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57 Cards in this Set

  • Front
  • Back
"Where to Meet" problem
- coordination games
- players have 2 optimal situations, but prefer different strategies
- deciding the structure of the International monetary system (currency of trade)
"Inhibiting Fear" problem
- assurance games (shoot the stag)
- fear of market crash leads countries to slow down or restrict capital movements
"Free Riding" Problem
The Prisoners Dilemma
3 Problems with Global Integration
- Free Riding
- Inhibiting Fear
- Where to Meet
Resistance to Borrowing from Lender of Last Resort
- 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
State Provisions (def)
- financial markets need common standards understood by all parties
- standard settings is often
State Provisions (important functions)
- adjudication
- reform
- enforcement
Systemic Risk
- 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
Moral Hazard
- 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
Bretton Woods
- 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
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)
Export-oriented industries
Good for trade (computer software, construction equipment)
Import-oriented industries
(import competition) steel, textiles, footware, not good for trade
Exchange Rates
currencies must have a relative exchange rate:
- Gold Standard
- Bretton Woods Standard
- Fixed Exchange Rates
Tools of Globalization
- Immigration
- Foreign Investment
- Exchange Rates
- Monetary Policy
Foreign Investment
- 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
protested because it increases the supply of low-skilled labor, dropping wages
Hecksher-Ohlin Model
each nation's comparative advantage is traced to its particular endowments of different factors of production: land, labor, and capital
Two Models of Trade
Hecksher-Ohlin Model

Specific Factors Model
Specific Factors Model
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
The Great Recession
-downturn of production and GDP for most nations in 2008-2009
- uniquely showed how much different economies were interconnected by quantitatively and qualitatively
World Econ Pre-1914
- mercantilism
- wealth was equated with power to monarchs built wealth
- gold standard
World Econ in Inter-War Period
-mainly marked by inability of states to construct a viable international financial system
- international trade declined and tariffs increased
World Econ Post-1945
Distinct from previous period:
- Embedded liberalism
- multilateralism
- transnational corporations
Monetary Policy
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
- political
- economic
- social
- labor
- production
- technology

-- Cultural homogenization
Restrictions under WTO
- 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
Regionalism's Many Facets
- 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
- Free Trade Agreements
--- EU
- involves use of economic means for political ends: the improvement of interstate relations &/or the enhancement of security within a region
Primary WTO Agreements
should be the "common institutional framework" for trade relations among its members and should "facilitate the implementation" of the various Uruguay Round agreements
GATT: 3 non-discriminatory components
liberalizing trade
- Art. I
- Art III
- Art XI
- 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
Protests of WTO
by those who feel it is overly politicized and marginalizes and disenfranchises groups
Reciprocal Trade Agreements Act of 1934
- passed to counter act Smoot-Hawley
- bilateral treaties were negotiated with different countries to lower tariffs
Smoot-Hawley Act
1930s raised US tariffs to historic levels and increased the scope of tariff coverage as well
- levy revenues from trade
- a form of protection for import competing industries
How do tariffs affect domestic economies?
In important competing industries they are favorable. In the rest of the economy, the higher costs are born.
Emergence of international political economy
- 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
- 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
Lender of Last Resort
- 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
Competing Interests
- 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
Responses to the need for cooperation in globalization
- binding rules and regulations
- mechanisms to facilitate cooperation
Roles of Institutions in Globalization
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
Characteristics of institutions
- membership
- stringency of rules
- scope
- delegation of power
- centralization of tasks
global value chains
- 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
Time Space Compression
- 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
Theories of Economic Globalization
- structural
- conjectural
- constructivist
"Structural" theory
- 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)
tendency of globalization to push politics beyond the nation state (either to the global governance level or to interstate, no-national network actors)
Core Assumptions of hyperglobalization
- 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
2 primary theses of Hyperglobalization

varieties of capitalism will find a common metric eventually
varieties of capitalism will converge around two poles
1. liberal-market economies
2. co-ordinated market economies
triad of Europe, US, and East Asia will dominate world economic form
Theory of the Adjustment Process Under the International Gold Standard
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
The IMF - Lender of Last Resort
- 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
Impossible trinity of macroeconomics
- exchange rate stability
- national monetary policy autonomy
- capital mobility

-- can only realize two of these goals at one time