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24 Cards in this Set

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Formal institutions
written set of rules that explicitly state what is and is not allowed
Informal institutions
custom or tradition that defines appropriate behavior, but without legal enforcement.
Institutions:
rules and organizations that govern and constrain behavior.
The International Economic System
The international economic system refers to the rules, customs, instruments, facilities and organizations for effecting international movement of goods and services as well as arranging transfer of funds.
Characteristics of a good system:
Maximizes the flow of international trade;
Generates an equitable distribution of the gains from trade;
Minimizes the costs and time attendant with adjustment from disequilibria;
Offers sufficient liquidity so that external disequilibria need not generate internal disequilibria;
Generates confidence in the system so that participants trust in the efficacy of the system.
Bretton Woods Conference
In July 1944, a conference was held in Bretton Woods, NH to discuss the nature of international economic and financial order after World War II. The International Monetary Fund and the World Bank came out of this Conference.
The three global organizations playing a major role in international economic relations are
The International Monetary Fund (I.M.F.)
The World Bank
The World Trade Organization (W.T.O.)
I.M.F. was created under the Bretton Woods system for the purposes of:
overseeing that countries followed a set of agreed-upon rules of conduct in international trade and finance; and
providing borrowing facilities for countries in temporary balance-of-payments difficulties. I.M.F. also provides technical expertise in international financial relations.
Foreign Exchange Reserves`
These are assets held by a country’s monetary authority that can be used to settle international payments. The reserves are held in the form of (monetary) gold and currencies like US dollars, yen, euros.
Functions of the IMF
Prevent crisis in the system by promoting sound macroeconomic policy
I.M.F. Conditionality
This refers to the conditions that I.M.F. imposes on member countries’ borrowings from the Fund. The conditions usually involve policies that reduce or eliminate a severe trade deficit and/or government budget deficit.
The World Bank
The original name of the World Bank was the International Bank for Reconstruction and Development. It was created under the Bretton Woods system for the purpose of
(1) providing financial and technical assistance to war-torn economies of Europe; and
(2) providing long-term financial and technical assistance to help poor countries in their development efforts.
Main Functions of the World Bank:
Investing in people, particularly through basic health and education;
Focusing on social development, inclusion, governance, and institution-building as key elements of poverty reduction;
Strengthening the ability of the governments to deliver quality services, efficiently and transparently;
Protecting the environment;
Supporting and encouraging private business development;
Promoting reforms to create a stable macroeconomic environment, conducive to investment and long-term planning.
International Trade Organization
An international organization that was conceived for the purpose of regulating international trade after World War II. It was never ratified by the U.S. Senate and it never came into existence. Its place was taken by G.A.T.T.
An international organization that was conceived for the purpose of regulating international trade after World War II. It was never ratified by the U.S. Senate and it never came into existence. Its place was taken by G.A.T.T.
An international organization created for the promotion of freer trade through multilateral trade negotiations.
GATT's principles
Nondiscrimination: enshrined in the concept of most favored nation (MFN); every WTO member must treat every other member as it treats its most favored trading partner;
National treatment: imports must be given similar treatment on the domestic market as domestically produced goods.
Most Favored Nation (M.F.N.) Status
The idea that every member of the W.T.O. is required to treat each of its trading partners as well as it treats its most favored trading partner. In effect, MFN prohibits one country from discriminating against another.
Uruguay Round
This round of negotiations within the G.A.T.T. framework began in 1986, concluded in 1993 and was ratified in 1994. It replaced the G.A.T.T. with the World Trade Organization, brought services and agriculture into the W.T.O., and improved the dispute settlement mechanism.
Trade Bloc
A grouping of countries that have agreed to reduce or eliminate trade barriers between themselves (members of the Bloc), while maintaining unequal tariff levels and/or disparate other trade barriers against non-members (third-party countries).
Regional Trade Agreements
Besides economic organizations, regional trade agreements form a key part of the institutional structure of the world economy.
Regional trade agreements have proliferated around the world since the beginning of the 1990s.
Partial Trade Agreement
Partial trade agreement: two or more countries liberalize trade in a selected group of product categories.
The 1965 Auto Pact between U.S.A. and Canada.
Free Trade Agreement
trade in goods and services fully liberalized between two or more countries.
Customs Union
an FTA plus a common external tariff. (CET)
Common Market
Common market: a CU plus free mobility of factors of production.