IPE FINAL EXAM
is eoi neoliberal
NOPE. KEY ROLE OF STATE BUT MARKET FRIENDLY INTERVENTIPN
Global production networks
(GVCs) Developing countries very much involved (Mexico, China)
Liberal international order
(multilateral and rules-based)
does growth create inequalities? does in equality matter?
- china --> inequalities highest of the world. bad? reducing poverty.... rich becoming richer ok if poor are also getting richer (even if less rapid)
1970s; collapse of BWS and its influence on financial globalization
- collapse of BWS speculative flows of in euromarkets --> difficult to maintain fixed XR nixon and international money speculators post bws: increase XR volatility
international interactions in OEP
- domestic political process sets the nartional policy but final outcomes also reflect wha tother states do/want interdependent decision making - interactions within the global political economy shaped by - the nature of the strategic environment - key international institutions
impact of MNCS
- massive global investment flows - key shaper of globalization and production - driver of trade globalization - driver of trade liberalization - globalization of technology and knowledge - restructuring of global economic relationships - restructuring of global economic relationships
impact of the 1970s oil shocks
- more borrowing (petrodollar recycling) - lower export earnings (decrease demand in rich countries) - more expensive repayments (inflation in West --> increase in interest rates = increase in loan repayments)`
many forms of financial crisis
- sharp decrease in stock prices, bursting econoic bubbles market crashes - failure of large financial institutions banking crises - disruption in forex markets currency crises XR crises - sharp increase in public debt relative revenues external sovereign deebt crisis
post war strategies of development
- socialist system (central planning, collectivization) --> cut off from global economy (autarky) resource cartel opec ISI -LA and most post colonial states EOI east asia
"Bretton Woods II"
- surplus countries: large savinggs rate, large forex reserves, low-value currencies (V USD), high levels of exports (trade surplus) - deficit countries: high levels of consumption, low savings rate, trade deficits *USD remains global currency but it is kept artficially overvalued by large purchases of dollars by EMs (especially Asia) and Germany/ Japan - contributes to current account defecits in us and surpluses in asia/germany - in turn surplus countries invest their dollars in US assets, making US excessive consumption possible despite running persistent Current account deficits ("exorbitant privilege") - usd seen as the safe haven currency (especially in times of volatility)
decision making of WTO
- voting: 1 country = 1 vote in practice by consensus single undertaking - ministerial conferences - power matters green room meetings: US, EU, Japan
trade creation v trade diversion in regional trade agreements
- when imports from a regional partner replace more expensive domestic products v when imports shift from a more efficient extra-regional supplier to a less efficient regional one (which is now cheaper due to the removal of intraregional trade barriers)
National treatment
-"A Member [must] treat foreign products, services, and service suppliers not less favorably than it treats 'like' domestic products, services, and service providers"
MFN MOST FAVORED NATION
-"A Member that grants certain favorable treatment to another country [must] grant that same favorable treatment to all other Members"
origins of the european debt crisis
--> eurozome creatd
forum shopping: alternative to WTO
-.e. states pick and choose the venue they believe will give them most favorable outcome
PTA strengths
-Allows for deeper integration among like-minded states •e.g. investment, environmental standards -Size of mega-regionals à suitable substitute to multilateralism •And can still exclude sensitive sectors and those "pesky" LDCs
•Basel Committee on Banking Supervision (1974)
-BCBS housed within BIS secretariat, but distinct entity -Members (since 2009): G20 economies + HK/Sing. -Basel Accords: voluntary banking standards •e.g. Basel III: minimum capital requirements, stress testing, market liquidity risk, etc.
Why is/was the World Bank (and the IMF) controversial?
-Conditionality -Structural adjustment •Painful reforms: austerity measures hurt the poor -Lending to unsavory regimes •Renewed emphasis on corruption and "good governance" -Limited results -Big projects with little regard to environment or social consequences -Increased debt
social and political impact of migration
-Contrary to trade and capital flows, immigration hasn't been liberalized in the last 50 years - recent imposition of tighter immigration controls e.g. for the first time since records began, zero refugee resettled in US last month growth of anti-immigration politics
•UNDP: UN Development Program (1965)
-Coordinating forum for all UN development activities •e.g. UNICEF, WFP, WHO, FAO, UNFPA, etc. -Idea of "human development"
•1960s: UN became dominated by issue of development
-Decolonization à 100 new, poor members -UNGA: Third World solidarity •Group of 77 (G77) coalition (1964)
•Bank for International Settlement (1930)
-Formal IO (HQ: Basel) -Members: 60 central banks •"The central banks' central bank" •Intermediate between them à reserves -Key venue for coordinating monetary policy
Financial globalization
New norm: freedom of capital Made deficit-financing, access to loans easier Latin American debt crisis (1980s) 1997 Asian Financial crisis
•Extensive coordination, e.g.
-Large-scale fiscal stimulus programs (incl. US, China) •Renewed Keynesianism •But not Europe: austerity to deal with debt crisis (hurt) -Avoid beggar-thy-neighbor policies •e.g. currency wars, protectionism -Implement Basel Accord III (2010) •Tougher financial standards set by Basel Committee -↑ transparency, ↓ high-risk activities, ↑ minimum capital requirements, lower leverage ratio, regular "stress test" to assess solvency, etc.
•UNCTAD: UN Conference on Trade and Development (1964)
-Pushed as alternative to GATT/IMF/World Bank
•World Bank has changed a lot (and faster than IMF)
-Rejection of rigid Washington consensus -More focused on poverty reduction, health (HIV/AIDS), role of women, the environment, democracy and human rights, microfinance More open to policy flexibility (against one-size-fits-all
why adopt ISI
-dependency theory: core v periphery belief i: need to industrialize because thier exports suffer fro, declining terms of trade overtime the value of what they export will decrease relative to the value of what they import (manufactured goods) belief ii: industrialization would not occur "naturally" through market forces stuck forever imn producing /exporting raw materials getting poorer need to create domestic champions able to comepete --> key role of the state
the financialization of the economy
-shifts economic activity from production to speculation -distorts investment, employment, and compensation
imf new roles
1) lender of last resort emergency lending conditionality: loans in exchange for policy reforms (structural adjustment programs) 2) surveillance of global economy + monitor members' economic and financial policies
product life-cycles
1. Introduction: new product, single producer, home market 2. Growth: increase sales, economies of scale, exports to foreign markets, competitors enter 3. Maturity: high sales, intense competition smaller profit margins 4. Decline: less profit, production shifts to developing countries (--> FDI)
international monetary regimes
1. classical gold standard 2. interwar 3. BWS 4. floating XR since 1970s
main components of BoP
1. current account (payments) non-financial transactions, mostly trade balance 2. capital account (financial flows) fdi, portfolio investments (eg stocks), foreign reserves, commercial bank loans
two key components of BoP dimension
1. current acount (balance of tradE) 2. capital account (net chance in foreign asset ownership, including FDI, portfolio investment, foreign reserves)
3 stages --> industrial upgrading: eoi
1. labor intensive light industry - textiles, toys 2. capital-intensive heavy industry - steel, ship building 3. technology-intensive products - semi conductors, aerospace
essential causes of the GFC
1. root cause: credit bubble result of global imbalances global savings glut: $ 70 trillion in global savings to be invested "somewhere" 2. housing bubble 3. non traditional (subprime) mortgages 4. failure of credit ratings and securitization - transformed bad mortgages into toxic assets 5. financial institutions concentrated correlated risks 6. leverage and liquidiiyt risks financial firms did not hold enough capital to cover risks 7. risk of contagion too big to fail firms not allowed to fail because of interdependence 8. common shock: large housing losses 9. financial shock and panic 2008 bank failures --> widespread loss of confidence in financial system 10. financial crisis causes economic crisis damage to the real economy panic ended in 2009, but great recession for yrs
Factors that facilitate cooperation
1. small number of actors 2. repeatted interactions (iteration) 3. linkages 4. reciprocity 5. information - bad incomplete = faulty in deicison making 6. collective action problems *institutions can promote many of the above
the classical gold standard
1. stable XR all currencies fixed to the value of gold 2. free flows of capital 3. no policy autonomy no formal agreement -unilateral agreement era of globalization
BWS characterized by
1. stable XR all currencies fixed to value of USD 2. domestic monetary policy autonomy to manage the economy 3. capital controls on short-term speculative flows era of unprecedented prosperity and financial stability
remittances and impact on poverty
10% increase in migration --> 2.1% decline in poverty 10% increase in remittances --> 3.5% decline in poverty
Multilateral Debt Relief initiative
100% debt cancellation for 37 countries
Corn Laws
1815 tariff on imported grain to protect domestic producers.
RISE OF the MNC IN the us
1920s rise of modern MNC in the US
the us was a protectionist nation until
1934
evolution of IMF conditionality
1960/70s: budget cuts, currency devaluation 1980s debt crisis --> structural adjustment programs (SAPs) macro-conditionality liberalization of trade & FDI 1990s-2000s --> SAPs with "micro-conditionality" intrusive, detailed, rigid conditions financial crisesL: thailand, korea, russia, brazil, argentina backlash --> painful, ridid, intrusive, limited results need for policy space!!!!!!!!! POST GFC reforms we dont do that anymore: SAP less rigid conditionality policy space and ownership greater acceptance for regulation, capital controls emphasis on "good governance"
WHEN DID THE IBRD / WORLD BANK BECOME ACTIVE
1960S
when did globalization of finance take off? why?
1980s development in markets and technology but also political shifts --> derregulation: end of capital controls
imf triumphant return
1980s latin american debt criss
mitterand's u-turn
1981: freench socoialist tried imposing strict capital controls --> failed and punished by markets 1983: reversed course
where do migrants go?
2/3 go to rich countries but only 1/2 go to OECD countries
1970s oil shocks and its impact on financial globalization
OPEC cartel asked to be repaid in US dollars petrodollar recycling: huge petrodollar reserves deposited in Western commercial banks --> loaned to developing countries - helped maintain USD as world's currency transformed the system into a truly global financial network almost overnight rich countries --> OPEC --> western banks --> developing countries
Regional Trade Agreements
= bilateral and plurilateral main exception to MFN clause go beyond trade / tariffs / NTBs
Gini Coefficient
A measure of income inequality within a population, ranging from zero for complete equality, to one if one person has all the income.
European Currency Unit (ECU)
A unit of account formerly used by Western European nations as their official reserve asset based on weighed basket of EC currencies in practice pegged to the DM --> low inflation policies
pre wwi globalization dominance
PAX BRITANNICA UK BB
Trade Liberalization is an X choice
POLITICLA
what does ir theory say about international politics? realism
POWER hegemonic state can coerce/show leadership
growing alternatives to WTO's DSB
PTAs have their own dispute settlement
Baker Plan
Plan developed in 1985 by US Treasury Secretary James Baker to solve the international debt crisis; stressed debt rescheduling, tight controls over domestic monetary and fiscal policies and continued loans to debtor nations structural adjustment (deep economic reforms); trade and FDI liberalization, privatization, deregulation
1970s-1980s: stagnation
Advanced economies Oil crises and stagflation (1970s) Rise of japan (2nd largest in the world economy 1978-2010) Neoliberalism (reagan, Thatcher)
North American Free Trade Agreement (NAFTA)
Agreement that created a free-trade area among the United States, Canada, and Mexico. non tariff on most products including agriculture products
PIIGS
Portugal, Italy, Ireland, Greece, Spain BORROWed heavily debt fiannced economic boom asset bubbles housing like US
Vertical Integration
Practice where a single entity controls the entire process of a product, from the raw materials to distribution controlling production of goods at different stages of production process with some affiliates providing inputs to other affiliates typoically export oriented FDI
domestic institutional setting and institutions determine how
Preferences translate into policy
IIAS
BITs and TIPs
are international interactions more bargainlike or cooperativE?
BOTH positive sum and distributional
accounting idetity;BoP
BoP should balance by definition
lobbying has a X problem
COLLECTIVE ACTION
common market
CU + free movement of labor / capital +some policy harmonization single market
RCEP
Regional Comprehensive Economic Partnership
capital controls
Restrictions on cross-border capital flows that segment different stock markets; limit amount of a firm's stock a foreigner can own; and limit a citizen's ability to invest outside the country. attempt to limit speculative capital (hot money) prevent currency crisis and runs (XR stability)
Neoliberalism
Resurgence of Orthodox liberalism Hayek Govt intervention = inefficient, threat to individual freedoms Friedman Economic freedom = political freedom
Protectionism in US
Smoot-hawley tariff act (1930): highest in US history
Where are the poor? Regional variations Sub-Saharan Africa
Sub-Saharan Africa: only region without reduction in absolute numbers of people in extreme poverty •But reduction in % of Africans living in poverty •FYI: Africa's population has doubled over this time frame
EU AND OECD most liberal rules
EC/eu: complete liberalization not only among members OECD of liberalization of capital movement including short term capital
apart from Greece European sovereign debt crisis main source of crisis is not fiscal irresponsibility
EMU and the euro --> inability to devalue currency to externally adjut devalue = increase in competitive increase in economic growth instead GS like "internal deevaluation" via deflation painful austerity measures, wagge cuts, high unemployment bad economic conditions = govt incomes falling (while debt is rising)
interwar
END OF gold standard
EU Institutions
European Commission, Council of the EU, European Parliament, European Court of Justice, European Central Bank
the GFC --> GREAT RECESSION -->
European sovereign debt crisis
international trade organization ITO
FAILED historical antecedent havana charrter
central driver of global economic integration
FDI
the gold standard was a _______ XR
FIXED
stolper-samuelson theorem derived from HO BUT
FREE TRADE--> helps all consumers - but not all producers: patterns of trade affect relative income of factor owners - owners of abundant factors benefit from trade owners of scarce resources hurt by trade class- based distributional consequences
customs union
FTA + common external tariff CU + currency union
intergovernmental coordinating forums not equal to formal IOs
G7 G20
key measures of poverty
GDP per capita PPP extreme poverty lines global vs national lines multidimensional poverty index MPI
measure development by income
GDP/capita (PPP)
who had dominance in the convergence criteria in creating the EURO
GERMAN MONETARY DOMINANCE
savings glut: asian response to AFC
GFC rooted in East Asian governments' response to AFC - creation of the savinggs glut stopped running current acount defecits fear of repeat mistreatment by the iMF key tool: accumulation of large forex reserves precautionary --> self insurance in case of currency crises
new trade patterns increasingly intra firm
GLOBAL VALUEE CHAINS MOSTLY FDI investor-state dispute settlment
monetary system of Great depression
GS abandonment (UK: 1931; US: 1933) 1931-6 currency wars: competitive devaluations Turnaround: 1936 Tripartite Agreement (UK, US, France) to stabilize exchange rates
Interwar Collapse monetary system
GS no longer politically acceptable no viable international monetary system stock market crisis
first era of financial globalization
GS unwritten rules required free capital flows currency convertability
GATT:
General Agreement on Tariffs and Trade 1947: intended as provisional Plans for permanent ITO failed (1948) Superseded by WTO (1995) Multilateral system to gradually liberalize trade I.e. reduce tariffs and other trade barriers
key measure of inequality
Gini coefficient
WOLRD BANK 2 INSTITUTIOONS
IBRD AND IDA NEW FOCUS OF DEVELOPMENT IN POOR COUNTRIES
world bank originally established as
IBRD in BWS
multilateral development banks ODA
IFIs, not private commercial banks \WORLD BNANK REGIONAL DEVELOPMENT bank
international financial institutions formal ios
IMF bank for international settlemtns
how did they manage the european sovereign debt crisis
IMF loans, temporrary EU funding programs ] eruopean stability mechanims
troika
IMF, European Commission, ECB
Bretton-Woods institutions
IMF, World Bank, GATT/WTO
Investor-State Dispute Settlement
ISDS mechanisms giving private investors access to settlement procedures against foreign governments states v private parties
European retaliation to smoot-hawley tariff
Imperial Preference was a system of reciprocally-enacted tariffs or free trade agreements between the dominions and colonies of the British Empire.
ISI
Import substitution industrialization largely opted out of the global trade system autarky top-down industrialization: state-led big push key: decrease imports, increase domestic production tools: import barriers, subsidies, sate ownership, and state planning
why are some countries rich and others poor: domestic factors and institutions
Infrastructure, corruption, legal protection (property rights, constraints on elites), education, etc regime type? democracy: more provision of public goods dictatorship: better at mobilizing resources democracies tend to be wealthier on average but poor democracies tend to have relatively poorly in recent yrs
New (US) production model
Innovations Rise of multinational corporations (MNCs) Foreign direct investment (FDI) Mass production Assembly lines, mechanization, use of electricity Vertical integration Mass markets New industries Plastics, synthetic fibers, home appliances, cars, planes, etc
Open economy politics (OEP)
Integrates old IPE and CPE Focuses on interests, institutions, interactions at domestic and international levels Combines economics and political science Assumptions of neoclassical economics and international trade theory Like Any theoretical paradigm, OEP privileges certain assumptions, methods, and epistemologies constraining its understanding of OPE "Lenses": capture some aspects of reality, neglect others (eg role of ideas)
ibrd
International Bank for Reconstruction and Development
IDA
International Development Association
great depression global impact finance
LDC defaulted international capital flows STOPPED
Political responses: to global great depression
LDCs: national self-sufficiency (autarky) Trade protection, capital controls, inconvertible currency W. Europe and US: social democracy Greater state intervention, social insurgence programs Disintegration into competing regional economic blocs Collapse of democracy (facism)' nationalism; and imperialism → WWII
is the eurozone an OCA?
LESS clear than the US.... - lots of trade in goods and services - lots of borrowing and lending BUT ... (LACKS) this criteria //////// - not a lot of migration - no fiscal transfers also, more asymmetric shocks: individual members hit by different shocks (PIGS) euro was primarily a POLITICAL not an economic project - European unity
TRADE HAS X GAINS AND X CONSEQUENCES
MUTUAL DISTRIBUTIONAL
bilateral donors of ODA
Mostly rich countries OECD's development assistance committee DAC main venue to disucss bilateral for donor countries 1969: concept of ODA
MPI
Multidimensional Poverty Index
European Central Bank (ECB)
The central authority, located in Frankfurt, Germany, which oversees monetary policy in the common currency area ONLY AIM: price stability --> fight inflation not unemployment german influence
Obsolescing bargain
The deal struck by MNEs and host governments, which change their requirements after the initial FDI entry.
New Trade Theory
The observed pattern of trade in the world economy may be due in part to the ability of firms in a given market to capture first-mover advantages.
TRIMS
Trade Related Investment Measures GATT addendum goods
TTP
Trans-Pacific Partnership
TTIP
Transatlantic Trade and Investment Partnership
1992 Maastricht Treaty
Treaty that united European states. led to the creation of the euro, and created what was commonly referred to as the pillar structure of the European Union. The treaty established the three pillars of the European Union — the European Community (EC) pillar, the Common Foreign and Security Policy (CFSP) pillar, and the Justice and Home Affairs (JHA) pillar. The first pillar was where the EU's supra-national institutions — the Commission, the European Parliament and the European Court of Justice — had the most power and influence. The other two pillars were essentially more intergovernmental in nature with decisions being made by committees composed of member states' politicians and officials. Important in grand scheme: makes European powers more coherent, easier to predict.
who was the first industrialized nation?
UK
BWS conference leadership
US
who trades more with "itself?" US or EU
US
where did the GFC start?
US AND EUROPE NOT LDCS
credit crunch
US and world economy dependent on access to liquidity and credit --> financial flows stopped (the great freeze)
2/3 of migrants live in 2o countries ...
US largest single host country
g5/7
US, Japan, Germany, France, UK [Italy, Canada (+EU)]
what is the link between state power and economic relations in mercantilism
VERY CLOSE wealth is power and power is wealth
Foreign Exchange Market
a market in which currencies of different countries are bought and sold to make it rise / fall so it remains within target rate
Ricardo-Viner Model
a model of trade relations that emphasizes the sector in which factors of production are employed rather than the nature of the factor itself - in short-run, factors may be immoobile:often tied to one sector /industry mobile vs immoibile sector-specific factors - short run version of hO - HO assumes perfect mobility -depends on industrial sectors (not classes)
OCA theory
a single currency is most appropriate when 1. highly integrated economically (trade, capital, labor mobility) 2. tends to experience symmetric economic shocks 3. can use fiscal transfers to deal with asymmetric shocks
Exchange Rate Mechanism (ERM)
a system that was set up by a group of European countries in 1979 with the objective of keeping member countries' currencies relatively stable against each other - after Euroadoption --> ERM II
World Trade Organization (WTO)
a trade organization that replaced the old General Agreement on Tariffs and Trade (GATT) - formal trade organization new substantive rules - gatt 1994: goods GATs General trade agreement on trade in services TRIPS: trade-related intellectual property rights strrengthened insititions - trade policy review mechanism - dispute settlement body
trade: in mercantilism
a way to acquire wealth and thus power exports= good imports = bad
trade neomercantlism assumption
a way to acquire wealth from abroad postive sum trade baalnce = good
why do borrowers want to borrow abroad?
access to cheaper, more plentiful capital from rich countries investmentds --> fuel economic growth
Balance of payments: BOP
accounting device of a country's international transactions - records all payments (including trade) and financial flows in and out of a country
balance of payments
accounting device recording all economic traNSACtions between the residents of one country and those of togethr countries during a fixed period of time
international interactions cooperation
actors adopting policies that make each of them better off than they were before - positive-sum
rational choice theory assumption and deifnition
actors are rational they are purposive: they choose actions that maximize their interests and strategic: they anticipate the actions of others
influential figure associated with liberalism
adam smitth
1990: capital liberalization in all
advanced economies
high income countries are also called
advanced economies, developed countries, industrialized countries global north
key problem in doha failure?
agriculture subsidies
unified gvt budget
allows for fiscal transfers (stabilization) --> useful to deal with asymmetric shocks
why not a single global currency?
alludes to common monetary policy which would be very difficult politically different conditions domestically --> countries desire flexibility to address them
ricardo-viner model --> sector-speecific factors
alternative to HO
Optimum currency area (OCA)
an are where benefits of a single currency outweigh its costs efficiency gains > stability losses
the trilemma or unholy trinity
an economy cannot simultaneously have these three potentially desirable policies 1. fixed XR --> credibility, stability 2. domestic monetary policy autonomy --> flexibility to respond to domestic needs 3. free financial flows --> access to capital, investment - only two out of three: regime adopted reflect priorities *interdependence of decisions related to monetary and financial relations monetary system = basis financial system
marxism is dead after 1990s?
anitglobalization movement, neoliberalism, occupy wall street
imbalances between countries
appear btwn countries in their current accounts (trade deficits v trade surplus)
Calvo Doctrine
argues that no government has the right to intervene in another country to enforce its citizens' private claims
the wto is working?
as its intended
global financial crisis was rooted in the `
asian financial crisis
east asian miracle
asian tigers: s korea, taiwan, HK, singapore + newly industrialized countries: thailand, malaysia, indonesia, philippines
long depression of 1873-96 triggered a reversion
back to protectionism
financial crises are associated with
bank runs and or currency runs
global financial meltdown
barely averted panic triggered by an investment bank banking crisis: most severe since the great depression failure of several large financial institutions; bailout of others
protectionism
barriers placed on trade
international standard-setting bodies not equal to formal IOs
basel committee on banking supervision fianncial stability board
countries cant produce everything they want/need even if they did -->
benefits from specializaiton
BIT
bilateral investment treaties
PTAs
bilateral, regional and, especially, mega-regional agreements
types of international trade agreements
bilateral, regional, megaregional , multilateral
being poor depends on
both your income and your country's
explaining development: why did bostwana do better than zambia?
both: british colonies, similar geographic location, resource dependent but botswana had: minimal impact of colonialism relatively inclusive precolonial instiutions
MDG (Millennium Development Goals)
broad view of development - poverty, but also maternal health, diseases, gender equality environmental sustainability MDG #8 calls for - more generous aid debt relief
great divergence: industrial revolution: btwn who?
btwn industrial and non industrial world
growth in euro markets
bws: currency convertibility --> USD accumulation in foreign banks foreign banks --> lent USD for profit interest rate on usd: capped in us but not in europe so USD moves to europe -- no cap means more return on investment --> BIRTH OF THE EUROMARKET! key role of the city of london - deregulate to attract activity = tacit acceptanc of liberalization by the UK, US
failed attempt at multilateral rules for international governance of FDI
by OECD countries organization for economic development and cooperation failure: widespread opposition by civil society (antiglonbalization movement)
member driveen: wto gridlock
cant liberalize trade unless its members want to farm subsidies here to stay lack of progress on singampore issue
any current account (ie trade) deficit is offset by a
capital account surplus - equally sizxed inflow of investments - foreign investment in the US
IHDI - Inequality-adjusted HDI
captures losses in human development due to inequality in health, education, and income
new regionalism
change in purpose deep integration: beyond at the border barriers --> behind the border regulations
upper middle income countries
china, mexico, brazil
push factors
circumstances in the country of origin leading people to emigrate
Keynesian economics critique to
classical liberalism
1975: divergence
clearly 2 groups: developing anfd developed countries
why are some countries rich and others poor: geography
climate (latitude)--> tropical vs temperate regions diseases climate, rainfall, soils --> agricultural productivity natural resources (resource curse) location: landlocked, distance from major markets neighbors
economic union
cm + common economic policies / institutions
historical antecedents to GATT
cobden-chevalier treaty US reciprocal trade agreements act
representative currency
commodity-backed money ie gold silver
common economic policies of the EU
common commercial policy competition policy common agricultural policy
STATES DONT trade or produce
companies do
currency wars
competitive currency
currency wars characterized by
competitive devaluations
neomercantislism assume conflict of interest
compettive economic nationalism
WTO and Agriculture
completely excluded until the Uruguay Round separate rules for agriculture: subsidies, quotas, tariffs key problem: farm subsidies
pull factors
conditions in the destination country making emigration attractive
greenfield investment
construction of a new plant
1997 Stability and Growth Pact
convergence criteria will remain in place once euro is adopted all members have violated the SGP at some point including Germany
explaining immigration policies: social views
cosmopolitans open admission, generous rights for immigrants free market expansionist open admission, restricted rights exclusionists / nativists restrictive admission, restricted rights nationalist egalitarians restrictive admission, but generous rights economic and non-economic factors play a role
organization of interests: lobbying is
costly
in the absence of trade
countries have a finite amount of resources supply: limited by the PPF consumption/demand: also limited by the PPF
irony of the euro
creation of the euro itself made it asymmetric shocks more likely
2008 gfc and european sovereign debt crisis
credit crunch, harder to service debt private debt became sovereign debt when govt bailed out banks 2009 start of sovereign debt crisis
fundamental asymmetry of external debt crisis
creditors dont have to adjust
leverage on international bargaining over repayments leverage creditors//debtors
creditors: can threaten to cut off future financing debtors: can threaten to default
international bargaining over repayments creditors//debtors
creditors: want to be repaid debtors: want relief
often financial crises lead to
crisis in real economy (recession) and sometimes political crises
global financial / capital markets
cross-border buying/selling of currencies and of financial products representing credit, debt, risk bank and money flows including foreign exchange market debt-related flows lending/borrowing investments portfolio equity flows foreign direct investment managerial control by MNC
WTO dispute settlement body
crowned jewel of the trading system 1. panel of experts 2. appellate body enforcement: if offending party doesn't comply DSB can authorize retaliatory measures - in crisis
asian financial crisis impact
currency and banking crises due to sudden capital flight - deep recessions in real economy IMF bailouts - loans to thailand, indonesia, south korea INTL LOLR - unpopular structural adjustment programs painful neoliberal reforms (SAPs)
global imbalances - unstable
currency misalignment notice size before 2009 but who adjusts? adjustment for the us would require a hell of a lot of real depreciation of USD increase exports decrease value of the US external debt
European Sovereign Debt crisis
debt crises until then only LDC cumulative economic impact on eurozone countries worse than GREAT DEPRESSION crises in portugal, spain, ireland, greece, cyprus
brady plan
debt reduction for most severely indebted countries creation of brady bonds to reduce debt owed to commercial banks faciliated by new IMF/WB loans ended the crisis in many [alces but not for heavily indebted poor countries
managing the latin American debt crisis solutions
debt rescheduling agreements emergency lending by IMF if its liquidity not solvency problem dent reduction or cancellation agreements
international conflict: who rebalances? how? debtors/ creditors
debtors: cut spending, austerity (decrease consumption, increase exports) creditors:increase consumption, increase imports
world trade impact of great depression
declined by 2/3
Less developed countries
decoloinziation, rise of the third world, ISI
definition of financial crisis
decrease in financial asset prices
who grows faster? developingg or mature economies
developing should starting from lower base convergence
why do we study old ideas that are clearly wrong?
development of economic thought influence on evolution on the global economy understand contemporary debates alternatives
inequality
distribution of income
SPECIALIZation in liberalism
division of labor based on absolute advantage
converegnce since ... 2015
does it still make sense to keep a sharp distinction btwn developing and developed countries
doha round of wto
doha development agenda - agriculture issues - singapore issues - non agriculture market access
domestic v international markets trade
domestic : free flows intl: barriers
domestic institutions: who wants what? economic analysis who gets what --->political key mediating role of
domestic political insititions - dettermine how inetrests will be aggregaed int policy
why do we have protectionism despite economic clarity that free trade is good?
domestic political insitutions
ISI
domestically capitialism, but closed to world markets
marxist assumption about trade
dominated by dominant, exploitive classes, states, MNCs
who adopted the EOI model
east asia
regions with fastest economic growth in the last 10 yrs?
east asia, south asia, subsaharan africa
snake in the tunnel currency bands
ec currencies would fluctuate plus or minus 2.25 with each other
Neomercantilism AKA
economic nationalism
political and fiscal union
eg USA
Concerted Lending
emergency lending by IMF + involuntary lending by large commercial banks (at IMF insistence) avoid free riding from commercial banks debt rescheduling in exchange macro economic stabilization (decrease budget deficits)
upper middle and lower middle income countries are also called
emerging markets or developing countries
primary objective of liberalism approach to economies
enhance aggregate social welfare
global financial crisis global spread
europe intimate involved from the start - real estate bubbles fueled by savings glut - toxic assets held by european banks and financial institutions bank failures freezing of globak credit markets (fall 2008) - impacted financial centers worldwide great recession in US/Europe --> severe impact on EM exports (decrease) - no recession byt important growth delcine in EMs - some evidence in foreign reserve holdings helped
where else did industrialization spread?
europe-- France, Belgium beyond ... germany, us, japana
post war boom
european integration
free trade4
ew if any restrictions on the movement of goods and services
contionality of loans
exhcnage of reforms
1920s: russia
exists capitalist system
WTO gridlock because of more complex problems
expansion of agenda harder, more contentious issues to solve diminishing returns
regional variation: sub saharan africa
experience much less poverty reduction than other regions
marxism conflict of interest rooted in capitalist system
exploitation
fdi in developing countries prior to wwi
exploitative raw materials
accumulated loans ------->
external debt
role of international institutiomns
facilitate cooperation by reducing transaction costs
H-O model --> comparative based on
factor endowments - relative abundance of factors of production countries have a comparative advantage in producing goods making intensive use of their cheaper abundant factors
Genoa Conference
failed to re-establish GS currencies fixed to pound +2 forms of reserves (gold and currencies)
minimum standard
fair, equitable treatment, full protection and security
global inequality between states
fallen
trade in liberalism
favors free trade
1980s-90s liberalization shift in MNCs and developing countries
fdi actively courted washington consensus key sources of external capital
% of world living in extreme poverty
fell below 10%
how might RTAs facilitate global trade liberalization?
fewer states: easier to reach deeper integration improve competitiveness of domestic industries strengthen export oriented industries easier to navigate among few regional blocs than several individual states? domino effect - push those outside the RTA to demand equivalent access
classical era of globalization SPREAD OF
finance, investment AND migration
hyman minsky model
financial fragility is a feature of capitalist economy speculative euphoria leads to investment bubbles --> debt soon exceeds what borrowers can pay --> credit crunch
MNC
firms operating in 2+ countries
pros and who wanted the euro
firms want it because it promotes Xr stability: trade, investment people high skilled labor and trade-related jobs countries: more integrated, higher inflation
greek debt crisis
first advanced economy to default on IMF loans first to be downgraded to em status
interwar: deglobalization
first era of globalization ends protectionism and autarky GS abandoned, currency wars end of british hegemony failure of cooperation
Cobden-Chevalier Treaty
first modern trade agreement triggered European bilateral trade agreements MFN clause
BoP adjustment based on XR system
fixed --> internal adjustment process via chages in domestic prices floating --> external adjustment process via XR movement
BWS monetary system
fixed XR USD at center currency stability but adjustable to gold capital controls
fixed or pegged XR
fixed to a value of either 1. another currency or bundle of currencies 2, some other standard (gold or silver)
european monetary systeme
fixed-but-adjustable XR
the politics of external debt crises: debtors
for debtors (borrowers) debt crises typically lead to economic recessions and unpopular austerity measures - decrease consumption imports - decrease govt spending - increase taxes - restricting wages domestic conflict: who will bear the burden of the adjustment?
latin American debt crisis
foreign loans available to LDCs for first time since 1930s --> exploded after 1973 oil shock
g20
forum not a formal IO meeting of state leaders originally finance ministers only has since replaced g7 as main coordinating forum main issues: financial stability, global imbalances
paris club
forum of 22 creditor governments
GATT - GENERAL AGREEMENT ON TARIFFS AND TRADE
founded by mostly rich countries provisional for 47 yrs! became main trade forum by default not intended to be a formal IO
global chain value GVC
fragmentation of the production process of a good across different countries
GVC
fragmented supply chains with internationally dispersed tasks and activities coordinated by a lead firm MNC
compared to trade global investment regime /governance is
fragmented, decentralized lack of IO multilateral rules
EU single market
free movement for goods, services, and PEOPLE four freedoms
financial issues of classical gobalization
frequent financial crises booms and busts of capitalization
pre wwi globalization marked by shift
from mercantilism --> liberalism
absence of a eurozone fiscal union
germany + n europe no obligation or desire to bail out profligate members (moral hazard) but danger of contagion
financial liberalization and globalization created a
global financial cycle in capital flows into emerging markets
today we refer to third world as .........
global south
upper middle --> low income =
global south, developing countries, less developed countries
international key driver
globalization
monetary XR system of classical globalization?
gold standard
key actors in managing the latin America debt crisis
governments of debtor (and creditor countries) private lenders (commercial banks) IFIs: IMF + others
global impact of industrial revolution
great divergence new imperialism
GFC led to the
great recession worst since the 1930s very slow recovery
doha has been
gridlocked for many years but now basically dead
low income
haiti, ethiopia, afghanistn
immigration from developing countries
has increased more rapidly in the past 3o yrs but only 1/4 of all migration is south --> north
role of institutions neoliberalism
help facilitate cooperation and make defection and free riding less likely - regulate repeated interactions - monitoring - issue linkages - dispute settlement
desirable goals of stable xr
helps trade, provides credibility promotes stability at cost of autonomy
parent country
home country of MNC
east asian tigers
hong kong, singapore, south korea, taiwan
who gets impacted by immigration and emigration
host and sending countries
AFFILIATES / subsidiaries
host country of MNC
generally speaking host countries v sending states and MNC governance
host: seek to regulate MNC behavior to maintain control over the national economy sending states: seek to regulate the host country behavior to protect their MNC interests against risk
interests and preferences in oep
how are they matrially impacted by the economy or by economic policies
troika bail outs
hundreds of millions of euros first greece, ireland, portugal, greece, spain, cyprus, greece
trade balance
imports > exports
immigration
in
economic impact of migration
in general: free flows of = efficient gains but involve adjustment for sending country brain drain: loss of work force and human capital for host country: source of labor, especially low skilled (alteranative to trade) - short term impact on . wages and income new labor: winners and losers fiscal effects --> net contribution of immigration to govt revenue? overall positive (in us) demands on welfare state but also new revenues aging population: new contribution to retirement
commodity money
in prison: cigs
why was classical liberalism created
in response to / critique of mercantilism
GATS
include investment provisions on services
measuring development critera
income (GDP/cap) structural transformation human development
global inequality within states
increased
ODA: bilateral donors: emerging countries
increasing amount of south south cooperation - especially china but also brazil, russia, RSA, turkey less emphasis on "conditionality" - aid not linked to human rights, good governance, environment non interference does it matter? africa: evidence that, unlike world bank ODA, china's aid is not associated with strenthening of democratic norms
since 1980s: GVC
increasingly LDC
Solvency problem
indefinite inability to service debt
top sending countries
india, mexico, russia, china, bangladesh
lower middle income
india, nigeria, egypt
liberal assumption who is the main actor?
individuals
east asian newly industrialized countries
indonesia, malaysia, philippines, thailand
dynamic comparative advantage
industrial upgrading over time (helped by industrial policy)
link between and trade and investment
inextricable
globalization collapse: European failure to cooperate
insisting in paying war debts german: war reparations and hyperinflation
Capital mobility leads to
instability, frequent financial crises
what does ir theory say about international politics? neoliberal institutionalism
institutions / trade agreements instituttions can help solve cooperation problmes
colonial legacy: why are some countries rich and others poor:
institutions have a tendency to persist settler colonies - europeans didnt settle in areas with high mortality rates (temperate climates) - inclusive political and economic institutions (to protect European's own political economic interests) protection of property rights constraints on actions of elites some degree of equal opportunity for broad segment of society ---- set the stage for long term growth
examples of poverty
insufficient nutrition, housing, health care, education
who wants protectionism? who wants free trade?
interests determined by income effects pf trade on particular individuals/groups - who gets hurt? who benefits?
when do corporations decide to make rather than buy a products?
internalization v pure market a response to transaction costs and market imperfections locational advantages firm-specific advantage size-related advantage
flexible or floating XR
international currency markets determine value of currency
absolute advantage
international division of labor: focus on what you do best
limits on comparative cant account for
intra-industry trade - absence of compltete intra-firm trade fragmentation of the production: rise of global value chains
east asian development state: key role of industrial policy
investments in targeted industries protection of infant industries selective import liberalization incentives for exports acquisition of skills and technology fdi welcome
BITs and TIPs involve typically
investor- state dispute settlement
the lost development decade
investors stopped lending, hyperinflation, and recession in latin america incomes lower than at start of crisis
inflows
inward FDI
model for EOI
japana
trade is often modeled
joint gains from unilateral incentives to defect
legacy of the Uruguay round
key UR advances - wto and well functioning DSB - historically low level of tariffs - LDC participation
actors
key individuals/groups entiities are affected by global economic conditions socioeconomic actors classes sectors industry specific consumers individuals
domestic institutions and electoral and representative institutions
key: do the rules represent the mass median/public voter as opposed to localized/special interests? - ie democracy vs authoritarian - franchise who gets the vote land owners? male? female? election rules PR vs plurality district size funding private v public
marxism classi struggle
labor vs capitalists
poverty
lack of sufficient income
managing the float: imbalances: key political issue
large current-account imbalances --> who adjusts?
trade before wwi chrachterizaed by
large in volume, relatively little between industrialized nations mostly btwn colonies or former colonies
global financial cycle
large swings (surges and reversal) of capital flows into emerging markets (EM) 2 phases 1. booms: large volumes of capital flows into EMS in periods of low volatility increase currency value increase currency value 2. busts: selling of EM assets for dollar-denominated ones (when volatility increases --> risk aversion (usd = safe-haven currency)) decrease asset prices, decrease currency value ---- potential banking and currency crises exemplified by AFC (+ several other crises since3 1990s_
international (across border) vs internal
latter also important urbanization in china
turn around: uA reciprocal trade agreements act
law enabled Roosevelt to liberalize American trade policy around the globe
another way to say low income
least developed countries
Washington Consensus and IMF's role
led to liberalization in developing countries
IMF during and after BWS
lender of last resort managing debt and financial crises
regional development banks multilateral membership
lenders: members beyond the region regional borrowers most dominated by the US foreign policy tool (cold war and beyond) rise of china /BRICs --> new IFIs: a challenge to the system? new development bank asian infrastructure investment bank
neomarxist IPE
lenin's theory of imperialism World systems theory /dependency theory - division of labor btwn core and periphery global ssouth suffers from declinning terms of trade ISI === solution
what is the most influential IPE perspective?
liberalism
neomercantilism was a response to
liberalism nationalism interest > private interest
HDI (Human Development Index)
life expectancy, education, and GNI/cap
mercantilism and realism comparison
like realist IR theory there is an emphasis on state power, anarchy, and state security
poverty and remittance and migration long term impact
likely not much but can be important for small, poor countries
how can you promote/ attract FDI
limit restrictions, provide guarantees, export-processing zones locational incentives
extreme poveerty
living on less than $1.90 USD a day
reforms are SHORT TERM PAIN
longg term growth
why are some countries rich and others poor: colonial legacy extractive colonies
lots of people (coerced labor, slavery), lots of resources, inhospitable environment --> no permanent or limited european settlement - exploitative political institutions and extractive economic institutions focus on resources: restriction on domestic manufacturing - predatory policies (resource and labor exploitation) - trade oriented toward colonial power - elite domination / control over populations
Stable Macroeconomic policies
low inflation (price stability) competitive XRs governments: no large deficits, no excessive borrowing
as a flow migration is considerably
lower today than 19th c
Germany's opinion on the euro
lukewarm hence strict convergence criteria
how might RTAs hinder global trade liberalization?
magnify power disparities scare resources diverted away from global trade negotiations spaghetti bowl effet provide adequate markets easier to exempt politically sensitive sectors
obsolescing bargain
main source of risk for MNC especially in LDCs MNC and host bargain over FDI terms but bargaining power shifts over time - initially favors MNCs (can choose where to invest) - host tries to please, offers good terms - once investment secured ---> shifts - MNC fixed investment . --> hostage - host may now threaten to change the terms, expropriate
debt relief initiatives
managing the debt crisis of HIPCS for debt reduction aand cancellation for 39 heavilty indebted poor countries (HIPCs) mostly sub-saharan africa g7 proposals (HIPC intitiative, MDRI)
transition economies
many former 2ned world communist countries now "developing countries"
what are some drawbacks to FDI?
may drive local firms out of business national economy being sold off to foreigners technology transferred not typically free may reduce total amount of funds available domestic investment
3 main functions of money
medium of exchange unit of account store of value
main economic dea preindustrial europe
mercantilism
conflictual, zero sum nature of economic relations
mercantilism emphasis on relative not absolute gains
Three schools of thought or "ideologies" (not scientific approaches)
mercantilism liberalism marxism
where do most migrants come from?
middle income, not poor countries
liberalism governinervention?
minimal
classical liberalism vs keynesian liberalism role of the state
minimize/ enforce property rights provide public goods otherwise, let the market decide vs intervene to help domestic economic conditions
reality of the international governance of FDI
mix of 1. customary rules 2. international investment agreements - bilateral investment treaties regional and plurilateral treaties with investment provisons 3. arbitration institutions investor state dispute settlemnt
measuring development as a structural transformation
modernization theory
measuring development as a structural transformation
modernization theory "natural path" from traditional (lower productivity) to "modern" (higher productivity) activities LDCs should just emulate rich countries pre-industrial --> industrial --> post-industrial economic activity: different location, organization, technology +more
post war ITO
more ambitious than gatt: rules on employment, commodities, business practices, services, and investments
MPI
more than income deptivations linked to health nutrition, child mortality education schooling living standards sanitation, electricity, housing globally, sub saharan africa and south asia experience it the most
developing and transitioning economies --> economic crisis
need loans from IFIs IMF, World Bank
neomarxist versions focus on
neoimperialism, north-south exploitation, inequality, globalization losers and winners
Washington Consensus at IMF and World Bank
neoliberal reforms (market led minimal sate intervention) trade and capital account liberalization derrefulation, privatization of SOEs, fiscal discipline
creation of financial stability board
new --> key coordinating/ supervising institution but laks resources to implement / enforce decisions
financial liberaization in asia =
new investment opportunities higher roi at seemingly less risk than other LDCs primarily private porfolio investment not equal to sovereign debt short-term flows (hot money) --> capital flight risk
What was the impact of the industrialization (in the UK) - domestically
new political interest new classes
do trade deficits matter? standard economic vieew
no - states dont compete, firms do - states care about improving welfare (asbolute gains)
international financial architecture
no coherent global rules and institutions for monitoring and regulating financial activity fragmented and decentralized regime - many actors and many institutions
multilateral efforts of international governance of FDI
no comprehensive multilateral rules on investment no "world investment organization"
are capital flows a good thing?
no economic consensus potential for problems - capital flows can push currencies to be overvalued - increase trade deficits - decrease domestic competitiveness capital flight and financial crisis - hot money can devastate economies overnight - sharp increase in frequency of financial crisis
capital control
no financial globalization
managing the float: G7
no formal rules, but need for informal economic coordination among major economies
fiat currency
no intrinsic value
global response to GFC
no radical transformation of global economic governance post gfc but changes in rules/regulations and structures and actors -g20, imf, fed, basel committee on banking supervision, financial stability board
what about the rest of the world? -- in face of industrialization
nope! preindustrial ... russia, latin America, africa, etc
core European sovereign debt crisisOrigins: adoption of euro
northern europe inveested in periphery (S europe) creating higher inflation there than rest of Eurozone asymmetric shockls (N v S) intra EU current-account imbalances
non discrimination MFN and national treatment IIAS
not in all of them
global poverty proportion v individuals?
not just a percent there are fewer extremly poor people period despite rapid global population growth
export oriented but free mkt?
not quite..... early on: minscontrued as neoliberal (trade, fiscal discipline) but strong role of state planning
emerging markets
not too rich, not too poor integrated in global markets
foreign aid ODA
official developmental assistance O: official sector bilateral gvt agencies multilateral multilateral banks world bank D: development economic main objective not equal to emergency relief or military aid A: concessional low or no interest loans or grants
intensity and organization of actors in OEP
once interests are identified - preference - asses how INTENSE they are - political organization of interests - organization is costly, intensities shape how much actors are willing to lobby for their preferences better organized = better chances of success
multilateral
one set of rules open to all
hegemonic stability theory
open and stable international economic systems are more likely when a hegemonic state is willing and able to lead
schengen area
open borders EU + EFTA internal passport and border controls abolished
Embedded liberalism:
open economy, free markets... with safeguards
embedded liberalism
openness (belief freer trade --> growth) but without sacraficing governments' ability to affect domestic conditions
emigration
out
third world
outdated cold war term
offshoring
outsourcing abroad
outflows
outward fdi
cycle of debt crisis
over-borrowing --> crisis --> adjustment
regulating FDI policy tools
ownership restrictions performance requirements joint ventures or licensing limits on profit repatriation
GS maintained through
painful internal adjustment in prices and wages (austerity)
rise of GVC only truly global
past 25 yrs or so
who was against the euro
people wise - con: low-skilled labor, the poor and citizens relying on government social policies countries: against: role of national identity, social democracy - Denmark, Sweden, UK
End of Gold Standard
period of instability and volatility end of british hegemony great depression: mistrust of free financial flows, desire for greater state intervention in the economy (keynesian)
migration
permanent change of residence of a person or group
international interactions and institutions
persistent and connected sets of rules and practices
problems and failures of ISI
persistent current account deficits - ironically, policies meant to decrease imports actually created trade deficits - decrease exports: domestic production not competitive, decrease in agriculture and raw material production still dependent on imports: machinery and key inputs overvalued XR Large budget deficits investment in local production without growth in export earnings + no FDI state-owned enterprises not profitable growing debt --> crisis 1980s debt crisis --> put an end to it imf structural turned to neoliberal model little state intervention, privatization, liberalization not rlly successful either LOL
interests --> institutions --> ?
policy
1980s-90s financial gloabalizati0on
political shift neoliberalism - free markets including for capital === good wall street and us treasury: capital controls " do not work" led to policy change: capital account liberalization deregulation of financial markets capital controls abolished in the US and UK and then!! competitive deregulation in japan, germany ........... 1980s: globalization of commercial bank lending
libeal asusmptiomn harmony of interests
positive sum interactions
BoP crisis
possible when a country temporarily lacks necessary foreign reserves for its payments
Dollarization
post bws no rules --> most countries opted for floating XRs some countries opted for monetary union ....... ***OTHERS UNILATERllly adopted a foreign currency which is dollarization
when did FDI really take off?
post wwii
post war US hegemony
postwar economic order reflected US prefereces, power - self restraint and willingness to tolerate asymmetric rules (free riding) to ensure cold war alliances - multilateralism over bilateralism -embedded liberalism
What was the impact of the industrialization (in the UK) - globally
precedent of UK dominance
1960s and financial globalization
pressure to relax capital controls - growth in euromarkets - increase in private capital flows - increase in government borrowing on international financial markets
trADE OFF associated w GOLD STANDARD
prestige >>>>>>> internal economic conditions
managing the latin american debt crisis aims
prevent collapse of intl banking system restore capital market access for debtors restoring debtors economic growth
before 1914: development strategies: LDCS focused on
primary products
gains from trade comparative advantage
principally imports
Horizontal Integration
production capablitiues duplicated abroad typically market oriented FDI
export oriented FDI
production for global markets often part of GVC
market-oriented FDI
production mainly for local market
MNCs engage in
production, trade, investment
flexible XR desirable goals and fall backs
promote autonomy at cost of stability
Hull Formula
prompt, adequate, and effective compensation in case of expropriation
Brownfield Investment
purchase of already existing factory mergers and acquisitions
developing countries 1960-70s waves of nationalism and FDI
push for full control over MNCs and natural resources
international interactions bargaining
redistributiivee: an actor made better at the expense of another zero sum - i win you lsoe
HIPC initiative 1996
reduction of debt owed to IMF and World Bank for 36 HIPCs
malaysia different path on crisis
refused SAPs, imposed capital controls risking ability to attract future
development strategies Post-Washington consensus
rejection of the one size fits all approachh wash consensus dead policy space for innovative growth strategies
post- independence developing countries fdi
reluctant to accept reminder of past of neo-imperialism
free trade agreement / area FTA
removal of tariffs among members (decrease non tariff barriers)
new imperialism: of industrial revolution
renewed colonization in asia africa greater output - new market search, resources
1944 BWS financial globalization
restrictive financial order capital controls: limits on ability to convert domestic currency into foreign exchnage
why is agriculture such a problem to doha round
rich countries protectionist in areas where poor countries have comparative advantage subsidies and other types of support: increase production in rich countries decrease world market prices decrease revenue for farmers in poor countries
old gatt
rich country club special and differential treatment no reciprocity rich got us to liberalize what they want but wont liberalize what we want
why do most investments occur in and among capital- rich countries?
risk investing in poor countries is particularly risky - fdi sudden policy changes can reduce the value of corporate investments - hence BITs - eg sovereign lending: loan repayment by foreign governments cannot be enforced
turn to eoi for economic reform?
role of developmental state in industrial policy focus on expors but selective trade restrictions (infant industries) worrieds about financial flows --> capital controls focus on investment rather than consumption (repression)
political economy dynamics -->
role of interest groups business (pro immigration) --> want cheap labor vs low skilled workers (anti immigration) --> impact on wages sectors in which labor union sare more impoirtant --> more barriers to immigration sectors in which business lobbies are powerful --> fewerer barriers to immigration
monetary regime
rules about what type of XR system should exist between national currencies
why did south korea succeed and north korea fail?
same culture .... but different institutions and strategies / policies
is the US an OCA?
satisfies a lot of criteria ... - trades a lot in goods and services - lots of borrowing and lending - lots of labor mobility - a unified government budget though not perfectly ... 3 US regions experience slightly assymetrical shocks from the rest of country (rest appears to form an OCA)
US hegemony:
security guarantees
why do lenders want to invest abroad?
seek higher returns on interests or investments (ROI)
focus of EOI
selectively producing good for export markets integrate into global trade system open to FDI (processing trade)
Washington Consensus
set of neoliberal (market-led policy) pushed by the IMF, World Bank, and US Treasury trade liberalization fiscal discipline, deregulation, privatization, free capital flows etc
liquidity problem
short term BOP crisis sudden stop / reversal of capital flows
intel in costa rica 1997
silicon valley 1 billion dollar investment in a country of 4 million great until 2014 when microchip plant closed & operations largely shifted to east asia
London club
similar club involving private creditors (commercial banks)
international poverty line
since 2015: $1.90/day consumption
Economic and Monetary Union (EMU) of the EU
single european market completed early ... nxt steo was EMU 1989 delors report relaunched the idea of single currency 1992 maastricht treaty set strict convergence criteria in order to adopt common currency the euro
economic and monetary union EMU
single monetary policy eurozone
wto rules/norms contributing to gridlock
single undeertaking consensus rule (especially with expansion of membership) reciprocity flexability vs legalization now more judicialized system so countries reluctant to accept new commitments more negotiations over details of deals
inequality and social mobility
social mobility is lower in more unequal countries
why do sates welcome MNCs?
source of technological, managerial, and marketing skills (positive externalities) job creation
1992 crisis black wednesday
speculative attacks on british pound and italian ira - forced UK and Italy off ERM
FIXED XR promotes in exchange for
stability loss of domestic autonomy
what is the financial crisis cycle
stability --> fragility --> crisis
embedded liberalism
stability and autonomy
1982 mexican default
start of crisis (1st since 1930s) borrowing boom ends contagion (wave of defaults) across latin america
neomercantilism assumption main actor
state
customary rules of international governance of FDI
states are free to decide how to treat foreign investments -which FDI to let in, terms, etc - including the right to expropriate but - international minimum standard calvo doctrine hull formula
two branches of international governance of FDI
states: expropriation rights vs MNCs: investment
global imbalances adjustmnet from both sides........
surplus countries say - us and others should save more, consume less defecit countries r like - Germany and Asia you need to stop reducing consumption with policy financial wage repression + low spending - currency manipulation artificially low XR
currency
system of money in in use in a particular country
key role to eoi success
taking advantage of globalization
protectionist instruments
tariffs, non-tariff barriers (NTBs) - quantitative restrictions
the rise of global production key causes
technological and organizational innovations --> lower costs - transportations - communication - modularization trade liberalization fdi liberalization
non-political factors of the emergence of financial globalization
technological change especially global telecommunications market developments expansion of trade and MNCs activities increase demand in international financial services corporate behavior: invest in financial (rather than productive) assets •Financialization financial innovations new products (derivatives) --> decrease costs of international financial activities
1997 thai devaluation and contagion
thai baht --> pegged to the usd - booming buuuut fear of economic bubble fueld but HOT MONEY - increase private debt - currency speculators feared thai baht devaluation --> capital flight - currency crisis --> forced to devalue - not eneough to forex reserves to support the baht contagion to south korea, indonesia, malaysia etc - also maintained stable XRs and depended on short-term capital flows - speculative attacks
1980s-200s neoliberlaism
thatcher, reagan regulaization, privatization, supply-side economics
Neomercantilism first deployed in
the US, Germany, Japan
European Sovereign Debt crisis largely attributable to
the euro
BITs and TIPs are
the main tool for regulating FDI in the absence of multilateral rules
opportunity cost
the most desirable alternative given up as the result of a decision
what was an inefficient mercantlist monopoly that liberalism opposed?
the navigation acts UK
XR
the price of one currency in terms of another
Petrodollar Recycling
the recycling by private banks in Europe and the U.S. of dollars deposited by oil exporters through loans to oil-importing countries.
why are debt crises a problem for creditors (lenders) as well as debtors (borrowers):
they are a threat to the banking system cost of rescuing of borrowers and domestic banks - govt must sometimes intervene to bail out borrowing countries and//or domestic commercial banks --> domestic conflict: who will pay?
large and persistance trade imbalcnces can be a real problem --> global imblances
threaen world stability of economy though most has to do with capital rathher than trade
why do governments borrow and from whom?
to finance budget deficits lenders: - private commerical banks - offical: foreign governments (bilateral) and IFIs (eg IMF, World Bank)
wto does not work as forum
to negotiate new global rules
sustainable development goals
to supersede MDGS 2030 agender for sustainable agenda
d ricardo's comparative advantage
trade beneficial even absence of absolute advantage
economically integrated
trade in goods and services borrowing lending on large scale great deal of labor mobility borrow/lend to eachother on a LARGE SCALE great deal of INTER-REGIONAL MIGRATION
intrafirm trade
trade in intermediate goods within the same firm
Ricardo
trade is benefificial even in the absence of absolute advanateg
principles of the GATT/WTO system
trade liberalization reciprocity nondiscrimination safeguards transparency
outsourcing
transferring part of production to outside suppliers
TIPS
treaties with investment provisions - increasingly mega regional
how did this happen?
unprecedented economic growth especially in china but also inda has lifted hundreds of millions of people out of poverty
high-income countries examples
us, germany, japan
key reserve currency
usd
compared to trade in goods, financial flows are
very difficult for states to control effectively much less politicized not facing collective action problem
growth in trade volume?
very little
types of migration
voluntary forced
European response to ending of BWS
want to still stabilize European XR ---> European monetary integration
post GFC economic reforms
western economic model damaged
Profit shifting
what looks like investment is often "phantom" FDI which is designed to allow tax evasion ~40% of global FDI passes through empty corporate shells with no real business activity located in tax havens
whats a debt crisis?
when debtor lacks sufficient forex to pay the interest and/or principle on their external debt obligations
Foreign Direct Investment (FDI)
when parent company creates or acquires affiliates abroad involved ownership and/or managerial control
source preferences over trade distributional consequences within countries
winners and losers winners= like free trade losers = oppose it impact on domestic interests
intrafirm trade =
within MNCs
Costs of shared currency (stability losses)
without a currency of its own, country is not able to use monetary policy to stabilize an economy in trouble but these stabilitiy losses are smaller when economically intergrated experience symmetric external shocks unified gvt budget
interwar collapse of financial globalization
wwi: collapse of GS and cross-border investment/trade 1920s: currency instability, unregulated finance great depression --> suspicion of capital flows STOPPED FOR 30 YRS!
do trade deficits matter? neomercantilist view:
yes view states in competition strategic rovals industrial policy - protection of infant industry - especially high tch industries
competitive devaluations
your products will be cheaper
where do migrants go?
~2/3 migrants live in asia or europe
components of global trade
~80% trade in goods ~20% trade is services
failure DOHA LITE AND DECAF THEN MOVING ON..................
§Agriculture: export subsidies to be phased out, but 1. states were already shifting to other forms of support 2. doesn't rein in subsidies generally § §Trade facilitation: only real success Other Singapore issues ignored § §NAMA: a "plurilateral" deal on IT 1st tariff reduction agreement at WTO But moving away from multilateralism
•ig-bang (e.g. Poland's "shock therapy") vs. gradualism (e.g. Ukraine, Georgia)
ØRussia? Aborted shock therapy -In retrospect, speed was important à divergence •One group: better off, more democratic (Central Europe, Baltics) •Another: poorer, less democratic (Central Asia, Belarus, Caucasus) -Geography matters (proximity to EU) •Transition officially over for those that joined EU (2004)
Remittances:
• money sent by a migrant to their nation of origin
Global response to GFC The IMF
•2010 IMF reforms -Address problem of resource insufficiency, lack of responsiveness • •Massive ↑ in lending capacity + more flexibility in loans (≠ strict conditionality) -But key EMs did not have to borrow from IMF •Self-insurance after AFC (large forex reserves) • •Change in quotas (voting) -China > European states -Greater role for other key EMs -Now: combined US-EU quotas < 50% • •Greater surveillance capacity • •Endorsed capital controls (2012)à revised "institutional view" • •Whither the IMF? -Role diminished vs. 1980s debt crisis and 1990s AFC -Not enough resources to help large AEs •Though part of Troika (Eurozone crisis) -International LOLR function mostly left to US Fed
Beijing Consensus
•China's model: -State capitalism, authoritarianism, export-oriented, incremental reforms, heavy focus on investment - How attractive? -Policy space à no externally imposed policies -Results! How replicable? -Some unique conditions: large agricultural sector, well trained bureaucracy, coercive capacity to mobilize resources, scale, and timing -But, apart from unusual institutions, overall strategy very similar to East Asian EOI
Monterrey Consensus
•Consensus on new developmental commitments, including: -Pledges 0.7% of GNI in ODA -Debt sustainability & relief
Financial Stability Board (FSB)
•Created by G20 (2009) to monitor global financial stability -Context: GFC -Also hosted within BIS (Basel) •Supervises and makes recommendations about financial regulations •Key coordinating role within IFA: -States (G20 + HK/Sing.) -International financial institutions (IMF/BIS/World Bank/OECD) -Standard-setting bodies (BCBS, IOSCO, IASB, etc.)
how effective is foreign aid?
•Hard to assess -A necessity for the poorest -Evidence of positive effects on growth -But often criticized as long-term development strategy •Negative side effects: too much top-down "planning", not enough accountability, foster dependency, corruption • •The "how" perhaps more important than "how much" -Emphasis on good governance and institutional quality •rule of law, bureaucratic capacity, transparency, etc. à Conditional aid
eu crisis and doubtt
•How broad? How deep? Multispeed? •Recent enlargement: -Greater heterogeneity of incomes/cultures •Democratic legitimacy? -Role for nation-state sovereignty? •Migration •Brexit •Populism and rise of illiberalism (Hungary, Poland) •High youth unemployment (PIGS) •Eurozone crisis à key issues remain to be solved
Remittances and developing countries
•Important source of income for many developing countries
The US Federal Reserve as global actor
•International LOLR -Effectively emerged from GFC as "world's central bank" -Currency swap programs •with 14 other central banks (to meet demand for USD in the context of credit freeze) -Truer international LOLR than IMF: faster response, less resource constrained • •Injected liquidity via unconventional monetary policy -Interest rates already near zero à quantitative easing •QE: buying assets (government bonds, securities) to ↑ money supply • •Global spillovers of US monetary policy -Key determinant of the "global financial cycle" •When US interest rates ↓ à investors look for higher ROI abroad à surge of capital flows into EMs (e.g. after the GFC) •When US interest rates ↑ à capital flows out of EM into dollar-denominated assets -e.g. 2013 "taper tantrum" after Fed announced it would start reducing QE -"Fragile Five" EMs (India, Brazil, Indonesia, Turkey, South Africa) -So the Fed's decisions has (potentially destabilizing) global spillovers •Should the Fed care?
Are Americans "spendthrift" and Germans "prudent"?
•Not about morality, but policy choices • •Excess savings in Germany/China à S > I (investments) -Household, corporate sector, government • •US à no need for investment, but open capital markets • •German/Chinese excess savings exported to US à US automatically run a capital-account surplus -Not because of anything that happened in the US -If US runs a capital-account surplus it must run a current-account (i.e. trade) deficit (by definition à accounting identities) -US has access to a lot of cheap savings, which it doesn't need (investments already at desired levels) à no need for all this foreign capital -If investment rate doesn't go up, the savings rate must go down (by def.) •How? What mechanism(s)? -Interest rate may go up -Import more foreign goods à workers fired (reduced savings rate) -Borrowing standards lowered à more borrowing/bad debt -Stock market/housing bubbles -Result: US runs trade deficits, has low rates of savings (high debt)
From G7 to G20 as key venue
•Recognition of shifts in economic power -Rise of EMs, esp. BRICs -Stagnation in AEs
Explaining immigration policies: trade dimension
•Trade in goods = embodied flows of factors (labor + capital) •Trade as substitute for immigration -Free trade allow buying goods produced by cheaper labor in other countries -If trade is restricted --> still access to cheap goods by importing cheaper labor •So: Protectionism --> pressure by business groups to import labor à more open immigration policies Closed trade, open immigration Free trade à less pressure for importing labor, more influence of nativists/restrictionists à more restrictive policies Open trade, closed immigration
BoP adjustment mechanisms and XR systems floating XR
↑ current account deficit ↑ money outflow ↓ exchange rate ↓ domestic/foreign prices No recession (external adj.) ↑ exports, ↓ imports ↓ current account deficit
BoP adjustment mechanisms and XR systems fixed XR
↑ current account deficit ↑ money outflow ↓ money supply ↓ domestic prices Recession (internal adj.) ↑ exports, ↓ imports ↓ current account deficit
applying OEP framework: 3 step analytical logic:
● 1.Who are the relevant actors and what interests do they have? How do these interests translate into policy preferences? ● 2.How do domestic institutions aggregate these preferences to produce national policies? ● 3.How do international institutions and the structure of the strategic environment shape international interactions among states? What outcomes result from such interactions?
