PART A Flashcards
What is international economic institutions?
International economic institutions are organized international bodies who stabilize economic relationships between and among countries through fiscal, monetary, financial and trade integration.
What is externalities?
Externalities are a market failure like the public goods, imperfect information and imperfect competition.
Externalities can occur when an economic agent generates costs (negative) or benefit (positive) to the other economic agent.
Dealing with the externalities: create of subsidies if we want to increase the production while we can implement taxes if we want to decrease the production.
What is rivalrous, non-rivalrous, excludable and non excludable goods? Separate the different categories
Rivalrous, are the goods consumed by only one at the same time e.g. candy,suit.
Non- rivalrous, are the goods consumed by many at the same time with no additional cost e.g. national defense
Excludable, are the goods that can prevent the use if you are not paying first e.g pay the stamp in the mail
Non-excludable, are these goods that can be used without paying.
Pure Public goods : non-rivalrous and non-excludable (street lights)
Pure private goods: rivalrous and excludable (bread)
Common goods: are rivalrous but non-excludable like the lake for fishing, you can fish freely with many others but when you catch the fish you consume it.
Club goods or public enterprise goods: non-rivalrous but excludable for example tolls, they paid from everyone so to pass it but can be consume at the same time by everyone
Public enterprise goods ( Club goods)? Ex. Mail,trains
PUBLIC ENTERPRISE GOODS are those which are excludable and so could be privately provided, but which have low marginal costs of production and so are likely to be natural monopolies. Private provision runs the risk of monopoly and hence of under provision; public provision is accordingly desirable.
Note that private provision is not impossible in these cases, so it is always debatable whether government should be in the business – and the public choice school would argue that politicians and bureaucrats will always have an incentive to ensure their own employment by over-providing these goods.
IMF Role and functions
IMF is an organization of 190 countries,working to foster global monetary cooperation, secure financial stability,facilitate international trade, promote high employment and sustainable economic growth and reduce poverty around the world.
Functions:
1. Surveillance: In order to maintain stability and prevent crisis in the international monetary system, IMF monitors member’s countries policies as well as regional’s, national’s and global’s economic and financial developments. IMF advice to member countries and promote policies designed to foster economic stability, reduce vulnerability to economic and financial crises and raise living standards.
2. Financial assistance: providing loans to the members that are experiencing actual or potential balance of payments. Individual country adjustment programs are designed in close cooperation with IMF and ongoing financial support is dependent on the effective implementation of these adjustments.
3. Capacity development: IMF provides technical assistance and training to help member countries to build economic institutions and strengthen related human capacities. Example:designed more effective policies for taxation, expenditure management, exchange rate policies, banking etc.
IMF resources
The IMF resources are the below:
1. Members quota is the primary source of IMF. Member’s quota reflect to the size and the position of the country in the world economy.
Quota calculation = (50% GDP + 30% EXP+IMP/GDP + 15% VARIABILITY + 5% RESERVES) * COMPRESSION FACTOR
2. SDRs (Special Drawing Rights): international reserve asset that can supplement the official reserves of member countries.
Double majority voting system:
1. Consensus of the majority of member governments >85%
2. Majority of votes in favor on a decision
World Bank role and the five institutions
Role: Address failures in international markets and end poverty. Establish in 1944 and originally tasked with rebuilding the economic of post war EU countries.
5 institutions
1. International bank for reconstruction and development (IBRD), with loans,guarantees and other services, IBDR works with middle-income and credit worthy low income nation to fight poverty
2. International Development Association (IDA): Promote development in the world’s poorest countries by offering interest free credits and grants
3. International Finance Corporation (IFC): Raises capital through bond issuances in international capital markets to found loans to clients and maintain financial strength
4.Multilateral investment guarantee Agency (MIGA)
5. International Centre for Settlement of Investment Disputes (ICSID)
WTO role and principles (5)
1948: General Agreement on Tariffs and Trade (GATT)
1995: Uruguay Round -> WTO - Trade in goods, services and intellectual properties.
Principles
1. Trade without discrimination
Most-Favored-nation (MFN): Treating other people equally, countries cannot normally discriminate between their trading partners.
National treatment: Treating foreigners and locals equally. Imported and locally-produced goods should be treated equally - at least after the foreign goods have entered the market.
Some exceptions are allowed: Countries can raise barriers against products that are considered to be traded unfairly from specific countries.
2. Free trade gradually through negotiation
Lowering trade barriers is one of the most obvious means of encouraging trade. Results of negotiations - tariff rates on industrial goods had fallen steadily to less than 4% and expanded to new areas such as services and intellectual property.
3. Predictability through binding and transparency: Consumers can fully enjoy the benefits of competition
4. Promoting fair competition
5. Encouraging development and economic reform: Developing countries need flexibility in the time they take to implement the system’s agreement
Type of agreements
- Free trade agreement: 2 countries sign a preferential agreement that means that eliminate barriers between them (rules of origin)
- Custom Union: 2 countries eliminate barriers between them but also implement a common tariff to the ROW
- Single market: Not only goods and services but also workers, firms and capitals can cross the border
4.Monetary Union: +same currency
5.Economic Union (US)
By moving in integration, the easier is doing business but harder is to coordinate the organization.
Stand By arrangements (SDAs)
Is a lending option of IMF, specifically made to help countries recover from economic crisis by giving them quick access to capital they need to:
- stabilize currency
- re- stabilize economic growth
-continue buying imports
Why protectionism?
Gains from trade can be very unequally distributed,with a few big winners and large number of losers.
Using the Stopler- Samuelson theory we can see that certain domestic groups would prefer protection and why would expand the resources to lobby for it. Alone provides insufficient guidance due to underlying contingencies, it all depends on institutions, on trade partners, sectors involved.
Individual living in regions with high concentration of import competing industries tend to favor protection, because as imports rise, economic activity in the region will fall, causing the housing assets to fall in value.
Reciprocity policy
Trade liberalization with reciprocity: overtime we expected to observe that you start with a given level of barriers but is expected to open your markets overtime. How is this done? During the gap period countries were meeting (negotiation rounds) and started to negotiate reciprocities concessions. Reciprocity: I reduce my tariffs in a sector in exchange for a reciprocal concession. So countries were meeting and tariffs were cut overtime. This mechanism made the organization successful.
