2A Growth of the Global Economy Flashcards
(21 cards)
US gold reserves after WWII
~$26 billion out of ~$33 billion in 1946 (about 2/3)
Bretton Woods Agreement
July 1944
- Fixed exchange rates
- Managed by international organisations
Bretton Woods Institutions
- International Monetary Fund
- World Bank
Bretton Woods Fixed Exchange Rate System
Establish parity of currencies in terms of gold and maintained exchange rates within 1% of parity
International Monetary Fund
Prevented changes in the exchange rates, and held buffer stock of currencies in order to tide members with payment imbalance
World Bank
Provide long-term loans to countries to help with post-war recovery and promote economic development (long-term development of countries)
Limitations of BWS Institutions
- IMF’s credit facilities were insufficient to meet Europe’s needs
- World bank only had $570 million for lending
- IMF only had $8.8 billion on founding
General Agreement on Trade and Tariffs (GATT)
Multilateral treaty organisation to lower trade barriers within member states
GATT Rounds
9 Rounds (1947-1995)
Geneva Round (April 1947): 23 countries affecting more than 4500 tariffs affecting half of world trade
Geneva Round 4 (1955-56): 26 countries reducing $2.5 billion in tariffs
Impacts of GATT
- Import tariffs in most European and North American countries 1/2 of pre-war levels.
- 73% reduction in non-agricultural tariffs (although mostly by the US)
Limitations of GATT
- Developing countries not part of GATT
- Developing countries relied on protectionism to stimulate national industry
- GATT lacked enforcement power
US dominance of BWS and GATT
- Fixed exchange rates worked due to economic dominance of the USD
- US was the biggest contributor to IMF and WB initially
- US tolerating protectionism and leading in tariff reductions in the GATT
US unilateral foreign aid
- Truman Plan form Greece and Turkey
- Marshall Plan ($17 billion to 16 Western European nations 1948-1952)
- Korean War (1950-1953)
- Benign occupation of Japan, minimising reparations and created favorable conditions for recovery
US toleration of protectionism
- Uk devaluing the pound by 30% (Sep 1949), followed by other European countries
- US procurement contracts to Japanese businesses during the Korean War
- UK’s Imperial Preferences
- EU’s Common Agricultural Policy
Reasons for quick recovery of Western Europe and Japan
- Pre-war industrial base
- High savings rate
- Keynesian-style economic polices
Role of Western Europe and Japan in managing the international monetary order
- London Gold Pool (1961)
- Increased contributions to IMF and World Bank
Role of Western Europe and Japan as trading partners and investors
- Steel production in Western Europe increased from 12 million tons in 1946 to 41 million tons in 1952
- Western Europe’s exports rose from $8 billion in 1946 to $27 billion in 1951
- Britain invested over $6 billion abroad in Commonwealth countries throughout the 1950s
Economic integration in Western Europe
- European Coal and Steel Community (ECSC) in 1950, creating a common market for iron, coal and steel sectors
- European Economic Community (EEC) in 1957 which facilitated labour flows, technological transfer and regional integration
Trade between ECSC grew by 50% from 1958-1960
Japan’s impact on Asia
- ‘Flying Geese’ model, Japan relocated production of low-value products to newly industrialising countries in 1960s
- Japanese FDI in Asia increased from $1.4 billion in 1985 to $8.2 billion in 1989
Role of MNCs
- By 1973, MNCs invested $200 billion worldwide, 3/4 of which in advanced industrial countries
- MNCs in developing nations refused transferring technology and benefits to the Third-World countries
- FDI from MNCs improved the quality of labour
Role of cheap raw materials
- Price of oil kept low at $2.50~$3.00 from 1948-1960s, helped create low-cost production for manufacturing industries
