SIS220 [Midterm: 1-31, Final: 33-79]

Why are the assumptions of the last slide (based on increasing support of liberalism and democracy) NOT a depiction of the world today?

- the conditions for an efficient market do not exist → market failure or - individual rational choices may aggregate up to produce sub-optimal social outcomes → social trap

Comparative/Absolute Advantage

When a country is the best at producing a good or service, we say it has an absolute advantage (Adam Smith, 1776). However, both countries can still gain from trade if one country has a relative advantage (Ricardo, 1817).

shrimp-turtle

"... We have not decided that the sovereign nations that are Members of the WTO cannot adopt effective measures to protect endangered species, such as sea turtles. Clearly, they can and should." "And we have not decided that sovereign states should not act together bilaterally, plurilaterally or multilaterally, either within the WTO or in other international fora, to protect endangered species or to otherwise protect the environment. Clearly, they should and do." measures to protect sea turtles were deemed legitimate under GATT Article XX, provided they were non-discriminatory

Sovereign Wealth Fund (SWF)

"a collection of government-owned or government-controlled assets" - about 40 government's have SWFs - currently control $20 trillion and growing rapidly - two largest: UAE and Norway - most funded by revenue from state-owned oil companies - some funded by forex reserves from BOP surpluses - when they invest abroad, they effectively result in foreign government ownership of local assets → growing concern and debate over their costs and benefits

Too Diverse? (Goodheart)

"progressive dilemma": more diversity cannot coexist with solidarity people are unwilling to pay for people whose lifestyles are too differentiated/ diverse: "why should I pay for them when they do things I wouldn't do?" homogeneity is the reason Sweden can be a welfare state but the US cannot whether we like it or not, people care more about those close to them too rapid a change in our cultural make-up causes people to lose their sense of historical responsibility debates on immigration forget that it is less to do with economics than with identity and mutual obligation suggestions: encourage cultural assimilation, discourage immigrants from living together, and institute a conditional welfare system

History of the International Monetary System: What is the international monetary system?

"the framework by which residents of one country can make payments to residents of another country" role of international monetary system - lend order and stability to foreign exchange markets - encourage elimination of balance of payment (BOP) problems - provide access to international credit during shocks

Cowen Discussion

'An Economist Gets Lunch' by Tyler Cowen: a lot of people prefer to be wasteful than feel wasteful moral halo effect: consuming green products does not make us better people paper vs plastic locavore what about boycotts/ disinvestment? do these actions make any difference to firm behavior?

Causes of the Crisis: Conspirators

- 'bad' accountants: exploiting flaws in fair-value - 'greedy' and dishonest lenders, credit-rating organizations and government sponsored enterprises (GSEs) - model builders and designers of derivative contracts - naïve and incompetent fund investors

Criticisms of the HO framework

- 'labor', 'land' and 'capital' are not homogenous - different governmental systems can influence results models that address this question: - median voter theorem - collective action - combination model

The Credit Card market

- Credit cards - bring together buyers and sellers - Arguably does make both sides happier and the market more efficient, but the market power may not be balanced between consumers and stores - For credit cards to be useful stores have to accept almost all major credit cards, while consumers can shop around for the best deals → credit fees of about 3% or more are charged to stores.... - But are customers truly the winners? In exchange for $1 cash back/ other reward, you are forgoing a $3 potential cash discount - In fact the credit card companies are the real winners...since they have managed to make even non-participants pay through higher prices stores are forced to charge.

Overcoming Market Failure/Social Traps

- hegemonic stability theory: due to their size, hegemons often receive a large share of the benefits from collective goods → have a greater incentive to maintain the system, even if it means their contributions are disproportionate or they have to engage in costly coercion. - selective incentives: transfer of additional benefits to ensure cooperation - entrepreneurship: reliance on "certain individuals to supply the energy, organizational skill and inertia to provide collective goods" - piggybacking: established organizations take on new concerns - reduce group size

Causes of the Crisis: credit rating agencies

- helped the GSEs by over-rating the highest-quality debt - rating process was a negotiation that started with issuer specifying its desired rating - severe conflict of interest

Traditional IPE Schools: Marxism

- labor theory of value - exploitation would lead to a concentration of capital → increasing inequality → revolution where capitalism was replaced by socialism - Marx focused on domestic society and expected revolutions to begin with the working class in industrial countries - unlike liberals, Marx saw the capitalists as the drivers of the system

What is aid?

- major source of funds for various humanitarian, political, military, and economic needs - majority comes from governments in the North types - US programs include USAID and the Peace Corps - UN programs (UN Development Program, WHO, UNICEF)

Traditional IPE schools: One sentence each

- mercantilists: resources and power - liberals: overall standard of living - marxists: distribution

Market Failure and Social Traps (Sobel)

- of the three traditional schools of IPE, the liberal school is the most widely endorsed today - at the same time, democracy is increasingly being adopted by countries worldwide - given both these trends, one would assume that individuals and countries, acting to increase their welfare, would vote/ adopt policies resulting in: - greater trade promotion - a supportive, but non-interventionist, government - institutions that encourage cooperation and greater exchange of information/ goods - self-sustaining interdependence

Traditional IPE Schools: Mercantilism

- origins during the gold standard era - like realists, mercantilists espouse relative power and protection of self-interest - economic transactions have military implications - emphasize conflicting interests in economic exchanges - prefer trade surpluses - some economic activities (manufacturing) are considered more desirable than others

Origins of the Crash: destabilizing US regulatory framework

- policy framework requires/ rewards banks and GSEs for funding selected classes of borrowers to promote homeownership - loose monetary policy also meant that variable rate mortgages were popular (since interest rates were very low) - deposit insurance encouraged bank risk taking - defective monitoring

Causes of the Crisis: 'securitization' built on faulty model

- subprime loans were pooled and sold off in tranches to investment banks and other investors - in the event of mortgage defaults, higher tranches were paid back first - bottom tranches got paid back last, but received a higher interest rate - this meant that banks 'sold on' their debt and could lend more → kept on pushing for new borrowers and buyers, inflating house prices - many people were encouraged to take out loans on their inflated equity

What determines the domestic oil price? More specifically, what factors determine what consumers actually pay?

- transport costs and distances to markets - taxes - subsidies - regulatory costs - cost/availability of alternatives

Market Failure

efficient markets require: - clearly defined property rights - no buyer/seller can manipulate the price system to obtain extra-market rents - transactions have no effect on third parties - complete information when these requirements are not met --> market failure: - vague property rights, monopolies, externalities, asymmetric information→ lower social welfare note on asymmetric information: - occurs in both economic and political markets → often firms and politicians try and manipulate information provision through campaigns and advertisements - successful economies and markets try and limit this through disclosure laws, campaign finance laws, contract laws, standard setting bodies etc.

Trade and the Envoronemnt (Krugman, Winham)

environmentalists fear: - not being able to restrict imports that may harm their own environment - not being able to restrict imports that harms the environment outside their territory  potential caveats? - little evidence of race to bottom - FDI and development → improved environmental regulation - recent WTO appellate decisions have not been "unfair"

Drug Policy and its Implications: Background

for many years, the US and other countries have taken a hard-line policy on illegal drugs: "drug war" few positive results however: - US has highest rates of cocaine and marijuana use in the world - thousands in jail for minor drug offences - courts jammed with trivial possession cases - fuels large black market and corruption - violence in Latin America continues to escalate

Types of international monetary systems

gold standard gold-exchange standard managed float free float monetary union

Shifting attitudes (drugs)?

polls seem to suggest that the American population is tiring of the drug war in Latin America, politicians are becoming increasingly critical and open to other options: - Central Am countries, Colombia, DR and Mexico: "if cutting demand is not possible, as recent experience demonstrates, the authorities of consumer countries must explore all possible alternatives..including regulatory or market options"

Median Voter Theorem

predicts that democratic political parties change their policies to court the voter in the middle of the ideological spectrum since the winner chooses a policy that appeals to the most voters, this theorem predicts an policy outcome that benefits a large number of people but inflicts large losses on a few people but trade policy doesn't seem to follow this prediction!

Financial Crisis: Solutions?

public sector reform: - crisis preparedness → analyze correlations across markets and countries and draw up contingency plans - change government regulations that rely on credit rating agencies ratings - tighten GSE lending standards - remove tax break for mortgage payments private sector reform: - credit rating agencies need to disclose information used - securitizers need to be more transparent - meaningful accounting reforms

What's special about DIRECT investment

real physical presence in the host country → more stable and better for development than portfolio investment one of the most important benefits of FDI is technology transfer note: the extent of technology transfer to host countries depends on a welcoming environment aside from tech transfer, FDI is more resilient to adverse economic shocks and currency depreciation than other forms of finance → exporters with foreign ownership are able to access credit through their parent company in times of financial turmoil FDI can potentially increase employment, although this is contingent on host labor regulations most research also finds that foreign firms pay more than domestic firms

Potential costs of immigration

recipient country: - can lower wages in unskilled labor markets - pressure on social infrastructure source country: - can result in "brain drain" if migration represents a mass exodus of the educated class - the country can become overly dependent on remittances

Potential benefits of immigration

recipient country: - immigrants often taken the low-paying jobs that most locals do not want to do at such low wages - stimulates demand in the country - can help with specific sorts of skill shortages source country: - provides remittance flows help reduce income inequality and poverty - returning expats bring skills and knowledge - diaspora often act as investors and mentors

What is the effect on growth (oil)?

rule of thumb: 10% increase in the oil price cuts world growth by 0.2%, BUT the impact on country growth and inflation differs depending on the country - the US is becoming less sensitive because: - more fuel-efficient transport and production methods - more use of shale gas and other alternatives - ALSO, remember that the US is also a producer, so oil price rises create both winners and losers in the US! Other countries are less lucky: - Eastern Europe - Some Western European countries like Greece - India

IPE Issue Areas

- international trade system - international monetary system - multinational corporations (MNCs) - economic development

Collective Action (Trade)

individual consumers have no incentive to lobby for free trade because their benefits are not large compared to the cost individuals in groups who suffer large losses from free trade have strong incentive to lobby for protection

Platforms: Background

A platform is market where two groups interact via a go between who makes sure the participants are happier (and the market more efficient) than they would be if left solely to the market (Fisman and Sullivan) E.g. Uber, AirBnB, ebay etc

Shifting attitudes (drugs)? (Theory behind the numbers)

what would happen if the government legalized the product? what would happen in they taxed taxed it? [Answer: see notes, s/d graph] e.g. a comparison of the legal and illegal market for cocaine legalizing cocaine would shift the supply curve to the right → since the demand curve for drugs is very inelastic, there would be a large price drop and very little increase in demand ^this drop in price would: - reduce profit for drug producers - reduce criminal activity on the part of users who pay less - reduce law enforcement costs the small increase in usage could be offset by increasing treatment options at the same time a legal market may also mean better quality and less fatal overdoses if the government taxed drugs, this would shift the supply back to the left and increase government revenue

The 2007 Financial Crisis: Background--Home Ownership Fixation

- Herbert Hoover: "Owning a home may change the very physical, mental and moral fiber of one's children." - Clinton: "You want to reinforce family values in America? Encourage home ownership" - George W Bush: introduced new quotas to Fannie and Freddie: a third had to go to people poor enough to qualify for government subsidized rentals, and another $1 trillion targeted at minorities Government memos through the 1990s to mortgage providers: - 1992: on interest rates that are set to rise after a period, use the early low payments to determine whether they can afford a mortgage - 1995: if someone does not have a credit score, you can use a cancelled paycheck - 1996: appraisals can now be done by only inspecting the outside of the house → "led - to significant reductions in time and cost"

Problems with platforms

- Platforms substantial benefits often mean that their costs get overlooked. - Good design can overcome some of the negative social repercussions from these platforms however (Luca) - One common problem: overly positive reviews driven by the fear of retaliation - Can be partially offset by both a system of "simultaneous reveal", as well as more anonymity - The problem of bimodal J curves (where only extreme positive and negative reviews are written) can be ameliorated by repeated email notifications encouraging reviews.* - Verifying purchases would help get around spurious self-reviews, or those generated by competitors, as would giving more weight to reviewers with longer purchase histories. - Also useful: background checks like at Care.com, insurance and publicized liability rules for breaches of ethical behavior.* - Discriminatory behavior is harder to avoid - Possible options: removing as many ethnic/ gender markers from profiles as possible? - Adopting "priming" tools? These remind users of ethical behavior and could be introduced through acknowledgement boxes that say things such as "AirBnB prohibits discriminatory behavior". - Alternatively, AirBnB could manipulate the search order so that hosts who reject a great deal of guests get listed further down?

Platforms: types

- They can be two sided (both agents have similar market power) or one-sided (where one side appears to be the payee). - One-sided are often dominated by network externalities where one person's purchase makes others more valuable - Examples of two sided: AirBnB, Uber, credit cards (?), taskrabbit, prosper - Examples of one sided: ladies nights, search engines

US Agricultural Policy and Developing Countries: Thompson

- US agriculture policy has adverse effects because: restricts imports of products in which developing countries have a comparative advantage - stimulates an overproduction of certain commodities in the US, which lowers the international price of goods from which low-income country farmers derive their incomes - distorts food markets in developing countries by the provision of in-kind food aid - reduces official development assistance for agricultural and rural development

US Agricultural Policy and Developing Countries: Chambliss

- US food aid accounts for 50% of global food aid - US needs to allow local and regional purchases, at least in the case of emergency food aid - EU, Australia, and Canada have moved in this direction - US has NOT due to lobbying by domestic agricultural groups and shipping companies

Can debt forgiveness work?

- World Bank/ IMF HIPC initiative provides debt forgiveness to poor countries with good policies - although the HIPC programs have been more successful at reducing debt burdens than prior efforts, they have still not provided much growth - should only occur when clear case of new government and no chance of more forgiveness

Multinational Corporations (MNCs)

- about 82,000 worldwide, account for a third of world trade - operate in many countries, often with integrated production chains - include manufacturing, financial and service firms - opposing views - reality: contribute to global interdependence → have a stake in an efficient international financial system

The "Reasonable" Approach (Truman)

- although the US should push for voluntary international best practice guidelines for SWFs, they should minimize barriers to investment in all forms - those who call for more controls forget that the US government itself holds 20% of the government-controlled section of the capital market - limiting voting rights would disenfranchise several trillion dollars worth of US state and local pension funds abroad - although SWFs have the potential to disrupt capital markets, their mere size discourages them from doing so - increased scrutiny is important, but the US has already taken steps to do this → the Committee on Foreign Investment in the US (CIFUS) has the power to evaluate and block US or foreign acquisitions to protect national security or enforce US law - the US should not act unilaterally but endorse the OECD process to strengthen governance of international investment and work with the IMF → create a voluntary code of SWF best practice

EU Agricultural Policy and Developing Countries

- as with the US, the EU's Common Agricultural Policy (CAP) is detrimental to farmers in developing countries - officially its aim is to "promote European agriculture by increasing farmers' incomes and supporting the provision of public goods such as the environment" - in reality, three-quarters of the money is handed out in direct payments to farmers - despite reductions in the CAP over the years, it absorbs almost half of the EU budget

Traditional IPE Schools: Economic Liberalism

- believe states can mutually benefit from economic exchanges → reinforced by institutions, norms and interdependence - emphasize shared interests in economic exchanges - main goal of economic policy: maximization of total wealth through achieving optimal efficiency - trade can benefit both parties - minimal governmental role

Social Traps

- even if all the assumptions for efficient market hold, when individual rational choices interact, the result can still be suboptimal for society → often related to the provision of collective goods - a collective good has two defining characteristics: non-excludability and jointness of supply given these characteristics, individuals have incentives to free ride and enjoy the benefits without contributing to the provision → unlikely that these goods will be provided, despite their societal benefit EX: international prisoners' dilemmas. Cooperation is especially difficult to maintain when the discount rate is high.

Institutions: Overcoming social trap dilemas

- given social traps, societies try to create institutions that can overcome the social trap dilemmas: - constrain uncertainty and promote stable expectations - limit manipulation of information for individual gain - constrain individual temptation to defect - extend individual's time horizons definition of institutions: "the rules of the game in in society... the humanly-devised constraints that shape human interaction" (North) → rules, laws, and customs

Cases against Free Trade

1. for a "large" country, a tariff/ quota lowers the price of imports in world markets → terms of trade gain → may exceed losses to consumers and exporters BUT: - only one optimal tariff rate exists - would require constant adjustment - need to be careful of retaliation from other countries 2. domestic market failures may exist that cause free trade to be a suboptimal policy: - persistently high under-employment of labor - persistently high under-utilization of capital - technological societal benefits not captured by firms - environmental societal costs not paid for by firms 3. Imperfectly competitive industries are generally dominated by a few firms with the potential to earn monopoly profits → subsidies can shift these profits from a foreign firm to a domestic firm BUT: - requires detailed information about firms - foreign retaliation likely - can be manipulated by politically powerful groups

Cases for Free Trade

1. producers and consumers allocate resources most efficiently when governments do not distort market prices through trade policy - overall country welfare higher with free trade - consumers pay lower prices 2. allows firms or industry to take advantage of economies of scale 3. provides competition and opportunities for innovation 4. free trade is the best feasible political policy, even though there may be better policies in principle → other policies would be quickly manipulated by special interests, leading to decreased national welfare 5. links countries together 6. moreover, the costs of protectionism are often understated because they do not include: - secondary effect on other industries - bureaucratic costs of enforcement - reduction in exports due to the effect on foreign incomes - a welfare effect since low income categories are hurt more

Overview: Phases of the Crisis

1. uptick in interest rates meant that many sub primers could not pay their mortgages → had to foreclose/ sell houses → house prices plummeted → people now owed more than their houses were worth 2. rising US sub-prime arrears → losses/ downgrades on similar securities → global loss of confidence in structured securities → investors started to sell 'risky' securities en masse 3. bank's balance sheets started to look shaky → banks hoarded cash and stopped funding each other's shortfalls → funding problems spread

World Bank

187 members created during Bretton Woods as the International Bank for Reconstruction and Development (IBRD) role: "lending to finance infrastructure development and other projects that will facilitate economic development" began with assistance to war-torn Europe

IMF

189 members - make contributions to the IMF broadly based on their relative size in the global economy - votes are weighted accordingly - allocated Special Drawing Rights (SDRs) coordinates international currency exchange, the balance of international payments, and national accounts how exactly? - economic surveillance - lends to countries in difficulty, and provides technical assistance and training to help countries improve economic management

Oil Overview

Both politics and economics determine the price of oil, which in turn has important implications for oil producing and consuming countries to get an idea of it's role, we need to look at a number of things: - which countries are the big players in the oil market - what determines the international oil price - what determines the domestic oil price - the economic impact of oil price rises

What about loans tied to reform?

Dollar: efforts to reform countries through World Bank/ IMF conditionality have failed most reform has been home grown Easterly: adjustment lending didn't work because: - indiscriminate lending created poor incentives to carry out reforms - countries just pretended to adjust - donor concern for poor/ appearance of failure made a hard line incredible - IMF/ World Bank tended to react to crises rather than act pro-actively

Loans and reform: Is reform possible?

Dollar: large scale financial assistance needs to be selective, targeting countries that put aid to effective use Easterly: need open competition between donors and countries, facilitated by a transparent information bank

Combination Model (Trade)

politicians need both popular policies (MV theorem) and funds (special interest groups) to run campaigns → trade off results in barriers to trade being erected

What about the recent fall in price (oil)?

obviously hurts the big oil producers - energy companies - countries that rely on oil revenue helps big consumers → recent fall has allowed some countries to cut distorting and costly subsidies a long term fall could be detrimental to the environment as it would disincentivize investment in renewables

TEST 2

TEST 2

Bretton Woods System

differed from the gold standard in 3 fundamental ways: i. pegged exchange rates could adjust in instances of 'fundamental disequilibrium' ii. controls permitted to limit international capital flows iii. IMF created to monitor national economic policies and extend financing to countries at risk although these measures were designed to correct the flaws of the earlier gold system, they failed in practice: - countries were loathe to adjust pegs - IMF resources were too small to deal with financing problems related to war reconstruction capital controls became harder to enforce - easy to over/under invoice - growth of multinational companies given all these problems, the survival of Bretton Woods till 1971 is surprising and probably only due to international cooperation among governments and central banks. By 1972 however, most countries had cut their links with gold and many floated their currencies.

US Agricultural Policy and Developing Countries

US farm policies have economic and social implications for rural sectors in developing countries. 70% percent of those in absolute poverty live in rural areas and depend on farming for their livelihoods

Interest Groups

Why don't all non-hegemons free ride? Possibly: pressure from interest groups. Interest groups form because... 1. enough individuals must share some common interest 2. generally the interest should be a narrow one, in order to limit identity problems 3. need access to relevant policy makers or the ability to form coalitions

Debt forgiveness: what is debt?

borrowing money to fund accumulation - advantages: control, no short-term sacrifice - disadvantages: constant drain on surplus, can lead to debt spiral and default - defaults require lengthy renegotiation and restructuring - for lenders, debt renegotiations involve a collective goods problem

Potential costs of FDI

can crowd out domestic investment in lesser developed countries → high technology gap between local and domestic firms could put local firms under significant pressure loss of local control of cultural and strategic activities as a result of these costs, sometimes conflict arises between host countries and MNCs occasionally conflict occurs between MNCs and their home country today most host countries welcome FDI, although restrictions are still common

Cowen Policy Suggestions

carbon tax vs. regulation? cut back on minimum parking requirements in suburban developments easing zoning restrictions in high density areas (fewer commuters) eliminate all subsidies to large agri-business

Causes of the Crisis: FDIC and central banks at disadvantage

derivative trading agencies housed in firms that are too big/ politically powerful to police/ wind up

FDI

direct investment if it comprises ownership of a branch or participation in a partnership → at least 10 percent of voting rights in a local organization although generally thought of as investment in a country by a new foreign entrant, the majority of FDI actually occurs within established foreign affiliates portfolio: equity and debt securities that do not fall into either of the above categories grey area: private equity funds FDI can also be classified by type of activity: horizontal or vertical

The "Fearmongers" (Luft)

increase in SWFs from states that are not allies → likely that these can use control of local firms for political ends - acquire covert commercial information - can invest in media companies to influence output - the size of SWFs can mean large market disruptions - Luft argues for much stricter SWF monitoring and rules, especially the requirement that they be limited to non-voting stakes in companies

Developing countries overview

most people live in the "global south", "third world", "developing countries" key issues: poverty, urbanization, political instability many theories as to why many of these countries remain poor and why others have grown → we will look at some of the more prominent debates in more detail

Types of international monetary systems: history

since countries prefer monetary arrangements that are "in sync" with their trading partners, the international monetary system is characterized by network externalities by the beginning of the 20th century, most countries had moved away from a bimetallic standard and adopted some form of gold system gold standard mechanism: merchandise exporters received payment in gold, importers paid in gold → if a country was in deficit → net gold outflow → less gold within country led to a fall in prices → imported goods became more expensive → trade deficit eliminated although this worked for a while, by the early 20th century new markets and trading technologies started to limit governments ability to control capital movements the growth of suffrage and unionism also meant governments started to be concerned about employment and not only defending the exchange rate during WWI and WWII, countries were forced to float. After the WWII, however, memories of a "stable gold standard era" made many countries want to return to a similar system → Bretton Woods

World Bank: Criticisms

some critics argue that WB projects have harmed the environment and reduced cultural diversity others complain that the WB fosters a form of donor imperialism ^these complaints are less true today than they used to be. meanwhile... other complaints still need to be addressed: - run by a small number of economically powerful countries - bureaucratic - lots of unproductive spending

IMF: Criticisms and reform

some critics have accused the Structural Adjustment Programs (SAPS) of reducing social stability and increasing poverty others have focused on the IMF's delayed response to crises and lack of preventative measures led to reform agenda - changes in IMF governance to enhance the role of developing countries - steps to deepen economic surveillance - new instrument: the Flexible Credit Line (FCL) was created to allow countries with strong fundamentals to access IMF funding to address actual or potential BOP pressures, without conditionality - countries not eligible for the FCL can obtain IMF financing beyond the normal access limits under Stand By Arrangements (SBAs)

Can aid work?

some economists like Sachs argue that countries won't grow if their savings are too low (financing gap). They suggest this gap be filled with aid → investment → growth problems: - unconstrained aid can just increase consumption - other things more important for growth than access to capital: technology, access to markets, property rights, good governance

Shifting attitudes (drugs)? (evidence from other countries)

stance supported by evidence from countries like Portugal: - jail time for drugs replaced by offer of therapy - no increase in "drug tourists" as speculated - illegal drug use among youth declined significantly - number of people seeking treatment doubled - even if the decline in users could be due to other issues, the predicted increase in drug usage certainly did not occur still difficult to sell because the debate in many countries is not based on empirical evidence but on "speculation and fear mongering"

US Agricultural Policy and Developing Countries: Amehou

subsidies of the US and other OECD countries adversely affected the competitiveness of African agricultural products although AGOA provides significant preferences for African products, US subsidies nullify these provisions

What determines the international oil price?

supply factors: - changes in cost of production - political shocks - transport shocks - OPEC cohesion/ cheating demand factors: - economic growth - expectation of future growth

Types of Trade Barriers

tariffs: tax on imports - specific - ad valorem quotas: directly restrict the quantity of imports voluntary export restrictions (VER): countries limit exports non-tariff barriers export subsidies

Regimes and Electoral Systems

these special types of institution can have far reaching effects types: - democracy vs. autocracy - proportional vs. plurality (winner-take-all) - parliamentary vs. presidential - democracies: usually have more established and transparent rules of transition → contributes to stability of expectations - proportional systems: politicians gain office if they surpass a threshold → means smaller parties can still have an influence, even if their views are not shared by the majority - plurality: tends to protect against extremism as most campaigns end up targeting median voter - presidential systems: executive and legislative are voted for separately → creates 'checks' against abuse but can lead to a divided government - parliamentary system: executive and legislative are more tightly linked → gives executive far more control over legislative agenda, but makes executive more sensitive to his/her party's interests

Heckscher-Ohlin Theory

trade patterns are obviously related to productivity. The HO theory links this productivity to differences in resources → countries have relative abundance of a factor of production → economies will export goods that are intensive in their abundant factors of production and import goods that are intensive in their scarce factors of production → this will raise the price of exports EX: this can explain democrat and republican policy over the years. Through the 19th and 20th century, the US moved from a land rich, labor and capital scarce country to one with more capital and skilled labor. The states moved at different paces, however, with democrats initially based in land rich states. Therefore democrats were initial proponents of free trade and republicans were pro-protectionism. This changed as the US built up its labor and capital. Its imports changed and democrats grew opposed to free trade.

South-South FDI

until recently most FDI was North-North or North-South last two decades → rise in investment between developing countries. - more labor and export intensive - less corporatized and better suited to a developing country environment - experience operating with poor infrastructure etc - lower level of technology may be easier to absorb