Geopolitics Flashcards
What is geopolitics?
The study of how geography affects politics and international relations. Within the field of geopolitics, analysts study actors - the individuals, organizations, companies and national governments that carry out political, economic and financial activities - and how they interact with one another.
What are state and non-state actors?
State actors are typically national governments, political organizations, or country leaders that exert authority over a country’s national security and resources.
Non-state actors are those that participate in global political, economic, or financial affairs but do not directly control national security or country resources.
What are the two possible relations between state actors?
Cooperative or competitive
What is cooperation in geopolitics?
The process by which countries work together toward some shared goal or purpose. These goals may, and often do, vary widely - from strategic or military concerns to economic influence or cultural preferences.
What is political cooperation?
The degree to which countries work toward agreements on rules and standardization for the activities and interactions between them.
What is a cooperative country versus a non-cooperative country?
Cooperative country is one that engages and reciprocates in rules standardization; harmonization of tariffs; and international agreements on trade, immigration or regulation and that also allows for free flow of information.
Non-cooperative country is one with inconsistent and even arbitrary rules; restricted movement of goods, services, people, and capital across borders; retaliation; and limited technology exchange.
What is geophysical resource endowment?
Includes factors as livable geography and climate as well as access to fossil fuels, food and water, which are necessary for sustainable growth. Geophysical resource endowment is highly unequal among countries.
What is standardization in the context of geopolitics?
The process of creating protocols for the production, sale, transport or use of a product or service.
What is soft power?
Means of influencing another country’s decisions without force.
What is globalization?
The process of interaction and integration among people, companies and government worldwide. It is marked by the spread of products, information, jobs and culture across borders.
Globalization is mostly carried out by non-state actors, such as corporations, individuals or organizations.
What is the opposite of globalization?
Nationalism
What is nationalism?
The promotion of a country’s own economic interests to the exclusion of the interests of other nations. Nationalism is marked by limited economic and financial cooperation.
Globalization is an independent process of political cooperation!
What are three motivations for globalization?
Increasing profits
Access to resources and markets
Intrinsic gain
Increased profit can mean two things, which two things?
Increasing sales (selling in new markets)
Reducing costs (reduce labor costs, low tax-operating environments)
For investment professionals that seek investment abroad, there are two important types of flows. Which two?
Portfolio investment flows are short-term investments in foreign assets, such as stocks or bonds.
Foreign direct investments (FDI) are long-term investments in the productive capacity of a foreign country.
What is intrinsic gain?
A side effect of an activity that generates a benefit beyond profit itself.
What are potential disadvantages of globalization?
Unequal accrual of economic and financial gains =
(Improvement on the aggregate does not mean improvement for everyone, if a company moves a factory to another country, it creates jobs in the new country but reduces them at home)
Lower environmental, social, and governance standards = (companies operating in lower-cost countries often operate in the local standards of those countries)
Political consequences of globalization = (some countries may fear globalization as it may threaten employment etc.)
Interdependence on other countries’ resources = (dangerous when there is a disruption)
How can companies fortify their supply chain under the threat of deglobalization?
Reshoring the essentials
Reglobalizing production
Doubling down on key markets
What happened to international trade during the Great Depression?
Countries attempted to support their failing economies by sharply raising barriers to foreign trade, devaluing their currencies to compete against each other for export markets, and restricting their citizen’s freedom to hold foreign exchange. These attempts proved to be self-defeating. As a consequence, world trade declined and living standards declined sharply. It then became a widespread conviction that the world economy needed organizations to help promote international economic cooperation. International trade organizations.
What are international trade organizations?
International trade organizations are institutions that regulate, facilitate, and promote trade between countries by establishing rules, resolving disputes, and supporting economic cooperation.
What is the GATT?
General Agreement on Tariffs and Trade
What is the current international trade organization?
World Trade Organization (WTO)
What is the role of the International Monetary Fund?
The IMF stands ready to lend foreign currencies to member countries to assist them during periods of significant external deficits. The IMF’s main mandate is to ensure the stability of the international monetary system, the system of exchange rates and international payments that enables countries to buy goods and services from each other.
What is the main goal of the IMF from an investment perspective?
Keep country-specific market risk and global systemic risk under control.
What is the objective of the World Bank?
To help developing countries fight poverty and enhance environmentally sound economic growth.
What are two closely affiliated entities of the World Bank?
International Bank for Reconstruction and Development (IBRD)
International Development Association (IDA)
How does the World Bank support developing countries?
Providing low or no-interest loans and grants to countries that have unfavorable or no access to international credit markets. Unlike private financial institutions, neither the IBRD nor the IDA operates for profit.
How does the IBRD finance its operations?
Selling AAA-rated bonds in the world’s financial markets.
What is the largest source of interest-free loans and assistance to the poorest countries?
International Development Association
What is the difference between the IBRD and the IDA?
IBRD lends at market rates to middle-income and creditworthy low-income countries. IDA provides grants and low-interest loans to the poorest countries.
What is the World Trade Organization?
The WTO provides the legal and institutional foundation of the multinational trading system. It is the only international organization that regulates cross-border trade relationships among nations on a global scale. It replaces the GATT!
What are the two major agreements within the WTO’s body of treaties?
General Agreement on Tariffs and Trade (GATT)
General Agreement on Trade in Services (GATS)
What are the most important functions of the WTO?
Implementation, administration, and operation of individual agreements; acting as a platform for negotiations; and settling disputes.
What are four archetypes of country behavior?
Autarky
Hegemony
Multilateralism
Bilateralism
Describe the globalization/nationalism and cooperation/non-cooperation of the four archetypes.
Autarky = non-cooperative, nationalist
Hegemony = non-cooperative, globalized
Bilateralism = cooperative, nationalist
Multilateralism = cooperative, globalized
What is autarky?
Countries seeking political self-sufficiency with little or no external trade or finance.
What is hegemony?
Countries that tend to be regional or even global leaders and they use their political or economic influence on others to control resources.
What is multilateralism?
Countries that participate in mutually beneficial trade relationships and extensive rules harmonization.
What is bilateralism?
The conduct of political, economic, financial or cultural cooperation between two countries.
What is regionalism?
Lays between bilateralism and multilateralism
What are the three tools of geopolitics?
National security tools
Economic tools
Financial tools
What are national security tools?
Geographical tools are used to influence or coerce a state actor through direct or indirect impact on the country’s resources, people, or borders. Can be active, meaning immediate use or or can be threatened.
What is an example of a cooperative national security tool?
Combining forces to reduce the likelihood that national security tools will be used by others countries. Example is the North Atlantic Treaty Organization (NATO).
What are economic tools?
Actions used to reinforce cooperative or non-cooperative stances through economic means.
What is cabotage?
The right to transport passengers or goods within a country by a foreign firm.
What are three basic types of geopolitical risk?
Event risk, exogenous risk, and thematic risk
What is event risk in the context of geopolitics?
Event risk evolves around set dates, such as elections, new legislation, or other date-driven milestones, such as holidays or political anniversaries, known in advance. Political events often result in changes to investor expectations related to a country’s cooperative stance. As a result, risk analysts often use political calendars as a starting place for assessing event risk.
What is exogenous risk in the context of geopolitics?
A sudden or unanticipated risk that affects either a country’s cooperative stance, the ability of non-state actors to globalize, or both. Examples are sudden invasions or natural disasters.
What are thematic risks in the context of geopolitics?
Known risks that evolve and expand over a period of time. Climate change, pattern migration, cyber threats
What are three important areas investors should use to assess geopolitical risk?
Likelihood
Velocity (speed) at which it affects a portfolio.
Size and nature
What is a black swan risk?
Event that is rare and difficult to predict but has an important impact.
What is scenario analysis?
The process of evaluating portfolio outcomes across potential circumstances or states of the world.
What is groupthink?
The practice of thinking or making decisions as a group in a way that discourages creativity or individual responsibility.
What is a signpost?
An indicator, market level, data piece, or event that signals a risk is becoming more or less likely.
