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20 Cards in this Set
- Front
- Back
- The ability to exchange money for gold or other
currencies. - Governments which did not have large reserves of hard currency foreign reserves ($US) tended to restrict currency convertibility. Loss of foreign exchange reserves could lead to a balance-ofpayments crisis. - Under the EEC, currencies were made convertible for current accounts (foreign trade in goods and services, including the remittance of earnings). - Consequent increase in intra-European trade and U.S. FDI in Europe |
Currency Convertibility
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Signing the treaty of Rome
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1957
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– U.S. FDI expanded 10
percent/year, faster than the growth of the U.S. economy |
1958-1969 (U.S. FDI)
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U.S. MNCs produced $140
billion worth of goods, more than any national economy except the United States and the Soviet Union |
1969 (U.S. FDI)
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Gross World Product – grew 5 percent annually,
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1945-1968 (U.S. FDI)
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Kennedy Round, Geneva, 1964-1967. 66 nations involved in this round, each round further reduced trade barriers
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GATT to WTO
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It is possible to view trade
liberalization under GATT as: - Driver of worldwide economic expansion - Spreading benefits worldwide Not about establishing free trade, but regulating international trade based on negotiated rules that mainly benefited developed nations Expansion of trade was an effect, not a cause, of economic growth and expanding employment |
GATT
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Neil Armstrong, Apollo II moonwalk,
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1969
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Big investments in raw materials made in late 1940s - early 1950s; infrastructure financed by international institutions, not private capital
- Negative effects of FDI in developing countries: * Declining “Terms of Trade” * MNC “transfer pricing” Barriers to Investment in Third World: - Nationalism/Political Instability - Import-Substitution Industrialization (ISI) - Capital Controls |
Shift in FDI away from developing nations
(Third World) to developed nations: |
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U.S.: borrowed and printed money to finance the
Vietnam War during 1960s; mounting inflation (also a result of rising wages and government social spending) “Dollar Glut” in world economy -> overvalued dollar -> gold crisis of 1968; central banks made a run on U.S. gold Business and financial interests moved in opposition to Vietnam War; undermined presidency of LBJ 1971 – President Richard Nixon imposed 10% import surcharge and terminated the Bretton Woods monetary arrangements; currencies allowed to “float” Removal of capital controls by developed nations |
End of the Long Boom and Bretton Woods System
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1973 OPEC oil embargo – stopped oil shipments to United States as
punishment of U.S. support for Israel in Yom Kippur War OPEC nations wrested control over international pricing of oil Embargo pushed price of crude oil from $3/barrel to $13/barrel in 1974 |
First Oil Shock
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Foreign competition from Japan, Germany, and “NICs” (Newly Industrializing Countries) in heavy industries such as steel and autos, and beginning of competition in electronics and advanced technologies
Early 1970s – world economy moves from growth to stagnation; the “long downturn” World GDP growth rate (U.S. dollars at current exchange rates) fell steadily: 1950-1973 – 5% 1973-2002 – 2.7% |
Growth to Stagnation
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In effect, oil shock resulted in a large transfer of money from U.S. consumers to oil states, oil companies, international banks, and U.S. arms
merchants |
Recycling of Petrodollars
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1979 – Iranian Revolution – second shock; crude oil soared to $40/barrel
- Soaring oil prices - high inflation - election of Ronald Reagan over incumbent Jimmy Carter as U.S. president |
Second Oil Shock
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- Cutting taxes and social spending
- Deregulation |
Reaganomics
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Shift from monetary to fiscal
policy to stimulate eonomies; growth of international financial markets made deficit financing easier for nations not in serious debt |
"Volcker Shock”
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- Third World debt crisis and structual adjustment
- Neo-liberal reform opened highly regulated economies |
New Era of Globalization, 1980-present
Process 1 |
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- Called for reduced trade
barriers - Greater openness to foreign investment - Elimination of capital controls, - Privatization, lower taxes, reduced government regulation |
Structual Adjustment
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Oil price collapse, 1985-1986 (Third Oil Shock), undermined Soviet economy,
increasingly dependent on oil exports to pay for imported goods - 1989: End of the Cold War - Elimination of alternative development models |
New Era of Globalization, 1980-present
Process 2 |
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Collapse of communism eliminated alternative
development model and alternative aid source for Third World nations China accelerated market-oriented policies begun in 1978 Margaret Thatcher – “There is no alternative” (TINA) to Western capitalist model Francis Fukuyama – “The End of History” (neoconservative celebration of liberal market triumph, 1990) Howard Beale – “I have seen the face of God” |
New Era of Globalization, 1980-present
Process 2 cont., or “We’re all capitalists now” |