POLI 442 Midterm Flashcards
consumption indifference curve
a graphical representation showing the combinations of two goods where a consumer experiences the same level of satisfaction
slope of indifference curve
tells us the marginal rate of substitution
marginal rate of substitution
the rate where a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility
production possibility frontier
a graphical representation that shows the maximum combinations of two goods that can be produced using available resources
marginal rate of transformation
the rate at which one good must be sacrificed to produce an additional unit of another good
slope of PPF
equal to the marginal rate of transformation
comparative advantage
whatever product someone produces most efficiently compared to other products they can produce, what you can produce for a lower opportunity cost
absolute advantage
the ability to produce more of a given product than the other country for the same input of resources
opportunity cost
the potential forgone profit from a missed opportunity, the result of choosing to produce one product over another
utility
the amount of user satisfaction you get out of something, how happy you are
Heckscher-Ohlin Model
- intersectional factor mobility: high
- countries vary by: (relative) factor endowments
- with trade: countries export good that intensively use the well endowed factor
- winner: owner of abundant factor
- loser: owner of scarce factor
factor of production
resources to produce goods
sector of production
production of different types of goods
capital factor of production
high skill labor
labor factor of production
low skill labor
Stolper-Samuelson Theorem
goes along with Heckscher-Ohlin, when all factors are mobile across sectors, an increase in the price of a good will increase the real earnings of the factor used intensively in the production of the good, and decrease the real earnings of the other factor
Ricardo-Viner Model
- intersectional factor mobility: low
- countries vary by: technologies of production
- with trade: countries export good in which it has comparative advantage
- winner: owner of factor specific to export industry
- loser: owner of factor specific to import-competing industry
median voter theorem
if members of a group have single peaked preferences, then the ideal point of median voter will be the winner
Walter’s compensation hypothesis
losers of globalization are more likely to express feelings of economic insecurity which leads them to demand for compensation and prefer left parties because of the social welfare programs that the left promotes
Colantone and Stanig: Threats to compensation
individuals in regions more exposed to Chinese import competition are more likely to vote for radical right parties because rising globalization being linked to support for left wing parties only works if the left can actually provide the welfare programs
globalization paradox
at the exact moment that more (low-skilled) workers would demand greater labor market protection from government, countries are increasingly unable to afford these forms of employment insurance
compensation hypothesis headline
they would rather vote for parties proposing limitations to free trade, even if bundled with a reduction of the welfare state
Colantone and Stanig: Brexit
similarly to studying the political scale, they found that regions of the UK who were more exposed to China stock were more likely to vote for Brexit
unidimensional views on globalization
IPE researchers have found that arguments on globalization correlate to other single policy areas. For example, if you dislike more trade, you also dislike more immigration and investment and so on.
Social identity and preference for conformity - Ballard-Rosa
Individuals have a sense of group identity that’s important to them that is affected by labor market success, these effects are most pronounced for members of a historically dominant majority group. When their social identity is failing, they argue that some individuals may respond to declines in own standing with greater preference for punishment of non-conformists (authoritarian values)
Individuals with authoritarian values
Tend to share common political preferences: strongly opposed to out-groups, strongly value in-group authority/sovereignty
2016 election and authoritarianism
Recent work in American politics suggests that individuals with more authoritarian values were more likely to vote for trump in 2016. Also found a robust effect of Chinese import competition on authoritarian values among white Americans, particularly those in diverse regions. The opposite is true for individuals not exposed to the China shock in diverse regions. There was no effect of import shock on non-white Americans.
strategic trade policies and national security
international economic policies can be used as a policy instrument for other policy objectives: security policies
positive inducement
trade as a reward, preferential trade agreements or free trade areas can be used to promote peace and or strengthen allies
punishment
adversary states can be punished via limitations on trade (e.g. economic sanctions)
Gowa and Mansfield: Trade as a reward
trade has security externalities, free trade benefits both states and can strengthen security capability by making them richer. they further argue that the alliance effect is more likely to be observe in bipolar international security context than multipolar context
GATT - what is it
general agreement on tariff and trade in the wake of WWII to reduce trade barriers and promote international trade and ended up serving as the basis of trade cooperation for nearly 5 decades, later evolved into the WTO
GATT - what did it do
a set of principles and rules, an intergovernmental bargaining process, a dispute settlement mechanism
GATT principles and rules
market liberalism, non-discrimination
market liberalism
at the aggregate level, gains from trade outweigh losses, winners can compensate losers
non-discrimination
national treatment prohibits the use of taxes, regulates, other policies to advantage domestic production over foreign production, most favored nation (mfn)
most favored nation (mfn)
treat all counties as its favorite trading partner
mfn exceptions
regional trade agreements, generalized system of preference, temporary responses to crisis
intergovernmental bargaining process
new members, tariff reductions, non-tariff barriers, intellectual property rights
Doha Development Round 2001, GATT/WTO negotiating round
goal of using trade to further the development goals of the poorest countries
agenda items: agriculture market access, transparency in government procurement, etc.
nearly reached agreement in 2008 but ended when India and China insisted on special safeguards to raise tariff on agriculture imports
Uruguay Round 1986-1994, GATT/WTO negotiating round
most important round since establishment of GATT, created WTO
liberalized some trade in agriculture and textile which wasn’t included in past agreements, extended rules to services investment and intellectual property, reduced tariffs on merchandise goods, strengthened dispute settlement process
US and WTO disputes
defendants tend to lose WTO cases because countries only complain if case is strong
Why GATT/WTO?
Domestic concerns (export mobilizations and political cover, domestic commitment) and International concerns (terms of trade and political hold up problem)
export mobilizations and political cover
not all domestic actors benefit from freer trade, collective action problem, countries can avoid lobby pressures for protection by joining the GATT/WTO which serves as a political cover
domestic commitment
WTO lets actors avoid over-investment by allowing countries to credibly commit to freer trade, allows countries to demonstrate their commitment to competitive market by joining
terms of trade
WHO lets countries avoid economic externality
political hold up problem
when one state fails to undertake an investment due to the increased ability it would provide another state to extract concession
this could happen when trading countries are politically dissimilar, when larger countries trade with smaller countries, and when trade agreements are short term
WTO and political hold up problem
WTO can increase the chance of trade agreements being long-term, MFN can discourage states to discriminate particular trading partners, WTO creates norm of operation and system to monitor issues
Two-level games
Putnam: International negotiations are made in the shadow of domestic politics
Two-level games: how to
Politics at the international level are at level 1 and domestic at level 2, the policies that a government can agree to at the international level are often a function of considerations of political survival domestic politics, the set of policies that are acceptable for a country is a “win-set”
what “win-set” is determined by
preference and coalition (level 2), institutions (level 2), negotiation tactics (level 1)
the mercantilist era
goal: boost exports and reduce imports
mercantilism costs and benefits
in the British colonies in America, many products were placed under enumeration meaning you could only sell your products to Britain, there were also a lot of products that you could only buy from British producers, so citizens of the colonies were provided “protection” by the empire
The Slave Trade
coexists partially with the mercantilism era
