412 Midterm Main Flashcards
What were the main characteristics of the First Era of Globalization (1870-1914) in terms of international power and economic growth?
The UK was the dominant hegemonic power, coordinating global trade and finance through its colonial empire. There were no formal international institutions, but the UK’s position facilitated trade, while moderate growth was driven by the industrialization of Western Europe.
How did the gold standard and the UK’s role as the “world’s banker” impact cross-border lending and investment during Period I (1870-1914)?
The gold standard provided a stable exchange rate, which, combined with the UK’s hegemonic status, enabled significant cross-border investment, especially within the UK’s empire. This led to early foreign direct investment, although investment was not yet as widespread globally as it is today.
How did the aftermath of WWI impact globalization during the Interwar Period (1919-1939)?
The heavy reparations imposed on Germany and the refusal of the U.S. Congress to ratify the League of Nations weakened efforts to stabilize and recover globally. Without a dominant power or effective international institutions, global trade and stability suffered, and the League of Nations failed to facilitate effective international cooperation.
What economic and financial characteristics defined the Interwar Period (1919-1939)?
Economic growth slowed to 0.88% per capita, foreign direct investment (FDI) declined, and adherence to the gold standard faltered. Barter systems, such as using cigarettes as currency in Germany, emerged as economic instability spread. This period of stagnation ended with the onset of World War II.
What were the main Bretton Woods institutions, and what roles did they play in the Post-WWII period (1945-1973)?
The main Bretton Woods institutions were the International Monetary Fund (IMF) and the World Bank. They were established to provide financial stability, support reconstruction, and encourage economic growth. Additionally, the General Agreement on Tariffs and Trade (GATT) aimed to reduce trade barriers and promote international trade.
Describe Globalization Period III Postwar (1945-1973)?
U.S. hegemony, along with the power of the Bretton Woods institutions, provided the financial infrastructure that enabled rapid global economic growth (2.92% per capita) and trade expansion. The U.S. became the main source of FDI, although it was not yet a major driver of investment, and the dollar-gold standard was used to maintain currency stability. Growth was less centralized, with Japan emerging as an additional growth center.
How did new regional organizations and agreements impact globalization during the Contemporary Globalization period (1980-2008)?
New regional organizations, such as the EU and the Warsaw Pact, complicated the global order established in the post-WWII period. These frameworks added layers to international cooperation but also facilitated growth, with foreign direct investment (FDI) increasing and supply chains becoming more global.
What factors contributed to strong trade growth relative to GDP in the Contemporary Globalization period (1980-2008)?
Trade grew faster than GDP due to the globalization of production networks, rooted in advancements in cheap shipping costs from the 1960s and 1970s. Economic growth expanded beyond Europe, and international supply chains allowed companies to source and produce parts globally, increasing reliance on trade.
How has the diffusion of global power in Period V (2010–present) affected traditional institutions like the Bretton Woods system?
With power spreading to the EU, China, and emerging markets, the US no longer holds the same influence over international economic decisions. This shift has led to phenomena like the Brussels Effect, where the EU’s regulatory standards shape global markets, such as the universal adoption of USB-C chargers on new iPhones.
Why have trade and FDI growth decelerated in the Current Period (2010–present)?
Trade and FDI growth have slowed due to rising protectionism and policy caution in response to the rapid growth of the early 2000s. Additionally, geopolitical tensions (e.g., US-China rivalry, conflicts involving Russia) have led states to pursue conflicting economic goals, often using trade and investment as strategic tools.
What impact do floating exchange rates have on global trade and economic stability in the Current Period?
Floating exchange rates allow countries more economic flexibility, but they can complicate international trade by introducing volatility. This volatility can affect the mutual benefits of trade agreements, as fluctuating rates alter the relative value of exchanged goods and services.
How is globalization defined in terms of its three main components?
Globalization is a process characterized by: (1) increased economic exchange across borders relative to total output, (2) greater integration between local and national markets, and (3) the rise of large-scale transnational organizations.
Could globalization reverse in the current period, similar to the Interwar Period (1919-1939)?
Although rising protectionism (e.g., US-China trade tensions) poses a risk, trade wars are costly, and cross-border trade has shown resilience, as seen in the recovery of global shipments after COVID-19. Market integration and international response to the pandemic, led by large organizations like the WHO, indicate that globalization is more robust. Frustration with organizations like the WHO and UN could be a red flag, but overall, globalization has proven resilient in the face of recent challenges.
What were the Bretton Woods institutions, and why were they created?
The Bretton Woods institutions include the International Monetary Fund (IMF) and the World Bank, established during the Bretton Woods Conference in 1944. Their purpose was to avoid the economic conflicts of the Interwar Period by promoting financial stability and supporting post-war reconstruction, aiming to create a stable international economic order. IMF SHORT RUN BOP, WB LONG RUN DEVELOPMENT
How did the Bretton Woods system address issues from the Interwar Period (1919-1939)?
The Bretton Woods system sought to prevent the economic instability and protectionism of the Interwar Period by establishing the IMF and the World Bank. The IMF provided financial assistance for short-term stability, while the World Bank focused on long-term development. The General Agreement on Tariffs and Trade (GATT) also reduced trade barriers, fostering global economic integration.
What role did the U.S. play in setting up the Bretton Woods institutions, and what were its motives?
The U.S. played a central role in creating the Bretton Woods institutions, motivated by a desire to establish a stable, rule-based international economic system. This system would facilitate global trade and investment, benefiting the U.S. economy. Strategically, the U.S. also aimed to prevent the spread of communism by promoting economic growth and stability.
How are factor abundance and factor intensity related to a country’s trade patterns in exports and imports?
Countries with an abundance of certain factors tend to export goods that are intensive in those factors (e.g., land-abundant countries export land-intensive goods). Conversely, countries import goods that are intensive in factors they lack, in line with the Heckscher-Ohlin theory, which reinforces their comparative advantage.
How do underlying factor endowments within a country influence relative prices, and can you provide an example?
Abundant factors support industries that use them intensively, leading to lower prices due to local production and reduced import costs. For example, tropical fruits are cheaper in regions where they grow abundantly than in the U.S., where high shipment costs increase their prices. Conversely, U.S. cotton is exported for labor-intensive manufacturing in countries like Bangladesh, where labor is more abundant and thus cheaper.
How does specialization relate to factor endowments, and how can factor endowments change over time?
Specialization involves a country focusing on industries that are intensive in its abundant factors. Factor endowments can change over time with investments, FDI, or rising wages. For example, a country may shift from agriculture to manufacturing as wages stay low, then later move into higher-skilled industries as wages rise, impacting its comparative advantage and trade patterns.
Who are the winners and losers from trade in labor-abundant versus capital-abundant economies?
In labor-abundant economies, trade benefits labor-intensive industries by expanding markets, but pressures wages to stay low. Capital-intensive industries struggle due to competition from imports, leading to higher prices for capital-intensive goods. In capital-abundant economies, trade favors capital-intensive industries, raising returns on capital, while labor-intensive industries face competition from cheaper imports.
What is a tariff, and how does it function as a trade policy tool?
A tariff is a tax on imports, with varying levels and structures across countries. Tariffs help protect domestic industries, especially infant industries, by making imports more expensive and allowing local goods to be more price-competitive against foreign products.
