International Political Economy

How can the Fed influence money supply?

(1) altering the discount rate, which is the rate at which commercial banks can borrow from the Fed short-term (2) open market operations (3) altering commercial bank reserve requirements

How does institutional configuration influence the ultimate outcomes?

** - Parliamentary system - interest groups don't have much of an impact. - Plurality system - interest groups can have greater influence on policy

What challenges does the Beijing Consensus bring to the current liberal world order, if any?

**Chinese economic growth model to increase geopolitical and economic influence in the area based on long-term goals; since the chinese government has control of many corporations or their management teams, they can accomplish these long-term goals at the expense of short-term goals. Focus on export-oriented production models to develop in new world order...

What factors might complicate the outcome analysis?

**Factors such as government autonomy can complicate outcome analysis. Fixed rate regimes are less responsive to crisis.

Which model appears, empirically, to best represent outcomes that we see in the world economy today?

**New Trade Theory: Helps to explain a more globalized and interconnected world, fluid w/ production chains (split up parts)

Briefly, how has Marx conceptualized the value of labor?

**On Marx's view, capital is the result of socially productive activity, the creation of value by labor. Viewed as a 'thing', capital itself has no productive powers. But viewed as a social relation, capital is productive only as an accumulation of previously expended labour power, set in motion by newly expanded labour power. Yet, because capitalism is characterized by private ownership of the means of production, as an owner the capitalist controls the production process and expropriates its product-the surplus value created by labour (i.e. the product of labour above and beyond that required to sustain the workers themselves). In Marx's understanding of capitalist exploitation, the process and product of socially organized labour are subordinated to private property and incorporated into the accumulation of capital.

Discuss the ways in which economic models serve to "organize" society.

**Serve to organize the social aspects of society and explore concepts such as efficiency and economic predictions. Organizations help the international monetary system to operate more predictably, IMF is trying to lock inequalities in place? Liberalism and Marxism talk about processes that come to an eventual result. Functionalism describes how cooperation can be jumpstarted

WTO: ideas and rules that govern the organization? (8)

- 1 country 1 vote - Set rules, for example: principles of free/fair trade and non-discrimination, meet every 2 years - rules-based system replaced the GATT - Power disparities due to market size and representation - Headed by a ministerial conference that meets every 2 years - The work of the WTO is carried out by a series of committees supported by a small international secretariat - Member driven, little bureaucracy - 3 obligations that define the WTO (established under GATT) 1.) Most favored nation - if you give a deal to one country, you have to extend it to other members (non-discrimination) 2.) Tariffs/Records are listed publicly and binding 3.) National treatment, if you make a claim, onus falls on the country making the claim to prove there is evidence to support trade discrimination (Canada and cans over bottles) - Basis of legitimacy is comparative advantage - trade can be win-win (only thing granting WTO force)

Explain The middle-income trap and connection to GVCs

- A theoretical economic development situation in which a country that attains a certain income gets stuck at that level. Countries in the middle-income trap have lost a competitive edge on export production due to rising wages. - multinational corporations tends to focus on production in labor rich areas - different localities have a comparative advantage -technology disrupts more than trade - Expanding and strengthening a country's GVC participation increases the probability of transitioning to a higher income class, as defined by the World Bank's World Development Indicators income group classification. - The probability is higher for lower-middle-income countries than for higher-middle income countries. - growth in output per capita is highest for lower-income groups.

Use OEP methodology to explain which groups of economic actors/industries may be likely to choose a fixed-exchange rate regime and which group might prefer a floating regime?

- Actors: Developed v developing countries - Interests: Developed (more import) - floating (w/ in: If a country has higher currency value, they can import more goods cheaply. Export industries prefer lower rates while import industries prefer a higher currency value. ) Developing (more export) - fixed - Interaction: Trade - Dist. outcomes: More powerful currencies like the dollar are more stable and less susceptible to shocks than a weaker currency. By fixing their currency and exchange rate, smaller economies are able to stabilize their economy, combat inflation, and provide more certainty to importers and exporters. A developed country is more likely to take in product.

Implications of varieties of capitalism for trade; do economic systems ultimately converge?

- As they are models, they assume the institutional configuration does not change - Do not allow any of the combinations because they do not account for cultural or contextual values.

The creation of Bretton Woods: what form of "embedded liberalism" was chosen and why

- Capital controls helped stave off speculative attacks, were supported by Keynes, and probably contributed to the ideational orientation of Bretton Woods: embedded liberalism (Locked in loose liberal reforms to avert inter-state conflict or another financial crisis) - Embedded liberalism: commitment to open multilateral world economy, while safeguarding domestic employment and social welfare concerns. - Relates to the impossible trinity: autonomous monetary, capital controls, fixed exchange rates

Foreign exchange reserves: why held, and at what costs

- Central banks can raise interest rates (selling foreign reserves contracts) to appreciate the currency, which decreases the exchange rate (stronger currency makes imports cheaper). - purchasing reserves expand the money supply causing the exchange rate to increase (as the value of the dollar goes down so imports become more expensive). - Holding foreign reserves allows manipulation of the exchange rate and can buffer from shocks to the exchange rate (can pull from this if the currency becomes too strong and foreign country can't afford their products or if it becomes too weak and they lose out on exports). This policy minimizes the exchange rate volatility's impact on the economy. - The cost of holding reserves is that countries hoarding reserves aren't reinvesting money into the economy.

Summarize the major elements, assumptions of: the Heckscher-Ohlin model & which group of economic actors will present competing interests?

- Factor endowments determine factor advantages (factor mobility) - Specialize/export goods w/ factors relatively well endowed with and import others Actors: Owners of factors of production

Describe liberalism, how this frame conceptualizes power and how it informs our views of IPE.

- Favors cooperation through non-state actors - About absolute power - Informs our view of IPE in that Liberalism favors non-state actors and international institutions - institutions lower the transaction cost of economic interaction, stabilize disruption - Opportunities for cooperation - Economic openness is good

Varieties of capitalism theories

- Countries have different configurations giving different countries a competitive advantage in a certain industry - Assumes a country will specialize based on the institutional configuration of the country (not in one laizee fair straightjacket) - People want the agency to change ideas of what is a comparative advantage and comparative advantage is about institutional configuration not about industries doing better/more efficiently - Liberal market economy: the problem of coordination between firms and between firms and their financiers, employees, suppliers, and customers solved through market mechanisms Radical innovation→ immense capital risks, deregulatory, lots of mobile labor market; Easier for free trade. With a lack of coordination between labor and capital, there is greater turmoil in terms of trade. - Coordinated market economy: Relies on formal institutions to regulate the market, Incremental innovation → agreement between different actors coordinating on action based on economic outcomes--eg. workers are trained by companies; Still some of the most open trade.

Consequences of GVC

- Easier for developing countries to capture a portion of the production line, enable them to develop expertise in a particular field - Developing countries' concerns with stuck with a lower value-added production chain, hence the foreign companies will be more advantaged. - Developed countries fear being hollowed out

Describe realism, how this frame conceptualizes power and how it informs our views of IPE.

- Everyone is fighting for their own state interests, and relative power (translates to a zero-sum game) predicts the outcome of conflict/confrontation (State interests are given) - About relative power, not absolute power - think about power in terms of competition, power is a zero-sum game ("your loss is my gain"). States have to rely upon their own resources to secure their interests - If you see IPE from a realist standpoint, you see that everyone is competing with each other and pursuing their own interests. International institutions aren't very important because they do not influence how power affects inter-state relationships. - Influences IPE because it assumes competition and anarchy between states.

Explore differences between portfolio investment and foreign direct investment.

- FDI is more stable than Portfolio investment (Portfolio investment can flee quickly and crash the economy but more volatile; ie Banks in the depression & E Asian financial crisis) - Portfolio flows to LDCs which are more volatile and can have higher return rates - FDI is much more visible (owning an asset in another country can mean change in local landscape; Unsubstantiated fear of race to the bottom (ie relocated jobs from high-income countries to labor-abundant economies forcing a competitive downward decline in real wages all around) as businesses want stability and developing countries can lower regulations)

How might free flow of labor (inflow of low-skilled labor into the US economy) impact different factors of production (low-skilled labor, high-skilled labor, capital, land) in the US?

- Fear of foreign competition - Most jobs need at least HS Diploma (Blunt the pressures from immigration, see western EU fears about free movement of labor from eastern Europe turned out not to come true, only the lowest skill jobs face competition from low skill immigration) - Impacts of immigrants on the economy depend on the extent of their skill level (short-term: Most likely lower wages, when inflow is increased, Can also expand the demand for labor and create new jobs; recent Nobel prize paper claimed immigration did not depress low skill wages, unlikely to hold if flows were significantly larger - Lower wages for both low and high skilled labor if no restrictions to immigration (Scarcity drives high skill wage premium)?

explain the choices made: Bretton Woods, post WWII; Discuss the possible reasons for the choices made, and what ideas inform each choice.

- Fixed exchange rate; in part reflect an effort to prevent the competitive devaluations that occurred prior to the Great Depression (the US as global hegemon as argued for by Dean Acheson for anti-soviet coalition w/ reserves and money (formed NATO, used Marshall Plan to aid Europe); US pegged to Gold and every other country pegged to the dollar but they still had capital control (can argue that the US followed the pegged exchange rate)); protectionist measures - considered to have played a role in dismantling the then world order (new rules to address past crises) - Embedded liberalism: autonomous monetary policy (w/ capital controls); coincides with a growing labor movement and power, meaning that using monetary policy to ensure goals, such as full employment, capital paying high taxes, increased social security, loss of nationalizations, establishment of int. orgs (eg IMF, GATT) was valued; also valued as a way to guard against deflationary pressure and to stop capital flight; the importance of cooperation seen too. - The idea that trade avoids war (lend-lease passed for military support to allies)

Summarize the major elements, assumptions of: the law of comparative advantage & which group of economic actors will present competing interests?

- Gains from trade so long as the opportunity cost b/t two countries is different (factors of production more abundant) - Can think about trade in "win-win" terms instead of mercantilist ones - One idea can reorganize an entire economy (why populism is so dangerous) Actors: Owners of factors of production

Regional Trade Agreements: development of a two-tier international trade regime?

- Global tier began with GATT, which transformed into WTO - Regionalism protects markets not ready for liberalization - Independence movements led to a desire for regionalism for LDCs in the 60s (Need to know when to "pull away the ladder" though)

Risks of global imbalances (surplus/deficit countries)

- If a country maintains a deficit for too long its currency will appreciate, it is net losing money to other countries. - If a country maintains a surplus for too long they are likely underinvesting, money could be spent in better ways. - Global imbalances create conflict between countries (not seen as caused by floating exchange rates any more) in different economic circumstances. Who is responsible for surpluses and deficits and who should make up for it? IMF traditionally blames deficit countries, but that is changing. IMF is moving to encourage surplus countries to have sufficient domestic demand (criticism of China for undervaluing currencies; now comes down to bargaining b/t big countries)

Inflation and its influence on the exchange rate

- In the short run, inflation causes a temporary appreciation of currency to lower exchange rates - In the long run inflation depreciates the currency and increases the exchange rate.

Explain the implications of "deep" trade agreements

- Include more than just traditional trade policy (e.g. Tariff); Include intellectual-property etc. Regional in scope, less multilateral because it is difficult to coordinate so many aspects of policy at the global level - Countries consider benefits of their own economy, geopolitical project (e.g. TPP- to contain China, its original intention is neutral) - Power through the convergence of ideas/rules; They are to address rule that cannot be so well addressed by WTO

Describe constructivism, how this frame conceptualizes power and how it informs our views of IPE.

- Institutions help spread norms and can alter how state actors perceive their interests (between ideologies or actual organizations); we have changed ideas and shaped reality by ascribing them to the world - Look to explore how international ideas can be agents of social change that in turn influences state-action, as opposed to identifying the physical causal mechanisms of globalization - The process behind what people would define as mechanisms influencing liberalism - States are not dominant, greater emphasis on NGOs, MNCs, individuals; can be agents of social changes that influence factors of IPE.

Summarize the major elements, assumptions of: New trade theory & which group of economic actors will present competing interests?

- Krugman - New trade theory posits that companies will always face competition. Based on economies of scale (comparative advantage of large entities w/ larger facilities and preferential treatment) - Competing industries are within the same industries, rather than different (whereas with specific factors where import industries compete against export industries)

MNCs

- Public face of globalization - Host country (China) concerns: how to capture value-added activities and the questionable impact on local firms, development (middle-income trap), and social cohesion - Home country (US) concerns: outflow of jobs and profits, fear of hollowing out - No real int. law on MNCs b/c they can't cover every situation (ad hoc governance) - 3 sub-trends: massive FDI flows highly concentrated (from a few countries), majority are mergers and acquisitions (M&As), not new firms, and growing role of developing countries as a destination

Global financial regimes: main elements

- Rules, processes, norms which can govern the global financial system - Main example: washington consensus

Int. Institutions Characteristics (5)

- Membership - Stringency of rules - Scope - Extent of delegation - Centralization of tasks

The European Union: theories of integration

- Neo-functionalist theories: regional grouping generates a momentum, with cooperation in one area resulting in pressure to cooperate in other areas - with some spillover effects - Realism: Pushed the EU to crowd out the Soviet Union - the EU was a move to grab power for western powers - Liberalism: promote European integration - increased communication and cooperation with neighboring countries helps settle disputes peacefully, also promotes trust and relationship-building; Member-country domestic interest arguments (Even if countries are buying into shared governance, they each have their own domestic interests - Brexit) - Ideational arguments (constructivism): The ascendency of neo-liberal ideas and growing integration of financial markets, Interconnectedness brought the development and spread of new, and ideas socializing power of regional agreements (Forces member countries to be in constant talks about important economic issues & to understand your partners better, by staying in the system you build relationships with other nations)

How do the arguments of T. Oatley ("... complex interdependence..., 2019) weigh into OEP models?

- Oatley stresses interdependence in analysis and reaches a level of complexity that is difficult to comprehend (1+1 doesn't = 2); OEP is a good starting point but not enough; countries need to discuss and meet - For Oatley, the model is too local and does not take the interdependencies of our world into account sufficiently. This means that when analyzing an interaction using this model, it will be difficult to gain an understanding that can give us useful insight into the world. Limits: mathematical knowledge - **?Scope of the model, static. Wants to internationalize the model, take more actors into account. *(Countries work through primitive means & copy policies that work; evolutionary biology not physics (ie US w/ Japan in the 1970s))

Summarize the major elements, assumptions of: the Stolper-Samuelson model & which group of economic actors will present competing interests?

- One side gains and one side loses - specific industries - Comparative advantage from states is determined by difference in factored endowments. - Assumes competition and class warfare - H-O model says that a country's abundant good is the exported good. A country should ideally export goods they have in excess and import those goods they need. S.S. says in response that the owner of scarce goods will be protectionist. Actors: Owners of factors of production

Discuss the role of supporting mid-level theories: functionalism

- Passivity - Focus on common interests and needs shared by states - Process of global integration : erosion of state sovereignty and increasing role of experts and scientists in the policy-making - Benefits of the integration would attract the loyalty of the populations - Liberal tradition

Summarize the 2x2 chart characterizing the four types of goods (Elinor Ostrom)

- Public Goods- not excludable and using them doesn't subtract (low subtractability) from other people's ability to use them - Common Pool- not excludable but are finite in availability (high subtractability) - Toll Goods- excludable but using them does not subtract from another person's ability to use them (low subtractability) - Private Goods- excludable and the use of these goods prevents others from being able to use them (high subtractability)

How might international cooperation aid in the regulation of each good category?

- Public Goods: Not all nations will contribute equally to their preservation in the international sphere (free-rider) and will have to regulate more than others - Common Pool: provided partially by int. org and govs the use is regulated, in order to maintain the necessary amount of product; Not all nations will contribute equally to their preservation in the international sphere and will have to regulate more than others - Private & Toll Goods: Less regulated

How might international cooperation aid in the production of each good category?

- Public Goods: can be provided partially by international organizations and governments; The free-rider problem arises (Not all nations will contribute equally to their production) and will have to produce more than others - Common Pool: provided partially by int. org and govs, these goods will always be underproduced and therefore must be made by govs.; the free-rider problem arises - Toll & Private Goods: open trade between nations will allow for the more efficient production and exchange of goods, resulting in a lowering of prices for the goods due to the specialization in the production of goods with a comparative advantage; (lower production required) Contributed to by organizations like the WTO and the EU

Explore reasons for why countries cooperate

- Specialization: nations can specialize in the production of a type of good they have the comparative advantage in producing - The lower opportunity cost for producing that particular good in comparison to other goods - We are independent and need rules for ensuring fair and free trade (eliminate free-riding through naming and shaming, inhibits fears as the IMF does, balancing mechanisms like MFN and the DSM of the WTO) - Splintered supply chains making tracking of trade deficits very difficult (new reality from 1945) - Globalization is healthy but we forget the extent to which we must embed markets and compensate losers

**Explain the Triffin Dilemma

- The dollar is the reserve currency so liquidity can only be expanded if the US runs a larger current account deficit - The more of a current account deficit that the US runs there is more risk to confidence in the dollar - It's a balancing act

explain the choices made: pre-1914 (gold standard); Discuss the possible reasons for the choices made, and what ideas inform each choice.

- The gold standard (free capital flow + fixed exchange rate) - Happened accidentally > math error by Britain - Currencies pegged to gold. Needed to ensure the countries had gold in the central bank - No autonomous monetary policy > cannot change interest rates during a crisis. - a Mercantilist system that made global wealth (equated w/ political power) a zero-sum game. Global markets extended w/ ind. rev., int. div. of labor, but extensive use of tariffs and no institutionalization of trade/finance. - "free-rider problem"—other countries were to unable to adhere to the rules as strictly as Britain was. Britain was the hegemon which explains the possibility of the system which was willing to override the system and be the lender of last result. - Key feature: many economic crises - Class lens: Labor did not have franchise; less important if labor wields no power over elite policymakers, i.e., full employment not necessarily a political goalMonetary policy more for capital rather than labor.

explain the choices made: the interwar years; Discuss the possible reasons for the choices made, and what ideas inform each choice.

- free capital flow (largely) + fixed exchange rate (though erratically managed) - Suspended gold standard but for the most part. massive capital flight from many countries (especially Europe) to the US to pay loans. US debt policy was quite strict at the time (Hawley-Smoot Tariff raising import duties to protect American cos.) Money was flowing out of the countries which were most devastated. Recession Great Depression, another realization that the gold standard does not work - no autonomous monetary policy; became problematic as European economies were experiencing deflationary pressures, which could not be addressed if the pegged exchange rate was to be maintained.

RTAs as stepping stones free trade

- Trade creating - Easier to create than global trade agreements - Similar to the US model of dual federalism (regional blocs can be experiments of policy) - Leads to challenges w/ regional protectionism but can be overcome with the right institutions and norms - Can more likely lead to a 2-tier system; Allows nations to embed their cultural DNA into the system while still cooperating internationally - Lower the tariff among countries in the region - There are more since the 1980s because there are more likeminded countries -"failure" of DOHA round lead to discussions on rules and ideas from developing countries due to shifting power dynamics breaking down system (state-centered approach to trade politics) > ie Airbus and Boeing (two export-oriented businesses fighting over market share; oligopolies w/ first mover adv. and ability of countries to subsidize that > countries don't compete, companies do) - deep trade agreements (culturally, socially, and politically embedded) - WTO can be slower to react on the ground, so the agreements can be ad hoc governance (as problems arise instead of preventing them)

RTAs as stumbling blocs to free trade

- Trade diverting - Limited incentive to liberalize: Provides countries with better markets of choice, easier to reach, and number 1 is splintered supply chains (need to set up rules to improve supply chains) - Exacerbate existing power structures w/ strongest being able to win against weaker countries (ie US & Kenya) - Enlarge the gap between rich and poor; Low-skilled workers will be hurt. - Multiple tariffs and time schedules due to PTAs

Why the Bretton Woods exchange-rate system was abandoned in the 1970s

- US trade suffered (a victim of BWS successes) - in 1968 the US imported more automobiles than it exported. This, coupled with the failure to impose compulsory controls on the movement of capital between national economies, meant that when the U.S. expanded its domestic financial system it also tended to increase the stock of world money, as dollars readily flowed into the rest of the international financial system and tended not to return. Because of the Vietnam War, the U.S. had to issue more currency in the 1960s, which caused the U.S. dollar inflation. - They accumulated offshore, especially in Europe in the late 1950s. There was a period of dollar shortage in the US. - The threat that Euromarkets posed to US gold reserves was sufficient to encourage the US to begin to unwind the international monetary order by ending the right of dollar holders to exchange their dollars for gold, a decision which in turn led to the collapse of the fixed exchange rate system. ● Nixon took us off the gold standard - Other countries went off gold standard too (But still not capital controls, autonomous monetary policy)

Given different endowments of capital across countries, how would we expect investment flows to manifest?

- We would expect flows from the developed world to emerging markets (Expectations regarding capital flows often incorrect; ie capital flowing into the USA & balance of payments?) - Keep capital or skill-intensive production in the developed world (Capital intensive production requires high wage jobs (ie Germany); Vertical flow to the developed world for labor-intensive production outsourcing; Still often see investment in other developed countries; Capital abundant countries thought of having higher returns)

explain the choices made: Bretton Woods, during the 1970s; Discuss the possible reasons for the choices made, and what ideas inform each choice.

- free capital flow: Idea that "capital" would be the final arbiter in determining any domestic economy's domestic economic health was gaining traction.- floating exchange rates: Nixon closes the gold window (Plaza Accords) with dollar overhang and needing to honor obligations. The dollar was no longer pegged to gold; stagflation led to the questioning of Keynesian theory resulting in neo-liberal monetarism (ie leave the economy alone) - autonomous monetary policy: upholding the value of the dollar at that time would have required tight monetary policy, which wasn't politically tenable at the time; The US utilized tight monetary policy to uphold the value of the dollar.

Economic model legitimacy

- What holds countries together is an agreement on the rules that are seen as legitimate* *getting to Pareto optimal is easier upon repeated interaction -integration having distributional consequences which are political

Discuss the use and abuse of game theory models - how might the Prisoner's Dilemma help us understand the way in which international cooperation helps to bring societies from a Nash equilibrium to one that is Pareto Optimal?

- When there are asymmetric preferences, the game theory is more easily abused (Decisions don't hurt all nations involved equally) - In the Prisoner's Dilemma, the bargaining model focuses on how cooperation between nations results in greater general well-being while working out of self-interest benefits only a single nation more than the other - Nash equilibrium is reached when both nations work out of self-interest rather than cooperation Concern over cheating in trade deals - Pareto optimal is reached whenever both nations agree to cooperate in decision-making processes, resulting in greater general welfare than the when working out of self-interest Facilitated by international organizations (WTO w/ monitoring and surveillance, FORA fixes 'where to meet', IMF inhibits fear w/ supply of knowledge) which help hold nations accountable and increase transparency in agreements (virtue of just bringing people into the room)

2008 financial crisis: future governance challenges

- When you have a competitive marketplace, it is hard to put rules in place. Bank for International Settlements (bank for central banks) can only recommend, not enforce. hard to put rules in place. - BIS: (originally mandated to manage German war reparations, post WWI, then came to oversee funds intended for European reconstruction, post WWII. Now mandated: to oversee the world financial system and has formed a global governance model whereby central bank authorities form a network of expertise to generate shared norms and regulations, ideas about how best to govern the world financial system. You might call this form of governance a kind of "functionalism," whereby shared tasks and interdependence have tended to create a cohesive group of experts (then helps to integrate the global financial regime until the next crisis)) - greater diversity makes it more difficult to engage in collective action, in the event of a debt crisis. So: last-minute action is usually the outcome; this point relates to how following 2008, the BIS had attempted (and largely succeeded) in elevating capital adequacy requirements for banks, as a way to prevent big banks, in particular, from becoming overly leveraged. Essentially: a free-rider issue. - 2008 has brought the IMF back into the game. Yes: we are in great need of international dialogue to set the rules that we can agree upon with regard to global financial governance. - When things are good, bad things seem like they'll never happen; need austerity during good times

Summarize the major elements, assumptions of: Specific Factors model & which group of economic actors will present competing interests?

- With specific factors, one factor of production cannot switch between two industries (example land). - H-O model is a little unrealistic because factors are not always highly mobile. - Short-run: For coalitions b/t labor and capital in the same industry, not that easy to restrain/move individuals; putting one industry out of business to specialize in another will not simply transfer those jobs - Trade benefits factors of production in export-oriented industries and hurts those in import-oriented industries (immigration works through same logic) - Complicated by the tech of production and differences in consumer preferences across countries Actors: Industries (export/import oriented)

The meaning of capitalist countries being built by debt

- capitalist economies are built from debt-borrowing and lending fuel economic growth- aggregate financial claims created by the interaction of consumers, producers, savers, and investors in an economy = supportable as long as expected future incomes exceed expected future debt repayments - when expectations change, shock follows - Countries can get caught in debt trap, as time horizons between debt repayments and return on investment do not align.

Examine the assumptions that inform OEP models.

- closed system, the sum of its parts, interactions between actors, a system will align with neoliberal economic principles (An income space model where individual interests aggregate into policies and in turn affects outcomes)

If a fixed rate regime is followed, which group of economic actors/industries would prefer a high currency value and which group would prefer a low rate?

- developed versus developing countries, import versus export industries; lower currency, and fixed exchange rate can lead to higher exportation as is common in developing countries. - Example: China's currency is low so that they can export more.

Historic record of risk assessment/monitoring

- history hasn't really been great, no matter what country or corporation you look at, it's difficult to assess how much debt is enough debt - high levels of debt currently (corporate and gov't debt) — difficult to assess the dangers of that debt - suggests that investors are perceiving economy as weak, so there's more demand for long-term bonds - when it comes to risk assessment we don't know that much — we've never been able to predict an economic crisis (think 2008) - Models can create reality by predicting it (self-fulfilling prophecy) - OEP problem w/ bracketing of problems & ideas - If IMF came, it was up to that country to fix its deficit problem (no model for surplus)

How is risk assessed and how are risks are monitored domestically?

- in all but the most limited local markets - rules about accounting- auditing and licensing have been set- somebody has to provide the collective goods of standard-setting, adjudicating, reform and rule enforcement - "somebody" = a central bank - even "independent" central banks of advanced countries derive their authority from constitutional arrangement or interstate treasuries, widely accepted as legitimate

How is risk assessed and how are risks are monitored internationally?

- in some countries (US and UK) gov't have often let market participants reach agreements among themselves about best practices — when such agreements fail, gov't, and central banks step in - being alert to policy changes/possible ones is the way to regulate

**How is risk assessed domestically/internationally?

- risks = managed by accepting deposits from savings in the short run, pool them and make longer-term loans to borrowers - different time horizons of savers and borrowers are mediated - when talking about risk, the key is ​perception - the perception of risk can start issues even where there isn't an "unusual" level of risk

Today

- some discussion about new realities for emerging economies that have experienced volatile capital flows: consequence accumulation of foreign reserves as self-insurance against such volatility may relax the assumption that countries can allow only two of the three choices (though monetary sterilization techniques, which we will discuss later in the term). - Problem: hoarding reserves can create inflationary pressures (depending on the extent of monetary sterilization achieved by the central bank), but more importantly, hoarding reserves may replace productive investment for the domestic economy and more. * TPP created to address currency issues (limits hoarding of reserves) - Also: following the 2008 crisis, the IMF is "lightly" suggesting that some form of limited capital controls may be prudent (that represents a break with past policy). Most important lesson here: the ground is always moving .... - Should set new rules to accommodate the rise of China (Nye?) - Too many people left out of the loop, need to embed the markets and put money in workers' pockets

Explain arguments for/against the adoption of the SDR as a world reserve currency

- special drawing rights. Created as a supplement to the dollar in 1969 For - Can take pressure off the dollar - If the US keeps raising the current account risk there won't be a risk to confidence - Less power from US Against: - US will have less power - won't be lender of last resort - institution in charge, and those are slow to change & adapt

Discuss the role of supporting mid-level theories: hegemonic stability theory

- the international system is more likely to remain stable when a single nation-state is the dominant world power or hegemon - Branch of realist analysis, the presence of a hegemon generates patterns of stability within the international system because it is within the hegemon's interest to keep the world secure to preserve their hegemony - Hegemon is responsible for the formulation of the rules that govern interaction within the international system

The current account deficit: how to calculate and how to evaluate: good/bad or it depends? (Example)

- the reverse of the capital account (National savings - National investment) - It depends. Large surpluses are not necessarily good because that could indicate that a country is saving too much or that there is a lack of investment. Big idea: it matters what you do w/ surpluses, are you reinvesting or just saving/hoarding reserves. Simultaneously, large deficits can be very dangerous because while they mean that there can be lots of investment, that deficit will have to be financed through the sale of assets, foreign currency reserves, and foreign direct investment. (Ex. In the U.S., since the dollar has been the currency for most transactions globally and because there is a ton of FDI, this hasn't been as much of a problem but it could become one especially as the current account deficit expands with the federal budget deficit (which shows no sign of downsizing soon))

**How political institutions can influence lobbying power for trade protection

-A​ two-level game:​ countries must balance international politics with domestic politics. - In democratic political institutions, constituents have more power to influence trade protections from the perceptions and information that they have surrounding international trade. (Example: In agricultural states in the US, farmers may lobby eased immigration laws to gain cheap labor.) - In proportional systems, narrowly organized groups have less impact than in plurality rulemaking them less likely to support localized/particularist interests - Manufacturing group may lobby for trade protections keeping the demand local. Import competing industries tend to be located entirely in one electoral district, use that voting power to their advantage. May impose costs for others (ie Logrolling; congressmen and president (power from FDR's RTAA) supporting tariffs in own districts or tied industries​) (Example motorbikes in the US and Japan) - Political institutions are the executors of the judiciary and legislative bodies in the government. Some legislators advocate that trade is a zero-sum game and that there are winners and losers. (different values of principal/institution and agent/legislator) - WTO: many environmental and human rights NGOs believe that globalization can harm labor standards and environmental protections.

UNIT 3: GLOBAL FINANCE

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UNIT TWO: TRADE AND GLOBALIZED PRODUCTION

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Explain the overall distributional effects of GVCs

-imposing protections b/c of GVCs would not necessarily protect the industry/workers but would increase the price of goods (increases inequities w/ countries outside loop despite countries inside being upwardly mobile) - divergent distributional impacts of globalization - Middle-income trap countries are unable to keep up with more developed economies in the high-value-added market. Examples include Brazil and South Africa. They suffer from low investment, slow growth in the secondary industry, limited industrial diversification and poor labor market conditions. **while high-skilled labor is benefitting in the US, low skilled is falling to tech advantages oversees, but GVC's are increasing service jobs which means we can invest in those for a future lower-skilled labor sector.

Use OEP methodology to explain possible distributional outcomes/competing interests in international trade (according to Stolper-Samuelson) Example

1. Define the level of analysis (local, national, international): international 2. Identify actors: owners of the scarce and abundant factors of production 3. Identify motives: Owners of scarce factors want protectionism 4. Identify interactions: trade in absolute terms (non-relative) 5. Assess distributional consequences of various policy choices: Trade benefits those who own the factors of production but hurts owners of scarce factors. - Example: China and India both countries are labor abundant. If there is free trade, the relative wages of labor will rise in those countries. In this case, capital owners will not benefit from free trade because their factors of production are less abundant in labor.

List the different elements and methodological steps that define OEP (Open Economy Politics) models.

1. Define the level of analysis (local, national, international) 2. Identify actors 3. Identify motives 4. Identify interactions 5. Assess distributional consequences of various policy choices: **OEP: a framework for understanding a closed system through the lens of neoliberal economics; more of a simplistic framework that stresses the preferences of states and specific actors, a localized perspective versus a globalized perspective.

Use OEP methodology to explain possible distributional outcomes/competing interests in international trade (according to New Trade Theory)

1. Define the level of analysis (local, national, international): International **2. Identify actors: Industries (big v. small)? 3. Identify motives: the motivation behind trading is achieving greater returns to scale and tapping into more consumer markets to sell in more than one country; countries no longer trade solely what they specialize in, they pick a good and focus on large-scale production (ex. Luxury cars, aircraft, products with fixed costs). 4. Identify interactions: Trade 5. Assess the distributional consequences of various policy choices: VVV ? Example: big vs small companies competing for prominence and resources, but no one firm dominating the industry.

Use OEP methodology to explain possible distributional outcomes/competing interests in international trade (according to Specific Factors)

1. Define the level of analysis (local, national, international): International 2. Identify actors: Industries (Individuals in export-oriented industries v. individuals in import-oriented) 3. Identify motives: Export-oriented want trade 4. Identify interactions: Trade 5. Assess distributional consequences of various policy choices: Export-oriented gain from trade whereas those employed in the import oriented industry lose from it - Example: laborers from aerospace, technology. They benefit because they are export-oriented. Whereas laborers from textiles, steel, agriculture they lose out because they are import oriented.

What are the three reasons that can make deflationary cycles pernicious (Great Depression Related)

1.) holding onto money becomes an investment 2.) burden of debt grows over time 3.) wages don't adjust (nobody spends)--> hard for economy to reboot.--> businesses stop investing and start laying off people/ people are no longer hired. you want to be able to manipulate interest rates under autonomous monetary policy. Negative interest rates to ensure that deflation does not happen. Where is the inflation if the interests rate are so low. (Interest rates are a monetary policy tool used by central banks to influence inflation throughout an economy. A central bank attempts to combat deflation by reducing interest rates in order to encourage consumers and businesses to use more loans. This increases demand, which raises prices.)

The current account deficit: Aggregate trade statistics versus value-added statistics: what use? (Example)

Aggregate trade statistics, like GDP, has often been measured by final goods produced. While this has traditionally been useful in getting a general idea of where goods flow from and to, value-added statistics offer a more nuanced view by showing that, with global value chains, the flow of goods and services is much more complex. (Ex. The U.S. deficit shrinks nearly by half when taking into consideration all the value-added statistics. This is because U.S. involvement in production tends to add greater amounts of value and is on the upper part of the value-added "smile" curve.)

Briefly, how have Ricardian Socialists conceptualized the value of labor?

Belief that value and wealth comes from labor, therefore labor is entitled to all it produces; finds profits, rent, etc. to be a distortion of the free market; wishes to transfer means of production from private entities to labor cooperatives

What does the WTO do well and not so well? (3 each)

Does well - Has a popular dispute settlement mechanism that has real consequences - Set rules and ideas - Promote trade negotiations Not so well - Testy relationship with NGO's - Distributional issues/power disparities (disproportionately hurts smaller countries because the dispute settlements affect their markets more heavily): If trade is a very small percentage of your economy than the retaliations affect you a lot more & It's very expensive to go through WTO processes, which disadvantages smaller countries, costly to mobilize resources to engage in dispute - Hard to find consensus between developing and developed countries

Infant industry (and other industrial) policies - when can they be welfare-enhancing?

Example of realism in IPE - Help up and then kick away ladder (ie East Asian Tigers; Airbus/Boeing); can be welfare enhancing after the "ladder is kicked away" and export-oriented policies are removed (not entirely agreed upon) - Criticism: More efficiently aid such industries = achieve same goal w/ out reducing consumer welfare

Briefly, how has Smith conceptualized the value of labor?

Free market economic theory. The division of labor and rational self-interest would lead to economic efficiency. The concept of the invisible hand (competition keeps the quality high, prices low, and allows profit-seeking individuals to make more while meeting the needs of society) explains the unseen forces that control the economy; need institutions that don't favor special interests. The best interests of a society are fulfilled due to individuals mainly operating in self-interest and freedom of production → capitalism is the way (low value for labor as it revolves around the value of products). To be wealthy means you must also invest.

The IMF: main architecture of the organization

Head of the IMF/Managing director > Board of Governors > Executive Board > Major Powers and World Regions (Usually, a European person is the Head of the IMF (a norm, not a rule))

In what ways do these models help us to better understand IPE issues, and in what ways are these models reductionist and, thereby, limited in their usefulness?

Help us better understand: Oatley stresses interdependence in analysis and reaches a level of complexity that is difficult to comprehend. OEP helps to simplify this complexity. OEP works best in closed systems and assumes rationality Problems: as a lens of analysis that is static & constrained, it is difficult to analyze a system that is inherently not closed & dynamic. Interdependence is hard to draw boundaries on. Where does one interaction start & another stop?

**Implications of abandoning B.W. for the Impossible Trinity; how capital flows do/do not "discipline" national economies

In the case of Bretton Woods, the agreement pegged currencies to the U.S. dollar but allowed countries to set their own interest rates. Cross- border capital flows were so small that this system held for a couple of decades - the exception being Mundell's native Canada, where we need special insight into the tensions inherent in the Bretton Woods System. - Discipline: reducing the risks of financial crisis and prevents associated externalities. Allows for domestic credit to be more readily available. - Allows: savings to be more challenged to their most productive uses. Additionally, the encouragement of foreign direct investment, it helps developing economies to benefit from foreign expertise. Enables savers/borrowers to secure the best available market rate.

How did the marginalist revolution, arguably, serve to "depoliticize" capitalism?

It freed economic theory from politics and became a more scientific model of economic theory. Response to the rise of the workers' movement as the socialists' theories outlined the exploitation of labor (a theory that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility)

Explain the rise of Global Value Chains (GVCs)

Lower trade barriers from the WTO trade agreements, and lower transportation costs because of new technology (requires these to fragment) - Neoliberal deregulation provided the normative infrastructure for economic globalization - (Governance) Institutional configurations w/ access to cheap human capital and (location) to resources that can outweigh the pure cost advantages

**Legitimacy of the central banks' implications for the management of national monetary policy

Manage unemployment, exchange rates, and inflation ○ During boom and bust cycles - During boom cycles, the fed will engage in contractionary open market operations (selling of securities to lower prices and raise interest rates; takes money out of circulation, raising prices and incentivize saving because of a higher return, disincentivizing spending and taking money out of the market to limit inflation) - During the recession, the fed would engage in expansionary open-market operations (Treasury bills/ member bank securities. ​When the Fed wants to lower interest rates, it buys securities, raising prices and putting money into circulation and disincentivizing savings, because of a lower return, so people will spend more, therefore an increase in money supply in the market to limit deflation)

Which group of economic actors would be likely to welcome FDI?

More likely to flow towards the higher returns in the developing world

Summarize the Impossible Trinity

Policymakers can choose two amongst the three. - Free capital flows - Autonomous monetary policy (banks can lower and raise interest rates) - Fixed exchange rate If a country is experiencing a current account (trade) deficit, more goods are flowing into the country than out of the country. Result: the domestic currency experiences outflows. Such typically translates into a lower value of the domestic currency. If the country is following a fixed exchange rate regime, and capital is free to flow, this outcome must be addressed by raising interest rates (r) to increase demand for the domestic currency (capital inflows). If interest rates need to be used to prop up the exchange rate, then it can no longer be used to address the macro-economic health of the domestic economy (say that the economy is experiencing a slowdown, and the central bank would like to lower interest rates to stimulate the economy - not possible in this scenario).

With regard to the latter, what may be some of the non-endowment-related elements that could drive investment directions?

Political rules

How might Brexit be used as an example to discredit functionalism?

Reassertion of state sovereignty, states motivated by self-interest (Realism). EU did not manage to get loyalty from the British people.

Describe critical theories, how this frame conceptualizes power and how it informs our views of IPE.

Rely on Marx and his definition of power - - Questions how the system distributes power and exploits the lower classes - unequal power - Power is in economic terms - accumulation and control of capital determines power - Informs our understanding of IPE in that capitalism works when the system is prioritized over the rights of individual autonomy (but Marx would probably say that actors would never prioritize the system over their individual goals)

How might today's production model (no longer "made here, sold there") influence the analysis, if at all?

The no longer "made here, sold there" model signifies that industries and the companies within them move more fluidly throughout the world. It's less about the relationship between countries and their imports and exports. Instead, companies move across borders and they can outsource their manufacturing labor to a developing country and pay cheaper wages, then sell their products globally.

What is the role of the DSM?

settle dispute between 2 members → "teeth" of the WTO: incentive for the countries to respect the rules, can advantage bigger countries ○ Three-step process: (1) one member requests consultations over an alleged violation (2) If consultations fail, aggrieved member can request a 3-5-member review panel of trade experts (3) Once panel report is submitted, case may go to the Appellate Body before adoption by reverse consensus (Reverse consensus - every member country has to reject the decision) - Poorer countries may not want to "ruffle the feathers" of the bigger, larger countries and it is too costly to engage in these disputes

UNIT 1: THEORETICAL APPROACHES TO IPE

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Central bank independence/legitimacy

legitimate authority - it is separate from government, but still has to work together. ○ Two levers of the economy: fiscal (federal government) and monetary (central bank), economies work best when both levers are balanced. (legitimacy from independently maintaining this balance) ○ Example of Trump and Jerome Powell, the Fed Res lowering interest rates "too slow." ○ Maintaining close relationship between Bank and market actors (countries).

Benefits (6)/costs (2) of the dollar as reserve currency (where they fall)

○ Benefits: - The dollar has more liquidity (U.S. firms get easier access to capital) - reduces transaction costs - not exposed to the same level of exchange rate risk - Issuing countries are also able to borrow in their home currencies and are less worried about propping up their currencies to avoid default - Seigniorage (profit made by issuing currency; difference b/t face value and production costs, very small benefit) - Symbolic power/ economic power in issuing sanctions; regulatory cooperation (Euro failed w/ out state and mechanisms to deal w/ Eurozone crisis/deciding who has to pay for costs and Renimibi non-convertible and w/ too much state) ○ Costs: - U.S. trade deficit (increases the demand for dollars & creates asset bubbles and ballooning government debt) - foreign goods are less expensive to U.S. firms and households (Domestic goods more expensive); Imports increase ○ benefits accrue primarily to firms and financial institutions while the costs fall primarily on average workers

The IMF: implications of the weighted voting rights of member countries

○ Each country has a basic number of votes, but some countries are given additional rights for "Special Drawing Rights" (The US has 16% of the voting power of the IMF, so they are given veto power; China has also been granted more power) ○ Increases inequality because the biggest countries with the most powerful economies have the most power. ○ Rules are decided by the most powerful economies ○ Most powerful right now: Germany, China (granted more power), US , Japan, UK ○ Legitimacy : Self-financing, Power is accommodated, Source of expertise

How central bank authorities manipulate money supply

○ Interest rates, the reserve ratio (the ratio they're supposed to keep), and quantitative easing (for expansion w/ low inflation as happens during repressions: a monetary policy whereby a central bank acts as a lender of last resort and buys predetermined amounts of government bonds or other financial assets in order to inject liquidity directly into the economy; will raise prices of goods to maintain strength of dollar) - lowering reserve requirements which allow banks to spend more money; the opposite is raising reserve requirements to limit the amount of money in circulation. - alter short-term interest rates by raising or lowering discount rates that banks pay on short-term loans.

How political institutions can influence perceptions and information asymmetries

○ People might lack knowledge about the effects of different policies on economic outcomes or; ○ They may not have full knowledge about other people and their preferences.

The politics of European Monetary Union (6) & the Impossible trinity

○ Policies aimed at converging the economies of member states of the EU : 3 stages of economic integration: 1. Free mvmt of capital between member states 2. Coordination of monetary policies 3. Introduction of the euro ○ Common monetary policy → European Central Bank ○ Each stage of the EMU consists of deeper economic integration ○ 19 eurozone states + non-euro EU states (only at the second stage of economic integration) ○ Before the EMU, it looked like a technical project aimed at solving coordination problems. ○ Political problems: distributional issues Impossible Trinity and the EU : ○ The EU chose fixed exchange rates and free flow of capital (Left out autonomous monetary policy; ideational consensus) **?○ Vis-à-vis other countries: autonomous monetary policy and fixed exchange rates

**How the IMF's mandate has shifted over time and why

○ Very limited: address short-term balance of payments problems ○ Replace exchange rate regime so that countries are not competitively devaluing ○ After 1973, IMF's balance-of-payments financing facilities provided resources needed to address emergency financial needs and could then place pressure on debtor nations, through conditionality agreements ○ Address structural balance of payments deficits especially in developing countries. Intrusive role ○ Now: new array of private capital sources (re: China), no longer a lender of last resort, now intentionally impacts issues of poverty, gender, etc. ○ Emerging economies have responded to risks by building up foreign-exchange reserves = in practice, a very expensive insurance policy; the IMF was intended to counter this temptation ○ IMF = address problems indirectly and collectively, but still needs greater commitments on a multilateral basis

2008 financial crisis: main implicated causes

● Enduring imbalances in the current accounts of leading countries is the main symptom of systemic problem ● US was importing too much and saving too little, China, Japan, Germany, developing countries which allowed the deficit to grow ● Loose monetary (banks) policies and lax regulations, dysfunctional credit rating systems, excessively high leverage in key and uninsured intermediaries, unequal executive compensation, manic speculation, over-reliance of the housing market in the US ● Risk mis-management by banks contributed to crash, international orgs were unequipped to deal with it ● Liquidity had dried up and IMF couldn't handle the need for liquidity so the fed was trying to exchange currencies at a fixed rate so they could honor their debts ● Assets were not worth the value that investors thought they were worth. Value of their asset was lower than expected and that created crisis

2008 financial crisis: long-term distributional consequences of the crisis (Drezner & McNamara)

● G7→G20 ● We have no international institutions to enforce things so that it happens again because we don't have consensus (bailing out banks backed by IMF creates moral hazard and recklessness > capitalist system works by not being afraid to fail) - New paradigm that inflation is not the boogeyman

2008 financial crisis: role of the dollar in helping to fuel crisis

● US dollar liquidity; trading currency, swap facilities by the US fed kept the US dollar liquid ● Defaults led to fed expanding lines available, US increase inflation to deal with (to appreciate the currency in the short term) ● Dollar had been dropping, capital (in exchange for products with low prices because dollar was so weak) was flowing into US from other countries (flooding the US market), interest rates were at a historic low, influencing spending to combat selling?, but the fact that the US dollar was the reserve currency made it stronger during crisis bc it was a "safe haven" ● Dollar was weak, and had been dropping in addition to low interest rates. A lot of capital flowing in from surplus countries like China. Search for risky investments since interest rates were so low.