exam time Flashcards
1
Q
what are the 4 schools of thought about IPE?
A
traditional: 1. mercantilist schools 2. liberal school 3. marxist school modern: 4. interests and institutions
2
Q
what are the mercantilist school’s main arguments regarding:
- the most important actor?
- the role of the state
- image of IPE
- proper objective
A
most important actor: state
role of the state: intervene to allocate resources
image of IPE: conflict between states over trade
proper objective: enhance national power
3
Q
what are the liberal school’s main arguments regarding:
- the most important actor?
- the role of the state
- image of IPE
- proper objective
A
most important actor: individuals
role of the state: property rights
image of IPE: harmony
proper objective: enhance aggregate social welfare
4
Q
what are the marxist school’s main arguments regarding:
- the most important actor?
- the role of the state
- image of IPE
- proper objective
A
most important actor: capitalist class
role of the state: protect the capitalist system
image of IPE: exploitation of labour
proper objective: promote equal income distribution
5
Q
what are the interest and institutions approach’s main arguments regarding:
- the most important actor?
- the role of the state
- image of IPE
- proper objective
A
most important actor: winners and losers of the poltiical economy
role of the state: survive in office (politicians)
image of IPE: mix of conflict and cooperation
proper objective: politically constrained efficiency (best policies given political constraints)
6
Q
what is the main arguments of interests and institutions approach
A
the interests that matter differ based on the question you want to answer:
- material (societal) interests: what increases my welfare?
- political (institutional) interests: what will keep me in office?
7
Q
What did the dark leviathan article suggest
A
- the need for IPE (pure market is extremely difficult)
- irony that by trying to create a market without a government (libertarian) control failed -> ended up needing to be the government
8
Q
why is trade beneficial?
A
specialization -> exploit comparative advantage
- net public good
9
Q
what are types of trade protection?
A
- tariffs
- quotas
- non-tariff barriers
10
Q
what are types of non-tariff barriers to trade?
A
e.g. subsidies, protection laws, health standards, environemntal standards
11
Q
what prevents successful bargaining?
A
- info problems
- ability to commit to agreement
- outside options
12
Q
How can you resolve the problems to successful bargaining?
A
- less states
- information (monitoring compliance)
- repeated interaction (punish, reciprocation, long-term gains)
- international institutions (linking issues)
13
Q
what are 3 elements that define the WTO?
A
- establishes common principles and rules
a. market liberalism
b. non-discrimination -> MFN + prohibits non-tariff barriers - intergov bargaining process
- dispute settlement mechanism (legal reciprocation of victim states)
14
Q
What are the exceptions to the MFN of the WTO?
A
- RTAs: free trade areas and customs union
2. developing countries can apply lower tariffs (Generalized System of Preferences)
15
Q
How is the dispute settlement procedure in the WTO different from the GATT’s?
A
GATT: defendant could block all actions throughout the dispute settlement mechanism -> meaningless mechanism
WTO: not anymore
16
Q
How does the WTO aid cooperation?
A
- providing forum for barganing
- monitoring behaviour
- enforcement mechanism through institutional reciprocity
17
Q
Why has WTO progress been stalled recently?
A
due to diverse interests and domestic politics
18
Q
What incentivises states to participating in the WTO?
A
- gains of trade -> tying trade relationships to many
- easy to shift blame from politicians to the WTO
- WTO flexibility - lots of exceptions
19
Q
what are arguments that the WTO works to increase trade?
A
- members do engage in more trade
2. might act as a deterrent to impose trade barriers
20
Q
what are arguments that the WTO doesn’t work to increase trade?
A
- unclear if states would’ve just liberalized unilaterally
- states bring very little cases to the WTO
- don’t eliminate power politics
21
Q
What is a threat to the WTO lasting?
A
Trump undermining WTO - e.g. vetoing the appointment of appellate judges & trying to find bilateral agreements outside WTO
22
Q
What trend have we seen regarding regional trade agreements (RTAs) recently?
A
increasing amount of RTAs in past 20 years
23
Q
what are types of RTAs?
A
- free trade areas (FTAs) (most RTAs)
- custom unions
- bilateral courts
24
Q
what are free trade areas (FTAs)
A
- eliminate tariffs among members
- seperate trade policies with non-members
- e.g. NAFTA
25
is free trade a global public good?
yes
| -> non-excludable and non-rivalrous in consumption
26
what are the implications of free trade being a global public good?
- suffers from collective action problem (even if ignoring domestic political incentives)
- > incentive to consume goods and not contribute (free ride)
27
what is the hegemonic stability theory
one dominant actor can shoulder the burden of enforcement for all
28
who benefits from the collective action problem of trade?
small groups (that experience it less) -. disproportionate representation (e.g. rural voters)
29
what is the Hecksher-Ohlin (H-O) theory?
- explains who trades with who
- resources in abundance -> exported
- resources in scarcity -> imported
so:
a. industrial countries = rich in capital + skilled labour = export capital intensive and skill requiring goods
b. developing countries = rich in land + raw materials + unskilled labour = export agriculture, minerals, textiles..
30
What is the factor of production approach theory? (stolper-samuelson approach)
- who wins and loses from globalization/free trade
- based on how it is being produced
- winners of free trade = producers of abundant resource
- losers of free trade = producers of scarce resource
- assumes factors are perfectly mobile
- predicts that trade policy generates class conflict (e.g. capital vs labour)
31
What is perfect factor mobility and its implications?
ease by which factors can move from 1 industry to another
| easy moving -> labour demand decrease -> decrease in wages
32
What is the sector approach theory? (ricardo-viner approach)
- who wins and loses from globalization/free trade
- based on the industry/sector:
a. import-competing (competing with imports from abroad)
b. export-oriented
- owners and workers on the same side
33
what are critiques of the factor of production and sector approaches for the winners and losers of trade?
1. individual level evidence doesn't strongly support either (individuals don't know much about trade, socio-tropic preferences)
2. today: complex global supply chain
34
what is most manufacturing job losses blamed on and what is it actually caused by?
- blamed on: foreign competition
| - actually: technological change
35
Why did the Smoot-Hawley Tariff Act of 1930 emerge and what did it change?
- due to a recession and very low prices of agriculture (low income for farmers)
- put tariffs on many foreign goods
- product of logrolling (farmers traded votes for protection)
- made possible by the U.S. congress institutional structure: focus on district gains (vs. national)
36
what were the consequences of the Smoot-Hawley Tariff Act of 1930?
- contributed to the great depression
- exporters hurt by retaliation
- consumers hurt by tariffs
- Reciprocal Trade Agreemnt Act (RTAA) (1934)
37
What did the Reciprocal Trade Agreement Act (RTAA) of 1934 change?
- gave president (vs. congress) greater autonomy to set trade policy -> focus on national welfare
- president could negotiate bilateral trade agreements (vs. unilateral)
- gave congress power to remove pres (but never used)
38
what was important for the emergence of the Reciprocal Trade Agreement Act (RTAA) of 1934?
- new rules and institutions (pres instead of congress) that dictate trade policy
- changing distribution of societal support (democrats came into office)
39
What institutional factors affect trade policy orientation?
1. regime type (democracy/autocracy)
2. electoral system (majoritarian/proportional)
(majoritarian -> sector based so more protection; pr -> factors of production so less protection)
3. type of dictatorship (military/party dictatorship)
4. more or less veto players
40
Do those with the most liberalized internal markets usually have the most liberal external markets?
no
- those that engage in lots of trade (external liberalization) need to provide losers of globalization benefits -> larger welfare states (internal restrictions)
- so more trade = more demand for welfare states
41
are domestic politics important to understand international politics?
yes (both societal interests and domestic institutions)
| domestic institutions shape societal interests into society
42
what is import-substitution industrialization (ISI)?
- essentially: trade protectionism
| - substituting previously imported goods with domestically producing them
43
how (what policies) have governments implemented ISI?
1. trade barriers
2. investment in private sector that wouldn't otherwise produce
3. state-owned enterprises
4. tax policies for income(e.g. taxing agricultural exports)
44
what are marketing boards?
purchasing crops (comparative advantage resource) at below world-market prices -> sell them for more at world market-price for income to pay for all the ISI policies
45
what are critcisms of import-substitution industrialization (ISI)?
1. states - bad planners (can't forsee competitive industries + poor at distributing resources)
2. government have to cover industry losses (funded through borrowing -> increased national debt)
3. persistent trade imbalance (current account) -> imports>exports because not int competitive and taxed agriculture
46
what was the trend observed between import-substitution industrialization (ISI) and export-oritented industrialization (EOI)?
- ISI -> EOI shift gradually
| - basically: liberalization
47
why didn't states shift from ISI to EOI quicker?
1. leaders motivated to remain in power
| 2. growing dependency on ISI (e.g. agricultural sector)
48
what are the effects of IMF and WB austerity programs/loans?
- help creditors gain investments
- help govs stay in power
- short term
a. less hr respect
b. increase in protest/rebellion
c. less access to health and edu among poor
- long term
a. increased growth
b. improving hr
49
ISI and EOI adoption are products of what pressures?
- domestic interests
- domestic institutions
- global forces
(ww2, great depression, IMF intervention)
50
what are multi-national corporations (MNCs)?
single corporate structure that controls and manages production establishments in at least 2 countries
51
what are different types of foreign investment?
1. portfolio investment
| 2. foreign direct investment (FDI)?
52
what is portfolio vs foreign direct investment?
portfolition investment:
- claim on some income but not enough % to control (only interested in rate of return)
- e.g. loans, stocks, bonds, sovereign lending
FDI:
- investment to control facilities located in another country
- highly immobile (fixed investment)
- MNCs are primarily involved in this type
53
why would companies invest abroad (FDI) instead of hiring a foreign company?
1. locational advantages (resources and market)
2. market imperfections -> horizontal integration (paradox of info, intangible assets)
3. market imperfections -> vertical integration (time-inconsistency problem of specific assets fixed through vertical integration)
54
how can you determine where how the mnc will function?
locational advantages presence/absence and type of assets (intangible vs specific) -> tells whether mnc is profitable and whether firm will internalize the production
MNCs are predictable response to economic environment
55
what are the benefits of FDI for host states?
1. transfer of capital -> aids economic growth
2. technological and managerial experience
3. integration into global markets (opportunity to show worth to other states)
56
what are the risks of FDI for host states?
1. could potentially reduce domestic capital
a. crowd out investment to other firms
b. require affiliates to purchase inputs abroad from MNC
2. drive local firms out of business
3. tech often tightly controlled
4. MNC objectives may clash with domestic economic objectives
57
where does most FDI flow from and to, and why?
expectation: developed country -> developing country
reality: developing country -> developing country
why?
- MNCs fear state will impose burdensome regulation or expropriation of investments
- obsolescing bargaining: over time, power shifts to govs due to fixed investment of MNCs
58
How does FDI and democracy relate?
FDI tends to flow to democracies, because of:
- higher costs of expropriation (act of gov taking property)
- better at tying their hands (more veto power to constrain policy choices)
- FDI = widespread benefits -> support
59
What are the arguments for FDI !not! being beneficial for the average citizen?
- race to the bottom
| - govs compete for FDI -> give many advantages (e.g. tax cuts, less regulation..)
60
What are the arguments for FDI being beneficial for the average citizen?
- climb to the top
- firms don't always want to lower taxes or want less regulation
- instead: want public goods provided by taxes (e.g. infrastructure, educated work force)
- FDI helps states grow -> incentives for better political regimes & public good investments
61
what forms do international regulation of MNCs take?
- no rules or institutions like the ones that govern trade
- no enforcement
- some "legal" norms of behaviour
- e.g. 1. Bilateral Investment Treaties (BITS)
- e.g. 2. Investor-State Dispute Settlement (ISDS)
62
what are bilateral investment treaties (BITS)?
due to absence of int global rules for MNCs, turn to bilateral treaties
govern:
1. treatment of foreign investors under the law
2. protection of assets and flow of assets
3. make sure foreign firms aren't exploited by host gov (so mainly protection of mncs)
63
what is the investor-state dispute settlement (ISDS)?
int regulation of mncs
- provision in many trade agreements to allow investors to sue countries
- can be crippling for poor countries
64
what are MNCs motivated by?
profits
| only care about stakeholders
65
how do actors choose whether and where to invest abroad?
economic reasons -> market imperfections type (tangible vs intangible assets) & locational advantages (yes vs no)
66
what are industrial policies?
- policies adopted to manage trade according to its interests
- channeling some resources away from some industries and directing them towards the industries the state wants to promote
- e.g. tax policy, subsidies, traditional protectionism..
67
for what reasons/strategies does the state intervene in economies?
1. to protect infant industries
2. oligopolistic market structures (non-competitive markets)
3. political and economic strategic interests
68
what are infant industries and in what situations do they emerge/exist? what do they need?
- new industries that aren't competitive at first but have long-run potential (dynamic comparative advantage)
2 reasons:
1. economies of scale (average production cost of producing each unit declines as firms produce more - more efficiency and profitability)
2. economic of experience (requiring specific skills that take time
need: industrial policies/protectionism
69
what are oligopolistic markets and strategic interests for states to implement industrial policies?
- strategy trade theory: govs support industries to minimize foreign competition and thus gain from oligopolistic markets
- oligopolies: few firms dominate in market -> higher rents
- first-mover advantage : can shut out others
- gov can capture shares of these industries by protecting them
70
what are rents
profits in excess of what a perfect market would provide
71
what affects states' ability to engage in trade policy?
institutions
- centralized vs decentralised decision-making
a. strong leaders
b. insulation from interest groups or voters
c. number of veto players
72
what is economic coercion
use of a state's economic (vs. military) power as a tool for foreign policy
-> goal = force another state to change policies or behaviour
73
what are different forms of economic coercion
1. trade sanctions
2. aid (+ve or -ve)
3. finance (lending and investment) (+ve or -ve)
4. currency (monetary) (destabilizing)
5. asset targeting (country's or individual's assets)
74
what is the suez crisis and what does it illustrate?
1. egypt nationalised UK controlled suez canal in egypt
(crucial transport route for oil in middle east, europe, USA)
2. UK, France, Israel retaliated and took control back
3. US pressured UK, France, Israel to give back control to Egypt through:
(1) financial sanctions (bank needed imf bailout but blocked)
(2) threat of monetary sanctions (devaluing currency)
(3) export sanctions on UK (oil embargo on UK)
4. withdrew due to monetary threat
75
how does interdependence relate to sanctions?
interdependence can product costly sanctions for targetted state (effective sanctions) but also sender states
- although the more it costs the sender, the more resolve it shows
76
do sanctions work?
- selection bias by many politicians when trying to answer this question
- yes they do, but usually the threat of sanctions is sufficient
77
why do politicians still sanction even if just the threat is enough?
1. miscalculation by target state
2. miscalculation by sending state
3. resolute target
4. alternative motivations/goals than sanction/policy change (e.g. making an example, expressing preference, appease domestic audience, reputation..)
78
what are comprehensive vs targetted sanctions?
comprehensive sanctions: target entire economy (Widespread costs)
targetted sanctions: target policymakers or key supporters of the gov
79
who do sanctions usually affect most?
- average citizen hurt: often intentional to hope they will overthrow or pressure regime
- elite (regime loyalists) may benefit: have monopoly on essential products and control black markets
80
do targetted sanctions work better than comprehensive sanctions?
- more humane but less effective
| - comprehensive sanctions might work best in democracies
81
what are the limits of economic coercion?
1. weaponized interdependence may lead states to avoid economic relationships with those
2. some issues so fundamental to regime's survival that cost of sanction will never be high enough
3. human rights sanctions often make repression worst
82
what are the functions of money?
1. medium of exchange (resolves the double coincidence problem)
2. store of value (allows converting perishable goods into durable goods)
3. unit of account (standard relationship between various goods)
83
is money a public good
yues
84
an increase in supply of money causes what?
devaluation
85
what is money dependent on?
expectation:
- that gov won't devalue current in future
- that others will continue to value the currency or basis of the currency (gold)
86
for most of modern history, what did the international monetary exchange system look like?
- gold and silver backed paper currencies
- gold and silver common mediums of exchange between countries
- so: each country's currency: worth the fixed amount of gold or silver
87
what does today's international monetary exchange system look like?
- floating currency system
- value of currency determined by market
- US dollar: primary unit of account and store of value
88
how does a fixed exchange rate work?
- allows only very small changes
- gov maintains fixed price by buying and selling currencies in ex
- promise by gov
- counteracts market forces
- less uncertainty internationally (good for trade)
- unstable prices domestically (inflation and deflation)
89
how does a fixed but adjustable exchange rate regime work?
- gov intervenes under set of well-define circumstances (e.g. recessions)
- aka crawling peg
90
how does a managed float exchange rate regime work?
- gov intervenes but without any clear rules
- most govs today (esp big countries)
- aka flexible float
91
how does a float exchange rate regime work?
- no gov intervention
- no limits on how much exchange rate can go up or down
- gov free to pursue domestic policy goals using monetary policy (changing supply of money) -> stable domsetically
- uncertainty internationally
92
what is the current account
all current (non-financial) transactions between 1 country with rest of the world
- trade deficits/surplus
- imports, exports, royalties, fees, interest payments, profits, feed, remittances, foreign aid grants
93
what is the capital accounts?
```
all financial (investment/expected return) flows between 1 country with rest of the world
- FDI, portfolio investment
```
94
what happens if they current and capital accounts do not equal each other
imbalance of payments
95
what is a BoP deficit country and whats it implications?
excess supply
deficit in demand
implication: depreciation
96
how is the BoP maintained in a floating regime country with a deficit?
increase in exports
| decrease in imports
97
what is a BoP surplus country and what its implication?
excess demand
| implication: appreciation
98
how is the BoP maintained in a floating regime country with a surplus?
decrease in exports
| increase in imports
99
how might a gov use monetary policy in response to a recession?
print money -> decrease i.r. -> control inflation -> make loans cheaper -> hope investors will invest in new production
100
how is the BoP maintained in fixed exchange rate regimes?
using monetary policy -> money supply domestically:
1. buy or sell each others currency in reserve (affect supply)
2. change in interest rates
3. impose capital controls
101
how is the BoP maintained in a fixed regime country with a deficit?
reduction in money supply -> devaluation
102
how is the BoP maintained in a fixed regime country with a surplus?
increase in money supply -> rise in prices
103
what is the gold standard and what does it imply?
- amount of gold in country must match the money inside the country (gov commitment)
- fixed xr regime
- domestically: people use money to buy things; just backed up by gold
- internationally: use gold
104
what happens if there is decreasing demand for scones in France?
bank of england buys money from people and puts them in reserves to take them off the market -> less money domestically -> price fall -> pressure relieved
105
what happens if there is increasing demand for scones in France?
bank of england buys gold using pounds and puts them on the market -> more money domestically -> price increase -> pressure relieved
106
what is monetary policy
interests rates/money supply
107
what is the unholy trinity/trilemma?
can't have fixed exchange rate, sovereign/domestic monetary policy and free capital flows
- > would be useless, would just go back due to arbitrage and having 2 different prices
solution: need to stop by imposing capital flow controls
108
briefly how does BoP adjustment affect different things in fixed vs floating exchange right regimes?
BoP adjustment in:
1. fixed XR regime = monetary policy domestically -> money supply
2. floating XR regime = exchange rate appreciates or depreciates
109
what is the bretton woods
1944-1971
4 innovations:
1. fixed but adjustable XR (US backed and US hard pegged to gold)
-> could just adjust within a band to correct imbalance = no speculation
2. capital controls
-> only allowed when faced with speculative threats
3. stabilization funds
-> provide funds to help govs avoid controls or devaluation when faced with short-term imbalances
4. IMF
-> monitor state behaviour
-> manage stabilization fund
-> conditional loans
-> monitored govs not undermine system by devaluing for export advantage
110
why can't we have a global fixed XR with open capital flows/highly mobile capital?
more democracies today = more labour unions
with fixed XR comes monetary policy -> changes in prices and i.r. -> less supply -> price goes up -> i.r. goes up -> less investment -> jobs lost
111
Why did the Bretton woods fail? What should the US have done?
1. institutions didn't work (lack gov compliance, no true authority)
2. US dependence -> imbalance
(due to Vietnam and social spending so lots of money leaving country)
should have: constrained economic activity but wasn't popular
so french demands for money were too intense
so: democracy and politics killed the gold standard
112
what are reasons for govs choose different XR regimes?
1. electoral models vs
2. partisan models vs
3. sector models
113
according to the electoral model, what determines the XR regime?
- politicians need to stay in power
1. regime type (democracies: more sensitive to economy so need monetary policy autonomy = important)
2. institutional heterogeneity (electoral rules in different dems might alter incentives)
3. institutional and credibility (fixed xr requires commitment to uphold the peg - dems not good at upholding commitments due to elections)
114
according to the partisan model, what determines the XR regime?
- XR policy determined by ruling party's ideology and interests
- trade-off: inflation vs unemployment: Phillips curve
- predictions:
right-wing (anti-inflation + business interests) -> more likely to promote strong currency + fixed XR
left-wing (pro-employment + labour orgs) -> more likely weak currency (= less imports) + float XR
-link to electoral model: voters choose left-wing parties during recessions and right-wing parties under inflation
115
according to the sector model, what determines the XR regime?
interest groups have different preferences towards trade-off:
1. import-competing: floating XR + weak XR
2. export-competing: fixed XR + weak XR
3. non-traded goods: floating XR + strong XR
4. financial services: floating XR (weak) + none
116
why are central banks adopted?
1. appointed for long-term
2. no electoral pressures
3. political independence (do differ) -> greater certainty over monetary policy -> decreased inflation
... for monetary policy setting
117
how can political independence of central banks differ?
1. freedom to choose economic objectives to pursue (inflation, unemployment)
2. freedom to set monetary policy
3. whether policy can be reversed by gov
118
what is the fiscal bargain?
exchange for taxation -> extend political rights and public goods
119
how does tax-revenue vs non-tax revenue affect government behaviour?
1. tax-revenue:
- more taxes -> incentive to product less
- so incentive to tax less
- gives taxes payers bargaining power to gain political rights and provisional public goods
2. non-tax revenue:
- incentive for leaders to ignore tax-payers demands
- resources to buy off political supporters with private or public goods
120
what is the selectorate theory?
- size of the winning coalition relative to the selectorate matters for the provision or public and private goods
1. small winning coallitions =
- leaders private goods to reward their W
- low W/S (e.g. 5/25) less incentive to improve public policy
- authoritarian regimes
- loyalty norm increase
2. large winning coalitions =
- can't use private goods to reward their w so must use public goods
- no loyalty
- democracies
121
how does the selectorate theory and non-tax revenue relate?
- non-tax rev = free resource (don't need to take from one group to give to another
- helps leaders with small w and small w/s (authoritative) stay in power than those that only rely on tax revenue
- explains why foreign aid and oil is often associated with autocratic leaderships
122
who needs aid the most?
- small and poorer states
| - but the larger their w, the more aid they need
123
who gets aid?
- small w states are willing to give up policy concessions (public goods) since they aren't needed to survive
- so aid goes goes further in small w states -> therefore aid is directed to them
- so aid tends to follow to places where it is not needed
124
what are some limitations of altruistic aid?
citiznes of country better at addressing own problems than outside interveners
some govs have interested in development growth; others not
125
what are 3 types of deficits?
1. current account deficit
2. budget deficit
3. savings deficit
126
what are the benefits of debt?
1. invest today and hopefully itll pay off in the future (edu, infrastructure, housing)
2. tax and spending smoothing (avoid liquidating assets to make current payments - when need to spend for social safety nets, wars...)
3. tax smoothing for long-term economy
4. short-term political benefits - stay in power (public and private goods, economic stimulus)
127
who is lending money for sovereign debt?
1. official sources of foreign capital (foreign aid, WB loans, regional development bank loans, China state banks)
2. private actors (commercial banks, national central bank, private citizens through pension/retirement funds)
128
what is the largest source of foreign capital and why?
private foreign capital > foreign aid + FDI (since 1970s)
| because foreign aid comes with conditional policy concessions
129
what is sovereign credit worthiness?
- states differing in ability to access credit and price of credit
130
what happens when states get junk status for credit worthiness?
- must rely on last resort (IMF and WB) to handle economic shocks and BoP crises
- or inflate out of debt (money is worth more so debt is worth less)
- or sovereign default
131
how can you improve junk status for credit worthiness?
1. reputation (for repayment, fiscal responsibility)
2. membership in IGOs (signals about future behaviour)
3. trade and investment ties (dissuades offending external actors that may cut off trade)
4. political institutions (institutions may provide way to tie hands)
132
what is credit worthiness differences caused by?
time inconsistency problem
133
what is the democratic advantage for credit worthiness?
1. greater ability to overcome time inconsistency problem (democratic institution punishment, political parties, investment in growth, check and balances)
2. individuals (vs. politicians) have greater interest in the future (debt now = taxes later)
134
do public or private goods have a higher return
public good have a higher return
| -> increase economic growth -> increases gov revenue to pay back loans
135
what is the capital flow cycle
excess currency in world -> foreign capital floods country with demand for capital -> stimulates economic boom -> encourages financial leveraging and risk-taking -> culminates in crash from credit crunch
shows how the supply and demand of capital is important
136
what is a capital flow cycle real-world example
the latin american crisis
137
why didn't latin american countries default during the the latin american crisis ?
a collective action problem:
- needed all debtors to default -> bankrupted western banks > LA leverage -> better structuring and loans
- but ended up negotiating new loans independently for better deals
- collective action problem for creditors (needed borrowing to continue but didn't want to be the only ones to do it so IMF did it) and debtors
138
is foreign capital essential to economic growth
yes
139
what are the benefits of the fixed common currency in the eurozone?
- easier to trade
- interdependent countries
- higher risk states able to borrow at low rates?
140
why and what are the consequences of the eurozone's ability for higher risk states to borrow at low rates?
why?
- due to inability to inflate (due to credible commitment of fixed XR)
- due new confidence in euro and bailout expectations of higher risk states (moral hazard)
consequences:
- low i.r. -> incentive for banks to invest in faster growing countries outside Europe core (north)
- capital flows: North -> south and central
141
what was the eurozone crisis
gov misled how much they borrowed + citizens and firms borrowed a lot + already high debt -> borrowing -> booms (due to capital flows and consequent investment) -> bubble -> no fiscal adjustment (unpopular) -> crisis
142
what is horizontal integration of mncs
all steps of production in 1 country
143
what is vertical integration of mncs
steps of production in different countries (eliminates middle man - by doing it themselves)
144
what was the eurozone debt crisis caused by
BoP imbalance & then nobody willing to constrain the economies
145
why can crises affect countries differently?
1. ability to stimulate monetary policy of each country
2. ability to provide fiscal relief
3. automatic stabilization
4. mobility
146
was trump's election a result of globalization backlash?
not of the economy aspect of globalization but the social aspect (racial hostility)
he drives attitudes for trade (not other way around)
147
is there globalization backlash?
inconclusive
| only some evidence that social (vs. economic) factors are driving brexit and trump support
148
what are the 2 central problems to ipe in global environmental problems
1. collective action problem (free-riding + tragedy of the commons)
2. distributional conflict (winner and losers) (national & international level)
149
what is the main cleavage illustrating pro vs anti climate change policies?
low-carbon vs high-carbon intensity sectors
| vs. left-right, labor-capital, import-export oriented
- > makes it difficult to form pro-climate coallition
150
what might be developed countries' arguments developing countries regarding climate change policies
" 1. no knowledge of their pollution's effect (developing countries do
2. economic growth can (maybe) happen without environmental damage
3. American lifestyle ≠ globally sustainable
4. environmental solutions need to be global "
151
what might be developing countries' arguments developed countries regarding climate change policies
" 1. exploiting natural resources = path to development
2. externally imposed regulation: undesirable
(uncompetitive, excluded from their learning curve, can't explore their comparative advantage)
3. west preventing developing countries to grow? "
152
what is one key reason for environmental policies not to be established, even if states may want it?
- insufficient state capacities
| - needs to be able to monitor, enforce, punish
153
what do past successes of international environmental cooperation reveal?
- international environmental cooperation is possible
- requires: easily substituable technology
a. incentives to adopt it
b. minimal industry opposition
c. easy to monitor and enforce
- its unclear whether climate change meets any of these requirements
154
how has the WTO responded to states trying to restrict imports which don't meet their environmental standards?
WTO usually in favour of "polluters" - see it as prohibited trade protection
155
what is important in order to understand the winner and losers of global environmental policies?
- preferences of states
- preferences of sectors
- individual's attitudes
