreme Court in 2017 that reduced states’ ability to offer investors differentiated tax subsidies. Our results show that disadvantaged regions did not see a major shift in investment patterns after the change in investment law. We do not find a consistent relationship between the incentive law change and state revenue generation, but we do find that incentives are associated with less revenue. The results are consistent with arguments that investment incentives exacerbate inequality by reducing states’ capacity to collect revenue while doing little to affect investment location. Our results illustrate that economic agglomeration is difficult to reverse through tax policy and that fiscal federalism often cannot provide strong enough inducements to drive investment into less advantaged regions.

Whether China can avoid the middle-income trap has been the subject of extensive research. Currently classified as an upper middle-income country, China increasingly exhibits similar characteristics as countries currently experiencing the middle-income trap. However, using evidence from China’s coastal manufacturing city of Dongguan, this article shows how China’s approach to global value chain (GVC) participation created conditions for avoiding the middle-income trap: 1) agglomeration and manufacturing scale at multiple stages of production, 2) a mix of foreign and domestic enterprises, 3) participation in GVCs for multiple industries, 4) development of domestic demand, and 5) continuously reconfiguring government industrial policies. With these characteristics, China’s economy is likely to continue to grow, suggesting that GVC participation can facilitate a path around the middle-income trap.

The international investment regime provides generous protections for foreign investors against adverse legal changes in host states, and unusually strong procedural rights to enforce those protections in investor-state dispute settlement (ISDS). Scholars have observed that the regime enables corporate capital accumulation and raises the costs of climate action, potentially deterring states from adopting ambitious climate policies. Building on this literature, we locate a key source of these concerns in the asymmetric treatment of state and investor behavior in ISDS, which allows investors to depict themselves as innocent victims of “unfair” and “unforeseeable” “political” processes, despite themselves being active political players and sophisticated political risk managers—a tactic we call feigned victimization. This tactic is employed by fossil fuel companies to achieve capital accumulation and climate obstruction goals. We illustrate our argument through an empirical case study of TC Energy’s US$15 billion ISDS claim against the United States in relation to the Biden Administration’s revocation of a permit required to construct the Keystone XL oil pipeline. Our case study also illustrates a method by which states can expose feigned victimization tactics by investors and incorporate evidence of this into their legal defenses in ISDS.

‡Between 2020 and 2022, China’s digital platform sector underwent a substantial regulatory shift, marking a clear departure from the previously lenient approach toward digital platform firms. While much of the existing research has focused on external factors—such as the unchecked growth of tech giants, the Chinese Communist Party’s goal of “common prosperity,” and the U.S.–China rivalry—this paper highlights internal institutional changes that facilitated this regulatory transformation. Specifically, it explores how the 2018 bureaucratic restructuring within China’s regulatory apparatus fostered “domain-specific centralization,” concentrating regulatory power within agencies overseeing key domains such as financial regulation, antitrust, and data security. It argues that such centralization reduced regulatory overlaps and gaps, allowing the state to control major digital platforms more directly. Using case studies of Ant Group’s suspended initial public offering, Alibaba’s antitrust fine, and Didi’s data security investigation, this paper shows how variations in centralization across domains shaped regulatory outcomes. The findings provide new insights into China’s evolving regulatory governance and offer broader implications for the relationship between the state and business in the digital economy.

In this paper, we examine a major transparency initiative affecting tax abatements for state and local economic development in the United States that has been plagued by noncompliance. Unlike academic studies examining government compliance with transparency rules such as Freedom of Information Act (FOIA) requests, we examine government and independent auditor responses to inquiries about information already posted, or not posted, in annual financial reports. Using a pre-registered experimental approach on cities, counties, and school districts in a single large-population state (Texas), we remind entities and their external auditors of their transparency obligations as well as our ability to check their compliance with this transparency rule and ask these entities follow-up questions about their required posts. Against expectations, we found that entities were not significantly more likely to comply with our request for information when we reminded them of their disclosure obligations and we found some evidence that nudges made entities less likely to comply. We argue these results provide novel insights into the limitations of transparency initiatives.

In proposing industrial policies to promote development-enhancing upgrading, both the Middle-Income Trap (MIT) and Global Value Chain (GVC) literatures imply a “technocratic” approach that matches a given technical challenge to the right policy instrument. This paper suggests that, apart from the technical demands of the problem at-hand, it is also necessary to observe how governments at the subnational level practice path-dependent “sticky” styles of industrial policy that consistently favor some policy tools and approaches over others. Drawing upon four industry cases in the Mexican states of Jalisco (electronics, and information and communication technologies) and Querétaro (automotive and aerospace), we identify two distinct local industrial policy styles, as the former state deployed a Business-guided style while the latter relied upon a State-guided alternative. These styles, in turn, were each biased towards some forms of upgrading over others, leading to two main conclusions: first, that local policy styles must be taken into account to understand how deviations from technocratic policy selection appear. And second, that these styles can generate long-term impacts on the kinds of industrial upgrading observed.

How green are the leaders of US corporations, and are their attitudes reflected in corporate climate policy? Using data on individual contributions to green political candidates, we develop a proxy measure of the personal environmental views of directors sitting on the boards of public companies. Corporate America’s boards have become greener over time, although there remains significant variation in the number of green directors both across and within industries. Accounting for economic interests and outside pressures, firms run by green directors are more likely to make decisions that promote climate action internally—publicly reporting emissions, hiring sustainability officers, and announcing net-zero commitments—and externally, by joining pro-climate groups. The environmental beliefs of board members are robustly associated with pro-climate action, suggesting that the path to corporate sustainability runs through the boardroom.

This paper examines whether political connections can protect firms from losses resulting from a government’s adverse policies. I explore this question in the context of Argentina’s partial nationalization of publicly traded firms in 2008–2011, resulting from the counter-reform of the country’s pension system. I find that partially nationalized firms in Argentina incurred much greater losses than firms in a control group. Among the partially nationalized firms, those with political connections were hurt less than non-connected firms. However, political connections lost all their value in firms where the government acquired a very large ownership stake. I also find that foreign ownership offered firms no protection against losses stemming from partial nationalization. These results suggest that in an unfavorable policy environment, firms may not be able to fully rely on political connections for protection.

Bridging together the Middle-Income Trap (MIT) literature with the Global Value Chains (GVCs) approach may provide a more fine-grained understanding of the middle-income (MI) countries’ developmental dilemmas. While the former identifies the structural challenges these countries face, the latter provides analytical tools to explore how MI firms may overcome the hurdles posed by the global organization of production and trade as they strive to enter more technology- and knowledge-intensive segments of the GVCs. This paper undertakes this approach through four case studies of relevant Argentine firms pursuing upgrading in a natural resources-intensive and a classical manufacturing sector: agrobiotechnology and auto parts. Through a structured comparison, we inductively characterize three distinctive trajectories of upgrading, which we call subordinate, defiant, and path-breaking. They differ in the type of upgrading they entail, the technological and productive capacities required and the level of autonomy they grant to MI firms within the GVC. Furthermore, we identify two varying sets of factors—the organization of the GVC and the level of external support by domestic institutions—that make each trajectory more or less likely. The paper concludes by discussing the aggregate implications of each trajectory for countries seeking to break out of the MIT.

Overt political retribution, typically considered outside the bounds of American democracy, has recently risen to the surface of American political discourse. How do voters respond to elected officials wielding their powers of office for retributive purposes? In the current partisan political climate, do voters’ views of retribution depend on whether the official is a member of their party? Politicians in both parties have demonstrated willingness to threaten or pursue retaliation against corporations for using their political voice to publicly express opposition. Due to the American public’s ambivalence about the role of business in politics and the rights of corporations to political speech, the scenario of corporate political speech provides a useful case in which to test for partisan acceptance of the use of political retaliation. In an original and replication experiment, we find strong bipartisan rebuke of an elected official’s employment of “abusive legalism” in response to corporate political criticism. Strikingly, the negative consequences are greatest for an in-party official. The drop in support suffered by the official is equivalent to the effect of partisanship, such that an in-party official using their powers of office to “keep business out of politics” is viewed as unfavorably as a non-responsive out-party official.

In an era of fragmented global production and domestic decentralization, middle-income countries confront the complex challenge of industrial upgrading. While national governments remain central to industrial policy design and funding, upgrading unfolds through multi-level interactions between state and business actors across international, national, and subnational spheres. This raises a critical question: How do local political-economic coalitions between firms and governments shape the implementation of national industrial policies and leverage them for upgrading?

This paper moves beyond the predominantly national-level analysis of industrial policy, which often treats implementation as straightforward. Instead, it presents a novel theoretical framework that emphasizes how the interplay of executive leadership, business cohesion, and bureaucratic quality fundamentally shapes industrial upgrading outcomes in today’s globalized, decentralized economy. The framework is tested and refined through a longitudinal comparative study of a key technology sector industrial policy (Prosoft) in two Mexican states - Nuevo León and Puebla - from 2000 to 2015. Drawing on semi-structured interviews with key stakeholders and secondary sources, the analysis demonstrates how distinct regional state-business configurations critically influence both policy implementation and upgrading trajectories.

Interest groups spend large amounts of money on public campaigns, but do these outside lobbying strategies change public opinion? Several recent studies investigate this question, but come to different conclusions. We integrate existing approaches into one factorial design and conduct a well-powered survey experiment across two countries. We randomize type of interest group support and message medium in support of two prominent climate policies. Our results suggest that interest group messages can have a short-term influence on public opinion. However, the effects are not different from policy messages without interest groups, are not larger for messages from interest group coalitions, and are only effective for subsidies, but not for increases in taxation. In addition, we investigate the mechanism linking outside lobbying and public opinion and find that outside lobbying signals higher support for policies among the public. Our results have implications for comparative studies of interest group strategies.

Local content policies (LCPs) are key instruments of industrial policy used by middle-income countries (MICs) to capture segments of global value chains (GVCs). While, in principle, LCPs are very similar, in practice, they are highly diverse. What to prioritize, how to measure it, while promoting firms’ upgrade are decisions that create room for national varieties. Considering this background, we compare LCPs for the oil and gas sector in Brazil and Malaysia. Both countries have adopted different forms of LCP over time. While Brazil has adopted an inward-looking version of LCP focusing on import-substitution, job creation, and domestic production, Malaysia implemented a more outward-looking version, focusing on coownership by nationals and strategic supplier development with less emphasis on domestic production. We argue that two very diverse developmental policy paradigms embedded in each country explain these different trajectories. In Brazil, a productivist version of developmentalism focused on domestic output underplayed the importance of integrating in GVCs. In contrast, an ethnic-based version of developmentalism in Malaysia was more flexible and allowed a better integration of domestic companies in GVCs. Our analysis sheds light on the importance of the interaction between ideas, interests, and institutions, focusing on how LCPs can build internationally competitive companies.

Transitioning away from fossil fuels is in the best interest for long-term stakeholders of oil firms to mitigate risk from climate policy. Yet firms have an informational and positional advantage over strategies to mitigate climate-related risks, such that there is little incentive to decarbonize. Building on theories of firm behavior and the three faces of political power, we argue that investor pressure will be unlikely to change the climate strategy of fossil fuel firms. To measure climate strategy, we develop a novel technique using natural language processing tools to parse annual filings of all publicly-listed oil firms in the US. Using a difference-in-differences design exploiting an exogenous shock to shareholder power from a Securities and Exchange Commission regulatory amendment, we find no effects of shareholder pressure on deep reforms to climate strategies and weak effects on incremental pro-climate behavior. Through a case study of ExxonMobil, we show that climate-motivated investors are unable to overcome internal stakeholder resistance, despite shareholder pressure through direct communication, filed resolutions, and media campaigns. Our findings illustrate that polluting firms remain resistant to financial pressure for decarbonization, suggesting an important role for policy.

Is trade lobbying effective and does its effectiveness vary across firms? Using requests for relief from China trade war tariffs, we demonstrate that lobbying for specific trade policies contributed to securing those exact policies, an elusive target in the long-running trade lobbying literature. We further argue that lobbying should be most impactful for big companies because policymakers prioritize jobs and growth when allocating a limited number of policy favors. In line with this, we find that lobbying for tariff reductions by large firms was hugely more effective than for small firms, though with one major exception: requests from firms that owned foreign subsidiaries in China were overwhelmingly rejected. Large firms are powerful, especially when their interests align with policymakers’ economic policy objectives.

Why do companies sometimes lobby legislators directly and sometimes act predominantly through business associations? Although economic factors, such as size and profitability, are well-known determinants of companies’ decision to lobby, they alone cannot explain the choice in lobbying strategies. This paper provides an explanation for why companies sometimes choose to lobby collectively: reputation. When firms want to lobby in favor of a publicly unpopular position, channeling their efforts through business associations can help them shield themselves from reputational consequences. To test this theory, this paper provides evidence from firms’ lobbying on climate change. Combining climate-friendliness ratings of corporate lobbying with an original survey experiment, it demonstrates the existence of reputational costs from lobbying alone and shows that lobbying through business associations helps firms avoid such costs. For the study of lobbying positions, these results imply important systematic differences in the positions firms take alone and collectively.

Since the 1980s, state capacity has been a major explanation for countries leaving the middle-income trap. However, this literature is unable to explain the failed experiences of countries with relatively high state capacity. This was the case of Chile after the unsuccessful enaction of a series of policies in the mid-2010s to upgrade the country’s position in the lithium value chain. To understand this failure, we combine the literature on developmental states and the literature on business power. We use the concept of institutional business power to understand how business actions erode state capacities leading to countries’ persistent inability to leave the middle-income trap. In the case of Chile, despite the relatively high levels of state capacity, previous processes of deregulation and privatization in the country configured a situation favorable to business’ monopolization of information and technical knowledge about lithium production and innovation processes that directly affected the capacity of the state to regulate the sector, let alone implement policies designed to upgrade the industry. The article highlights the need to investigate further the role of not just the state, but of the private sector in either facilitating or blocking value chain upgrading in countries caught in the middle-income trap.