Lecture material week 4

Question 1

-> What drives differences in trade openness across countries and over time? 2 schools of thought

Answer 1

• International system-based approaches (top down)
• Societal approaches (bottom up)
  – Interests
  – Ideas
  – Institutions

Question 2

Krasner (1976) answer to “What drives differences in trade openness across countries and over time?”

Answer 2

• “Independent variable”
  – Distribution of potential economic power among dominant states in world economy

Question 3

Societal approaches (bottom up): Interests

Answer 3

• The logic of collective action
• Factor- and sector-based models

Question 4

Factor-based models

Answer 4

• Emphasize cleavages across factors of
  production
  – KEY difference to sector-based: in the longer run, workers, capital and land can switch industries
• Workers can be re-trained, capital re-allocated, land put to different uses
  – Alliances will not be based on industry, but abundance/scarcity of factors of production that workers, landowners and capital owners represent

Question 5

Sector-based models

Answer 5

• Emphasize industry cleavages
  – Internationally competitive domestic industries gain from open trade
  – Uncompetitive ones loose
  – KEY: workers and capital&land owners are tied to one industry, in cases of disruption they cannot switch easily to another one →
• Capitalists and workers in export-oriented industries will form alliances and push for free trade
• Capitalists and workers in import-competing industries will form alliances to oppose free trade

Question 6

Frieden’s (1988) answer to “What drives differences in trade openness across countries and over time?”

Answer 6

• US arguably had hegemonic capabilities post-WW1, but did not decisively proceed to build liberal international order
• Contradictory foreign economic policy during interwar period as result of different interests of various economic sectors
  – Internationalists: Finance, high-tech manufacturing, extractive industries (influential at FED and State Department)
  – Inward-looking: most other sectors, especially labour-intensive ones (influential at Commerce Department and in Congress)
• Experience of WW2 ultimately made internationalist groups prevail in US politics, setting the ground for establishment of liberal international order

Question 7

Factor vs. sector-based models

Answer 7

Sector-based

• FOP cannot switch industrial sectors →
• Relative international competitiveness of industries defines cleavages

Factor-based

• FOP can switch sectors → re-training of L, adapt use of T, re-invest K, etc.
• in the long term, the abundant [scarce] factors win [loose], independently from what industry they are initially located in

Question 8

Which model is correct? Factor or sector based?

Answer 8

It it depends on degree to which owners of factors of production can switch across industries (cf. Hiscox 2001), which depends on…

• Time horizon
• Stuck in ST, more mobile in LT
• Industry and technology
• Skill-intensity of industry
• Regulations, institutions and informal practices
• labor market flexibility; welfare state institutions, etc.

Question 9

Societal approaches (bottom up): Institutions

Answer 9

• Democracies vs. autocracies
• Varieties of democracies
• Policymaking rules

Question 10

Democracies vs autocracies

Answer 10

• Political leaders in democracies need broad popular support
  – should give consumers more influence all else equal
  – but losers also do have a voice and access to government
• Autocracies
  – Political leaders rely on support of smaller sections of society (‘selectorates’)
• Can lead to heavy protectionism if selectorate is inward-looking (e.g. North Korea, Myanmar)
• Or it can facilitate liberalization if selectorate is outward-looking (e.g. South Korea, Taiwan)

Question 11

Democracy and development

Answer 11

• Does democracy lead to higher growth?
  – Historically, both democracies and some autocracies have performed well
  – But autocracies are high-risk compared to democracy, which is better at generating stability
• Does growth lead to democracy?
  – Some evidence that prosperity comes with greater demand for political participation, lower risk of backsliding (Przeworski and Limongi)
  – Role of digitalization/surveillance?

Question 12

Varieties of democracies: Electoral systems

Answer 12

• Proportional representation (PR)
• encourages building of national constituencies, which
  should support free trade
• Majoritarian representation (MR)
• winner-take-all dynamics strengthen particularistic interest groups, which is an obstacle for free trade

Question 13

RTAA: a shift in trade and policymaking

Answer 13

– Reciprocal Tariff Act (RTAA), introduced in 1934
– MPs (Congress) are more likely to pursue particularistic (protectionist) demands; executive (President) more likely to think of national interest
– RTAA moved trade-policy competence from protectionist Congress to pro-trade Presidential Office