POLI 433 Final

foreign portfolio investment (FPI)

(FPI) consists of securities and other financial assets passively held by foreign investors.

Good Luck

Don't Fail

What motivates developed states to give foreign aid? Has that changed over time?

Donors sometimes provide aid for humanitarian/ development reasons but they also seek to promote their own political and economic interests.

developmental state

Term coined in early 1980's to describe East Asian NIEs that provided extensive guidance to the market, identified development as primary objective, invested heavily in education, & depended highly on skilled technocratic bureaucracy

What is the Washington Consensus? Has it benefited developing states or harmed them? In what ways? What is the Beijing Consensus? How does it differ from the Washington Consensus? What form do you think a post-Washington Consensus should take? Why?

Washington Consensus refers to neoliberal belief that countries can best achieve economic growth through free markets, a dominant private sector, democratic government, & trade liberalization The Washington consensus has diverged somewhat from the original intention of John Williamson. Despite the failings of the free market, there is still merit in considering each of the 10 principles. However, there needs to be greater discrimination and less blanket implementation. The privatization of state-owned car industry may be good, but water supplies may not. Perhaps the most interesting development is the rise of the Chinese and Indian economies. In particular, Chinese investment is playing a considerable role in enabling economic development within developing economies. The Washington consensus is partly tied to the strength of the US economy. But, the US economy is likely to decline in relative terms. Beijing Consensus is the term for China's modern- day development strategy. It contrasts the Washington consensus by supporting a large state role in development and non-interference in the political and economic practices in other states. I personally think that a developing national should take a more Beijing consensus route because in order to fully develop a country should be domestically strong. so they should focus on that rather than what other countries, with more resources and ability, are doing.

Explain the strategies for import substitution, socialism, export-led growth, and neoliberal development strategies? Are these mutually exclusive strategies?

import- substitution: Strategy to promote economic development by replacing industrial imports with domestic production through trade protectionism & government assistance to domestic firms. Many LDCs followed their policies in 1950's & 1960"s socialist development strategies: viewed ISI as too moderate and argued that LDCs should achieve autonomous development only by becoming socialist and severing their ties with the north. LDC taking the socialist route reduced equities by providing better access to health care/ education, improving the status of women, and opening more facilities to the public. export-led growth: Economic development strategy that emphasizes production of industrial goods for export associated with the economic success of the East Asian NIEs neoliberal development strategy: According to neoliberalism big government and too much official development aid prevent economic and social development, while deregulation, privatization and lowering taxation are required to achieve economic growth so there are two strategies that are mutually exclusive, and that is the socialist- which thinks its the government's job to foster development, and neoliberal- who think the governments hinder development. however ISI/ export strategies can be used together with either socialist or neoliberal

transfer prices

prices a business firm uses for the international sale of goods and services among its affiliates. They help an MNC manage its international operations, but the MNC may manipulate these prices to shift its reported profits.

portfolio investment

the purchase of stocks, bonds, and money- market instruments by foreigners to gain a financial return. It does not involve foreign ownership or operating control.

FDI flows

the value of FDI in a single year

concessional loans

aka "Soft loans" they are loans that have lower interest rates, longer grace periods, & longer repayment periods than commercial or hard loans

Walt Rostow

Developed a Theory for economic growth. It is an allegory to an airplane taking off: pre-take off, take- off, drive to maturity, high mass consumption society. This creates a dual economy as a country transitions from and agricultural based economy to an industrialized one.

bilateral investment treaties (BITs)

BITs protect foreign investment. they uphold the MFN and national treatment principles, prohibit host- country performance requirements, and require compensation in cases of nationalization

What is the difference between bilateral and multilateral aid? Why would donors or recipients prefer one type or another?

Bilateral aid represents flows from official (government) sources directly to official sources in the recipient country. Multilateral aid represents core contributions from official (government) sources to multilateral agencies where it is then used to fund the multilateral agencies' own programs. bilateral aid is good for government reform and countries who place a lot of value in a state- led development. multilateral is good if a country or donor wants to fix a specific issue, like bringing clean water to a country, so they know that that is exactly where their money is going to and not into some government officials bank account. recipients preper multilateral because they will see more of its use in their lives

Explain dependency theory. How does it differ from modernization theory?

Dependency theory is the notion that resources flow from a "periphery" of poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the expense of the former. Modernization theory describes the transformative processes of societies from underdevelopment to modern societies. The modernization theory highlighted the deficiencies that were to be seen in the developing countries and highlighted that it was due to such features that the countries failed to modernize. so: Dependency Theory: Dependency theory highlights that due to colonial and post-colonial endeavors the countries at the periphery (or else the developing countries) are constantly exploited by those at the core (developed countries or else wealthy countries). Modernization theory: Modernization theory describes the transformative processes of societies from underdevelopment to modern societies. http://www.differencebetween.com/difference-between-dependency-theory-and-vs-modernization-theory/

What is the difference between economic development and human development?

Economic development and human development are both measures that are used to determine the overall development in a country or region. Measures of economic development are very broad and include a wide spectrum of elements such as economic growth (measured by GDP), standards of living, infrastructure, international trade, environmental health, public safety, social justice, life expectancy, literacy, health, etc. Human development is a component that makes up economic development. A country's GDP does not take into consideration people's health, education or standard of living. Hence measures such as HDI, GEM, and HPI were developed to measure human development in terms of health, education, standard of living, income, poverty, gender equality, etc. Human development can lead to economic development, as when more people have better education, health and standard of living that will increase the levels of productivity, investment and economic growth which can eventually result in economic development.

export-led growth

Economic development strategy that emphasizes production of industrial goods for export associated with economic success of the East Asian NIEs

financial crisis

Escalation of financial disturbances, such as a sharp decrease in asset prices, the failure of large financial intermediaries, & disruption in foreign exchange markets

official development assistance

Flows of foreign aid to LDCs & multilateral institutions from official government agencies

How would you compare the foreign investment regime with the global trade and monetary regimes? How and why do liberals, neomercantilists, and historical materialists differ in their views of what should be regulated in a foreign investment regime?

Foreign Investment Regimes: The Asian Infrastructure Investment Bank (AIIB) is an international financial institution proposed by China to provide financing for infrastructure projects in Asia. It is slated to begin operation by the end of 2015. The IMF/ World bank are monetary regimes which also help facilitate investment through FDI/ FPI and government loans. The WTO/ GATT and other similar organizations are trade regimes. Liberals advocate for free trade. neomercantilists believe that the government should regulate trade in order to protect domestic industry. The theory of historical materialism argued that human societies and their cultural institutions (like religion, law, morality, etc.) is the outgrowth of collective economic activity

multilateral aid

Foreign aid which donor governments provide funding through international organizations (such as the World Bank) whose policies are collectively determined

What are the best measures of development?

GINI coefficient HDI GNP/GDP

Millennium Development Goals

In 2000, UN established 8 MDGs to be achieved by 2015 Doubtful some of these goals will be achieved The Millennium Development Goals (MDGs) are the world's time-bound and quantified targets for addressing extreme poverty in its many dimensions-income poverty, hunger, disease, lack of adequate shelter, and exclusion-while promoting gender equality, education, and environmental sustainability.

In what ways have the major host and home countries for FDI changed over time? Have there been changes in the position of the South vis-à-vis the North in FDI? Is it possible to generalize about "the South"?

In general, the south is much more disadvantaged than the north is. they depend on the north for trade opportunities and FDI and that this can lead to many exploitative relationships between LDCs and DCs. However, developing countries also can benefit from FDI tremendously. Some countries make great effort to attract FDI in order to create jobs, transfer technology, and increase its GDP. For example, because of offering several FDI incentive policies, Thailand attracts lots of FDI in automobile industry and becomes a main automobile export country in the world. But Thailand's experience would not be easily generalized to other "South" countries.historically, it was western Europe who was the main donors of FDI and that the United states, after industrialization, also became a huge contributor to it.

plutocracy documentary

Income inequality has become a key hot button issue in the modern day political spectrum. While these economic and class divides seem more pronounced than ever before, the impressive new documentary Plutocracy: Political Repression in the USA reveals that the core of these struggles pre-date the beginnings of the industrialized labor force. The long and painful journey towards achieving worker rights and fair wages has been marked by violence, discrimination, and inhumane exploitation. Take, for example, the West Virginia coal mining industry in the early years of the 20th century. Working under extreme conditions plagued by brutalizing hours, unprecedented accident rates and severe health hazards, the miners decided to fight back through strikes and the formation of their own labor union. The industry itself chose to fight back with the importation of replacement workers, and the structuring of new contracts which disallowed workers from joining a union. The fight for freedom from the tyranny of wealthy industrialists was fraught by thousands of lives lost, and many more wounded and incarcerated. As the film makes clear, the country's founding fathers saw the potential for such class conflicts even before industrialized capitalism made its way to America's shores. During the Civil War, which ranks as the most devastating union conflict in the history of the United States, hundreds of thousands of casualties occurred, many of which were from the poorest populations. The wealthiest figures of the day paid destitute soldiers to fight on their behalf, and some like business magnate John D. Rockefeller could escape the burdens of service by making a cash payment of three hundred dollars. Throughout history, liberty has come at a cost far more profound than dollars and cents. Change only becomes possible when the working masses band together under the shelter of a common cause of fair and equal rights. Plutocracy: Political Repression in the USA is a smart and engrossing tale of an issue which continues to drive economic instability and power dynamics today. The film honors the sacrifices of all those who have battled to win the freedoms we enjoy today, and reminds us of

Chicago Boys

Known by the name Chicago Boys, this influential international network of economists advocates limited governments and unhindered markets. In the mid-1950s, the U.S. government and private foundations funded the first cohorts of Latin American economics students at the University of Chicago to counter the prevailing development-ist thinking in the region that favored state interventionism and economic nationalism. Some Chicago professors, most prominently Arnold Harberger, advised transforming economics education along neoclassical principles to offset the influence of Marxist and other heterodox currents of economic thought. Twenty years later, under Pinochet's military dictatorship, Chilean government ministers Sergio de Castro, Pablo Baraona, Miguel Kast, and Rolf Lüders and a large group of other Chicago-trained economists implemented radical market reforms. Results were mixed, but conservatives everywhere, including University of Chicago Nobel laureates Milton Friedman and Friedrich August von Hayek, extolled the virtues of Chile's neoliberal revolution. Since then, neoliberalism has been the blueprint for marketization around the world.

structural adjustment loans

Medium-term balance-of-payments financing the World Bank & IMF have provided to LDCs since the 1980's foreign debt crisis. To receive such loans, LDCs must agree to institute structural reforms

What are the similarities among Modernization Theories? Explain Walt Rostow's contribution to development economics? Explain his 5 stages of growth. What is the best way to get a state to "take-off?"

Modernization Theories: social change is unidirectional, progressive, and gradual (similar to marxist theories) societies move from primitive to advanced, and that movement is irreversible therefore they become more alike as they proceed along the path of evolution. Homogenous in and between countries. Rostow's Stages of Growth: traditional society is a precondition for takeoff. then its take-off, drive to maturity, high mass consumption society. He wanted to develop the formula to overcome the barriers to growth. this is a "phase process" and it is most connected to the airplane analogy. Duel -Economy/ Conspicuous Consumption Walk Rostow took a historical approach in suggesting how countries grow economically. Take-off. Manufacturing industry assumes greater importance, although the number of industries remains small. Political and social institutions start to develop - external finance may still be required. Savings and investment grow, perhaps to 15% of GDP. Agriculture assumes lesser importance in relative terms although the majority of people may remain employed in the farming sector. There is often a dual economy apparent with rising productivity and wealth in manufacturing and other industries contrasted with stubbornly low productivity and real incomes in rural agriculture.

remittances

Money that migrants earn abroad & send back to their home countries

What are some similarities among developing states? What are some of the differences? How have these factors affected the ability of states to develop?

Most of the developing states have low purchasing power parity rates, their average incomes average less than two dollars a day. The south is poorer than the north overall the north in general looks to the south for investment opportunities while the north offers the south trading opprotunities. Political regimes vary from democratic to authoritarian.

Have NGOs had an impact on the behavior of MNCs? What is CSR and what are the competing theoretical views regarding the value of the concept?

NGOs form to advocate for the consumer, and environmental/ political groups against exploitative corporations. Their goal is to promote responsible MNC behavior through corporate social responsibility. Overall NGO have NOT significantly changed the behavior of MNCs because it does not have much control on regulating them. they can lobby and fight for reform but at the end of the day they are powerless. CSR is the contributions a corporation may be expected to make to society. some analysts see CSR as a legal responsibility while others simply view it as desirable behavior.

What are some of the major effects of MNCs on home and host states? Do you think that the effects have, on average, been more positive or negative?

Some of the major effects that MNCs have on host states is that they take away job opportunities in their home countries for cheaper labor and production in the host countries. However, some profits do make it back to the home country. on host countries, they bring FDI into struggling or developing economies in return for low labor and production costs. this boosts their economics activity and reduces unemployment. i think overall they effects of MNC are positive, but there are some serious negative impacts, like exploitation of developing economices, that cannot be ignored.

the corporation

One hundred and fifty years ago, the corporation was a relatively insignificant entity. Today, it is a vivid, dramatic and pervasive presence in all our lives. Like the Church, the Monarchy and the Communist Party in other times and places, the corporation is today's dominant institution. But history humbles dominant institutions. All have been crushed, belittled or absorbed into some new order. In this complex, exhaustive and highly entertaining documentary, Mark Achbar, co-director of the influential and inventive Manufacturing Consent: Noam Chomsky and the Media, teams up with co-director Jennifer Abbott and writer Joel Bakan to examine the far-reaching repercussions of the corporation's increasing preeminence. Based on Bakan's book The Corporation: The Pathological Pursuit of Profit and Power, the film is a timely, critical inquiry that invites CEOs, whistle-blowers, brokers, gurus, spies, players, pawns and pundits on a graphic and engaging quest to reveal the corporation's inner workings, curious history, controversial impacts and possible futures. The Corporation charts the spectacular rise of an institution aimed at achieving specific economic goals as it also recounts victories against this apparently invincible force. Case studies, anecdotes and true confessions reveal behind-the-scenes tensions and influences in several corporate and anti-corporate dramas. Among the 40 interview subjects are CEOs and top-level executives from a range of industries: oil, pharmaceutical, computer, tire, manufacturing, public relations, branding, advertising and undercover marketing. In addition, a Nobel-prize winning economist, the first management guru, a corporate spy, and a range of academics, critics, historians and thinkers are also interviewed.

tied aid

Percentage of bilateral aid that is tied to purchases from the donor country's producers & employment of its technical experts

obsolescing bargain model (OBM)

Postulates that an MNC loses some bargaining leverage once it invests in a host state because it commits itself to some immobile resources in the host state.

Economic development

Progress in an economy, or the qualitative measure of this. Economic development usually refers to the adoption of new technologies, transition from agriculture-based to industry-based economy, and general improvement in living standards.

microfinance

Provision of low-cost, short-term financial services, mainly savings & credit, to poor households that do not have access to traditional financial institutions

import substitution industrialization (ISI)

Strategy to promote economic development by replacing industrial imports with domestic production through trade protectionism & government assistance to domestic firms. Many LDCs followed their policies in 1950's & 1960"s

The essay questions for the final exam will be: 1. Imagine you are the leader of a developing country. What strategy would you adopt to achieve development and why? Based on the cases discussed in the Commanding Heights documentary and the course, cite specific countries who might serve as models to follow or avoid. OR 2. What is Taiwan's economic and historical development? What is the advantage and disadvantage of developmental states? Compare Taiwan to other cases discussed in the Commanding Heights documentary and your course material. Is there a better path to development?

QUESTION 1:

foreign aid

Refers to grants, loans, or technical assistance that donors provide to recipients on concessional rather than commercial terms. According to the OECD Development Assistance Committee, only grants & concessional loans with grant element of at least 25% qualify as foreign aid

Washington Consensus

Refers to neoliberal belief that countries can best achieve economic growth through free markets, a dominant private sector, democratic government, & trade liberalization

What are structural adjustment loans? What are the costs and benefits of these loans?

Structural adjustment loans are medium-term balance-of-payments financing the World Bank & IMF have provided to LDCs since the 1980's foreign debt crisis. To receive such loans, LDCs must agree to institute structural reforms Structural adjustment policies usually involve a combination of free market policies such as privatisation, fiscal austerity, free trade and deregulation. Structural adjustment policies have been controversial with detractors arguing the free market policies are often unsuitable for developing economies and lead to lower economic growth and greater inequality. Supporters of structural adjustment (IMF and World Bank) argue that these free market reforms are essential for promoting a more open and efficient economy. http://www.economicshelp.org/blog/glossary/structural-adjustment/

commanding heights episode 3

Summary: Episode Three: The New Rules of the Game By the early 1990's, most of the world had converted to free-market capitalism, setting the stage for the rapid growth of a new global economy. Rapidly falling trade barriers and unrestricted capital flows fueled by furious technological innovation and a new global workforce would all combine to transform the world economy "The New Rules of the Game" examines the promise and perils of globalization in the 1990's, focusing on the story of President Bill Clinton's embrace of free trade policies, the challenges the world's leaders faced in taming the virulent contagion of financial collapse in the developing world, and the violent debate over globalization that suddenly surfaced in the Seattle protests. In a story that moves from the 1992 Presidential campaign to the September 11 attack on America, this film confronts a series of issues: the impact of free trade on the developing world and on American workers; the perils of financial contagion when problems in one developing country cause investors to pull their capital out of all emerging countries; and the challenge of inclusivness - bringing the world's poor into the era of global growth. It cuts through the rhetoric to show what "globalization" really is - and what it will mean for our lives in the twenty-first century.

commanding heights episode 2

Summary: Episode Two: The Agony of Reform In the twentieth century, most of the world's nations tried to create prosperity through government control of their economies --- from the totalitarian central planning of the communist world, to more democratic nations which tried to develop their economies by nationalizing industries and protecting them from foreign competition. But in the 1980's those policies began to fail dramatically, and the fall of the Berlin wall unleashed an era of dramatic and turbulent economic reform around the world --- in Russia and the eastern bloc nations, in democracies like India that had embraced central planning, and in Latin American countries , which had developed their own brand of government control of economic life, based on a theory called dependencia. "The Agony of Reform" tells the story of how those economies failed and how new leaders embraced the idea of "shock therapy" --- a rapid conversion to free-market capitalism The program focuses in detail on how reform played out in several countries --- Russia, Poland, India, Bolivia, and Chile as they lived through the upheavals of rapid change -- dealing with both the new freedoms and the new dangers of privatization, deregulation and free- wheeling competition.

World Bank group

The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. It is the largest and most famous development bank in the world and is an observer at the United Nations Development Group.

Be familiar with the documentaries shown in class: "The Corporation" and parts of "Plutocracy."

The corporation examines the effect that large-scale MNCs have on the host country (politically, socially, environmentally, economically) plutocracy examines early American history through the lens of class. A multi-part series by filmmaker Scott Noble, Part I focuses on the ways in which the American people have historically been divided on the basis of race, ethnicity, sex and skill level.

bilateral aid

aid that flows directly from a donor to a recipient government. the largest share of ODA is bilateral

In what ways are China and the other BRICS economies posing a challenge to the IMF and World Bank?

They are offering an alternative option for LDCs to develop that do not heavily rely on FDI and DCs. AS a result, this challenges their overall power in the world economy. The Beijing model is attractive to many LDCs who are looking to china now to support them through their development- rather than looking to the IMF/World Bank. China drew on its foreign exchange reserves to launch 2 new development banks where the LDCs will have more influence.

Do the benefits of globalization outweigh the costs? Consider both the political and economic costs and benefits. Use specific examples from the Commanding Heights' Episodes 2 and 3

Yes, because of globalization consumers have a wider variety of goods that they can buy at affordable prices. this keeps the markets competitive for both producers and consumers. Some of the costs include exploitation of labor, resources, and the environment by MNCs and governments alike and even though it might take away one fraction of a country's domestic industry, it makes room for them to focus on a new industry where they can have a comparative advantage over someone.

Global Compact

a UN- led voluntary compact with principles on human rights, labor standards, the environment, and anti-corruption to promote responsible global capitalism. the UN invited MNCs to sign it

Lorenz Curve

a graph on which the cumulative percentage of total national income (or some other variable) is plotted against the cumulative percentage of the corresponding population (ranked in increasing size of share). The extent to which the curve sags below a straight diagonal line indicates the degree of inequality of distribution.

horizontal integration

a horizontally integrated MNC produces the same product of product line in affiliate firms in different countries. firms often engage in horizontal integration to defend or increase their market share

What is horizontal? Vertical integration? Why does a business firm choose to become horizontally integrated? Vertically integrated? Is there a difference?

a horizontally integrated MNC produces the same product of product line in affiliate firms in different countries. firms often engage in horizontal integration to defend or increase their market share a vertically integrated MNC controls the production of goods and services at different stages of production process, with some affiliate firms providing inputs to other affiliates. Firms become horizontally integrated to avoid uncertainty, reduce transaction costs, and limit competition.

vertical integration

a vertically integrated MNC controls the production of goods and services at different stages of production process, with some affiliate firms providing inputs to other affiliates. Firms become vertically integrated to avoid uncertainty, reduce transaction costs, and limit competition.

multinational corporations (MNCs)

firms that own and control facilities for production, distribution, and marketing in at least two countries.

What are the main debates about foreign aid and its effectiveness?

foreign aid has concessional (soft) or commercial (hard) loans to dictate whether their interest rates are high or not, how long their grace period is, and repayment periods. ODA is aid provided by governments. Liberals acknowledge that donors provide ODA to gain commercial benefits- BUT they see foreign aid as a positive- sum game that can also help recipients achieve economic development. Neomercantilists see aid as a policy tool that donors developed to influence recipients in the cold war and is now being used to support the war on terrorism Critical Theorists view aid negatively and see it as a way to perpetuate dependency relations. It promotes the souths inequality in the global market and fails to deal with problems such as environmental degradation.

foreign direct investment (FDI)

foreign investment that involves some ownership and/ or operating control. The foreign residents are usually MNCs.

investor-state dispute settlement (ISDS) provisions

give investors access to dispute settlement procedures against a foreign government

sovereign wealth funds (SWFs)

government investment funds that are managed separately from official currency reserves. SWF may hold higher risk assets than official reserves

Asian Infrastructure Investment Bank (AIIB)

launched by china in 2014, the AIIB (which now has 57 member countries) will provide funds for large infrastructure projects.

What is the most important factor hindering development? What is the most important factors promoting development?

liberals think that LDC economic problems are a result of inefficient domestic policies (because they're dependents in the global economy) Some development- promoting factors according to liberals are open economic policies that increase linkages with the north. historical materialists/ dependency theorists see the north as underdeveloping LDCs which prevents them from attaining autonomous development. they think that to develop the periphery, that they should redistribute resources. world- systems theorists say that some countries (east Asian and latin American NIEs) can develop their periphery but it is rare. they don't believe that the periphery will willingly transfer resources so they call for a social revolution in the south and/ or severing exploitative contracts with the north Gramscian view thinks that disadvantaged groups should create a counterhegemony.

GINI Coefficient

measures the derivation of income distribution in a country from an equal distribution

What is the obsolescing bargain model? Does the OBM have more validity in some areas and periods of time than in others?

the OBM postulates that an MNC loses some bargaining leverage once it invests in a host state because it commits itself to some immobile resources in the host state. this is important because they hold a lot of bargaining leverage before they invest. governments offer incentives like tax breaks, reduced or eliminates costs of producing there because the governments want the economic activity that and MNC would bring to the country. after they are there and settle in, it is harder to uproot themselves and resettle into a new place so they have less power to bargain with governments as a result. now it is easier to uproot due to technolicial advancements and an increace in fiscal power of MNCs. so the OBM would be more valid 50 years ago than it is today, yet some principles still hold true.

Human development index (HDI)

the UNDPs measure of human development based on life expectancy at birth, adult literacy rates, school enrollments, and PPP-adj per capita GNI

Corporate Social Responsibility (CSR)

the contributional a corporation may be expected to make to society. some analysts see CSR as a legal responsibility while others simply view it as desirable behavior.

greenfield investment

the creation of new facilities and productive assets by foreigners

Does the nationality of an MNC make a difference? Explain.

the nationality of MNCs are becoming increasingly less important are more and more developed countries contribute to FDI.

FDI stock

the net accumulated value of FDI resulting from past FDI flows