Midterm 1 Flashcards
(23 cards)
Globalization
Good period: 1814-1915
-technology (steam engine, railroads, and telegraphs)
- politics: Britain leads opening of system, opens market to grain
Bad period; 1914-1945
-Great Depression (protectionism) and WWII (broken world economy)
- rebuilding world economy (Breton Woods, IMF, GATT and world bank)
Good period: 1945-present
4 subjects of IPE
- International trade system: WTO, GATT, and Regional trade agreements
- International monetary system: fixed exchanged rates, the gold standard, and the International Monetary Fund
- Multinational corporations:firm that controls production facilitated in at least 2 countries (1:4 of production and 1/3 of world trade)
- Economic development: deliberate economic strategies
Mercantilist approach
- national wealth and state power are connected (power comes from wealth
- trade is a tool to acquire wealth (only trade surpluses: export more than import)
- value manufacturing and high tech manufacturing over other types of businesses
Liberalism approach
Liberalism :separate economics and politics
- economics is about individuals not state power
- states gain from all trade regardless of trade balance
- best off producing what your best at (relative advantage)
- market is best for social welfare and individuals should make their own choices since all parties benefit from trade
- states must establish property rights
- states should intervene when government fails
Marxism approach
- Capitalists do not pay full value of good based on labor used
- concentration of capital in the hands of the wealthy
- declining rates of profit, thus capitalists are forced to reduce wages
- there is an imbalance of production and consumption which increases inequality and leads to social revolution
- state acts as a tool of the capitalist class and exploits the developing world
Modern IPE approach: interests and institutions
Main actors: individuals , firms, interest groups
Interests: goals and policy objectives
Political institutions:domestic and international, democratic or not
American vs British schools of IPE
American: use the scientific method to test theories against evidence
-state centric
British: more normative and interdisciplinary. Focuses more on idealist methods and moral philosophy
Hegemonic stability theory
Hegemon: a country with a disproportionate share of production
- lead the development of technologies
Public good: non excludable and non rivalry
Theory: hegemon provides the public good and stable international economic order
- Britain(1st) US (2nd)
- the hegemon’s decline disrupts the system (I.e. WWII)
After hegemony
- International regimes may persist to help states reach agreements and increase cooperation
- hegemon may be necessary to build regime but not necessary to maintain it
Examples
- end of Cold War
- rise of China
Principles of GATT and WTO
- Market liberalism: open trade system raises world welfare (I.e. Peru vs EU over sardines)
- Nondiscrimination
- Most Favored Nation; every benefit must apply to all members
- national treatment: once imported, foreign goods are treated the same as domestic goods - Reciprocity: countries make roughly equal size trade concession
GATT system
-Had multilateral negotiations to liberalize trade
8 rounds of negotiations (from 1947-93)
Negotiations:
Kennedy round: was the first round to address non tariff barriers
- negotiations were plurilateral ( only those who signed the were bound to them)
Uruguay round: laid foundations for the WTO (proposed by Canada
Agreements under the WTO
- GATT: general agreement on tariffs and trade
- GATS: general agreement on trade in services
- TRIPS: trade related intellectual property rights
- TRIMS: trade related investment measures
WTO decision making
Officially consensus but…
- launching of rounds: law based bargaining (everyone gets a voice)
- closing of rounds: power based bargaining (developed countries set the agenda)
Sources of bargaining power
- market size
- exit option
- agenda setting (I.e. access to Green room)
Role of LDCs
- had limited involvement in early years
- increased roles/ special treatment (1960-70s)
- 1980-95: LDCs more open to GATT principles
- 1995-present: LDCs displeased with Uruguay round and disagree in the Doha round
Exceptions to fairness in WTO
- Generalized system of preferences (GSP): lower tariffs on imports from developing countries
- Regional trade agreements (RTAs)
- customs unions and free trade areas (I.e. NAFTA)
RTAs
- should be trade creating (not trade diverting)
- reduce barriers internally (more trade from more efficient internal suppliers)
- maintain external barriers (reduces trade with more efficient external suppliers
Article 24: eliminate barriers within members
- not raise tariffs on average to external countries
Pros
- a means to liberalize when WTO is stalled (sets example for broader liberalization )
Cons
- reduce need for multilateral negotiations
- little oversight but may be challenged in WTO
Brexit
The EU customs union (RTA)
- no internal barriers to trade other than NTBs
- common external trade policy
Problems with Britain leaving EU (I.e. Japan)
- tariffs UK and EU
- divergence in UK and EU regulations
- loss of free movement of employees (since Japan employs over 140000 British workers)
Doha round (most recent)
-increasing technical barriers to trade (TBTs) (backsliding on tariffication)
Hecksher-ohlin model
2 factors of production: labor and capital
- abundant factors are less expensive to employ
- comp. adv. in goods that use abundant factor intensively (countries export these goods)
Prisoners dilemma
Why not just liberalize?
- protect domestic interest groups
- optimal tariffs
Protect, protect is equilibrium outcome
How cooperation is sustained
- Repeated interactions
- Reciprocity strategies
- Both sides value future payoffs
How the WTO and GATT facilitate cooperation
- members repeatedly interact with. Each other
- bargaining occurs through reciprocity
- reciprocal punishment is facilitated through the DSM
- GATT has weak dispute settlement (rulings had to be approved by all members)
- WTO had stronger dispute settlement: rulings are adopted unless rejected by all members and standing appellate body
WTO dispute settlement (DSM)
State filed request for consultations
-negotiations before trial
Request for panel (automatically granted)
Appeals are automatically granted
What it offers
- clearer rules to the system (facilitated monitoring)
- self enforcing: states can retaliate against violations
Factor model
Labor vs capital
