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57 Cards in this Set
- Front
- Back
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"Where to Meet" problem
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- coordination games
- players have 2 optimal situations, but prefer different strategies - deciding the structure of the International monetary system (currency of trade) |
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"Inhibiting Fear" problem
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- assurance games (shoot the stag)
- fear of market crash leads countries to slow down or restrict capital movements |
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"Free Riding" Problem
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The Prisoners Dilemma
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3 Problems with Global Integration
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- Free Riding
- Inhibiting Fear - Where to Meet |
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Resistance to Borrowing from Lender of Last Resort
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- usually not done except in crisis
- Indicates institution has taken on too much risk - US Fed Reserve is lender of last resort - Intended to prevent bank runs |
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State Provisions (def)
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- financial markets need common standards understood by all parties
- standard settings is often |
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State Provisions (important functions)
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- adjudication
- reform - enforcement |
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Systemic Risk
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- bank could fail and compromise the financial system as a whole
- suggests the need for supra-national regulation but States prefer coordination and collaboration in times of crisis - basic system "home country control" leads to home country bail out if it fails |
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Moral Hazard
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- financial bail-outs of lending institutions by govts can encourage risky lending
- politicians and regulators may regulate financial institutions to lend $ to specific voting blocks - regulation should restrain too bug to fail companies from taking excessive risks, but regulators or frequently former firm execs |
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Bretton Woods
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- system of monetary management est the rules for commercial and financial relations among the world's major industrial states
- set up a system of rules, institutions, and procedures to regulate international monetary system - est IMF and Int Bank for Reconstruction and Development |
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Bretton Woods
(Chief Features) |
1. each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value in terms of gold
2. the ability of the IMF to bridge temporary imbalances of payments (lender of last resort) |
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Export-oriented industries
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Good for trade (computer software, construction equipment)
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Import-oriented industries
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(import competition) steel, textiles, footware, not good for trade
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Exchange Rates
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currencies must have a relative exchange rate:
- Gold Standard - Bretton Woods Standard - Fixed Exchange Rates |
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Tools of Globalization
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- Immigration
- Foreign Investment - Exchange Rates - Monetary Policy |
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Foreign Investment
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- portfolio investment (short-term, stock related) vs. direct foreign investment (purchasing of land and equipment, buildings etc)
- Concern that competition among developing countries to attract new investments produce a race to the bottom in terms of environmental and labor standards |
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immigration
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protested because it increases the supply of low-skilled labor, dropping wages
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Hecksher-Ohlin Model
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each nation's comparative advantage is traced to its particular endowments of different factors of production: land, labor, and capital
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Two Models of Trade
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Hecksher-Ohlin Model
Specific Factors Model |
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Specific Factors Model
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movement of factors of production to different uses following trade liberalization may be difficult: the effects of trade may not benefit/harm different factors various sectors but rather hurt/benefit ALL factors within the same industrial sector
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The Great Recession
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-downturn of production and GDP for most nations in 2008-2009
- uniquely showed how much different economies were interconnected by quantitatively and qualitatively |
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World Econ Pre-1914
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- mercantilism
- wealth was equated with power to monarchs built wealth - gold standard |
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World Econ in Inter-War Period
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-mainly marked by inability of states to construct a viable international financial system
- international trade declined and tariffs increased |
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World Econ Post-1945
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Distinct from previous period:
- Embedded liberalism - multilateralism - transnational corporations |
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Monetary Policy
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increase the supply of $ to lower cost of credit (interest rates) in recession, or restrict the supply and raise interest rates in boom times to slow economics activity and control inflation
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Globalization
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Facets:
- political - economic - social Incorporates: - labor - production - technology -- Cultural homogenization |
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Restrictions under WTO
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- arrangements should help trade flow more freely among the countries in the group without barriers being raised on trade without outside world
- Art 24: non members do not find trade more restrictive - Art 5: tariffs - regional trade agreements |
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Regionalism's Many Facets
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- regional economic cooperation and the new security agenda
- as a bargaining tool - tool for locking in reforms - satisfy domestic political constituencies - easier to negotiate than multilateral agreements |
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Regionalism
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- Free Trade Agreements
--- NAFTA --- EU - involves use of economic means for political ends: the improvement of interstate relations &/or the enhancement of security within a region |
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Primary WTO Agreements
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should be the "common institutional framework" for trade relations among its members and should "facilitate the implementation" of the various Uruguay Round agreements
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GATT: 3 non-discriminatory components
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liberalizing trade
- Art. I - Art III - Art XI |
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WTO
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- secretariat members are legally bound to act in a way that is consistent with the rules they have negotiated
- settles trade disputes and promotes trade negotiations - conference every 2 years |
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Protests of WTO
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by those who feel it is overly politicized and marginalizes and disenfranchises groups
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Reciprocal Trade Agreements Act of 1934
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- passed to counter act Smoot-Hawley
- bilateral treaties were negotiated with different countries to lower tariffs |
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Smoot-Hawley Act
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1930s raised US tariffs to historic levels and increased the scope of tariff coverage as well
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Tariffs
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- levy revenues from trade
- a form of protection for import competing industries |
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How do tariffs affect domestic economies?
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In important competing industries they are favorable. In the rest of the economy, the higher costs are born.
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Emergence of international political economy
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- pressures from newly industrialized economies, financial regimes, and trade regimes led to rewriting of the rules for international economies
- political scientists came into the field when this turbulence occured and stirred up interest |
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IPE
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- a field of enquiry, a subject matter whose central focus is the interrelationship between public and private power in the allocation of scarce resources
- focus on distribution and power - asks what are the best conditions because there is no central agency to regulate conditions |
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Lender of Last Resort
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- someone who will lend credit when no one else will
- traditionally a bank (central bank) - secures well-connected banks and other institutions that are "too big to fail" against bankruptcy - most lenders and borrowers are insolvent - they need liquidity |
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Competing Interests
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- info is incomplete and can have an affect on policies and their interactions to each other
- the ideas of prominent economists on cause and effect relationships have a large impact on foreign economic policies, but relationship between ideas and interests far from clear |
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Responses to the need for cooperation in globalization
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- binding rules and regulations
- mechanisms to facilitate cooperation |
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Roles of Institutions in Globalization
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3 functions:
- channels for 3rd party enforcement of agreements - craft responses to situations characterized by distributive tensions - alleviate actors' fear to participate -- also help distribute info to alleviate some of the pressure in the games |
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Characteristics of institutions
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- membership
- stringency of rules - scope - delegation of power - centralization of tasks |
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global value chains
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- the sequence of activities through which technology is combined with material and labor inputs, then assembled, marketed, and distributed
- important determinants of who gets what, when, and how in the global economy |
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Time Space Compression
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- the rate of capital reproduction is accelerated
- the rate at which goods, services, people are moved around the world is sped up and the relative effects of space are compressed - infrastructure and technology are critical |
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Theories of Economic Globalization
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- structural
- conjectural - constructivist |
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"Structural" theory
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- time frame of long duration (centuries)
- focus on organizing principles of domestic and international systems, holistic, emphasis on dynamics, laws and norms - inevitability and path-dependent outcomes: Giddens (technology is inherently globalizing) |
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Hyperglobalization
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tendency of globalization to push politics beyond the nation state (either to the global governance level or to interstate, no-national network actors)
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Core Assumptions of hyperglobalization
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- capital investments where it can secure the greatest return on investment
- markets for goods and services are fully integrated globally - that capital enjoys perfect mobility with zero exit cost - capital invariably secures the greatest return by minimizing labor costs in flexable markets - welfare state has no positive externalities |
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2 primary theses of Hyperglobalization
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convergence
dual-convergence |
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convergence
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varieties of capitalism will find a common metric eventually
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dual-convergence
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varieties of capitalism will converge around two poles
1. liberal-market economies 2. co-ordinated market economies |
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Triadization
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triad of Europe, US, and East Asia will dominate world economic form
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Theory of the Adjustment Process Under the International Gold Standard
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if a country experiences a balance of payments deficit, the banking system should tighten monetary conditions by cutrailing the issue of notes and raising interest rates
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The IMF - Lender of Last Resort
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- all member govts pay a "quota" to the institution that largely reflects their relative size within the world economy
- the amount of money they can borrow from the Fund is determined by their quota size - Quotas significantly determine voting shares - governed by a Board of Governors, meets annually, but day-to-day delegated by exec board |
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Impossible trinity of macroeconomics
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- exchange rate stability
- national monetary policy autonomy - capital mobility -- can only realize two of these goals at one time |
