Week 1 Flashcards
Globalization
increased flow of goods, services, capital and people across borders around the world
Death by distance
technological development enabled communication, information and transport around to a high degree
Foreign direct investment
FDI, when a company from one country buys a company in another, bringing in money, skills and technology
Hechscher-Ohlin-Samuelson model of international trade
Assumes full factor mobility. This means that capital or labor can be easily transferred to other sectors if the demand for their own sectors fall. When this assumption fails, people get left behind.
Compensation principle
Neoclassical thought. globalization creates an aggregate gain for the winners bigger than the aggregate losses of the losers. Therefore, there would be room to compensate all the losers, while the winners still have something left behind too
Two drivers of globalization
- political decisions
2. technological opportunities
Era of modern globalization and its three phases
- 1820s-WW1: British Empire after they defeated the other key European powers
- post WWII-1990s: triadization of world economy
- 2000s: rise of the rest
Rise of the rest
3rd modern globalization period from 2000s. Four distinctive features:
- acceleration of technological change
- multinationals with global value chains
- rise emerging markets
- growing importance of trade in services
Mercantilist opposition against free trade
- national power perspective: trade as a zero-sum game, gold hoarding mentality
- protecting infant industries from foreign competitors
Corn laws
Tariffs and other trade restrictions on imported food and corn were enforced in the United Kingdom between 1815 and 1846. The word corn in British English denotes all cereal grains, including wheat, oats and barley.
The Chang view on globalization, four main arguments
Unrestricted free trade is bad for development as
- Large multinationals undermine industrial capacity building in developing countries.
- Allows exploitation of lax labour and environmental standards, low taxes, and low wages in DC: ‘race to the bottom’.
- Facilitates the formation of transnational oligopolies.
- Governments lose a crucial source of revenue.
Drivers for political agents and decision-making outcomes
Three Is
- Interest: material gains of actors
- Ideas: what actors believe to be in their interest
- Institutions: procedures through which decisions are being made
Characteristics of American school in IPE
- Closer to economics
- Methods-driven
- Mostly quantitative
Characteristics of British School in IPE
- Interdisciplinary: history, law, sociology, economics, politics, anthropology
- Problem-driven
- Mostly qualitative
Static argument
Following the Stolper-Samuelson theorem, freer trade should help reduce poverty in countries that use their comparative endowment advantage of labor.
dynamic argument on trade and poverty
Two-step argument: Trade promotes growth and growth reduces poverty.
- Generally speaking, the growing effect of trade must come from links between accumulation and innovation.
- Details of the situation depending on which model you use.
Main argument “kicking away the ladder”
Now-developed countries of the west are ‘kicking away the ladder’ by which they themselves climbed to the top, by advocating for other countries to trade openly, while these western countries used to have strong protectionist policies as well.
Elasticity
Measure of responsiveness that is unit-free, the percent change in one variable resulting from a 1 percent change in another variable.
Price elasticity of demand
Ep (change in q/ q average)/ (change in p/ p average)
percent change in quantity demanded resulting from a 1 % change in another variable.
Consumer surplus
extra benefit the consumer has for a unit as the price paid is lower than the price they were willing to pay for that good.
The increase in economic well-being of consumers who are able to buy the product at a market price lower than the highest price they are willing and able to pay for the product.
Price elasticity of supply
the percent increase in quantity supplied resulting from a 1 % increase in market price. Quantity supplied is not that responsive to price if the price elasticity is less than 1 (inelastic supply).
Opportunity cost
the cost for foregone opportunities given up
The value of other goods and services that are not produced because resources are instead used to produce this product
Producer surplus
The extra benefit that the producers receive as they get a higher price for their good/service than they were willing to receive.
The increase in the economic well-being of producers who are able to sell the product at a market price higher than the lowest price that would have drawn out their supply (SP or BE point?)
Arbitrage
When consumers from different markets sell products to each other as the prices differ between markets, selling the good with a low price in one country in another country to get a profit.
Buying something in one market and reselling the same thing in another market to profit from a price difference
International price
happens when all trade barriers are removed and all countries trade freely with each other, which will lead to an international price level.
All free trade barriers are removed and this free trade situation results in two countries having the same price for a good. This free trade equilibrium is called international price.
Synonym: world price
World price
Synonym: international price
Free trade price equilibrium in which the relevant countries have the same price for the good
Demand for imports
Excess demand (quantity demanded - quantity supplied) within domestic market
Supply of exports
Excess supply (quantity supplied-quantity demanded) of goods in the rest-of-world market
One-dollar, one-vote metric
each dollar of gain or loss is valued
equally, regardless of who experiences it.
Net national gains from trade
In the case of one-dollar, one-vote metric, the net national gains from trade equals the difference between what a group gains and what the other group loses.
Labor productivity
The number of units of output that a worker can produce in one hour.
Mercantilism
Origin of name: merchants engaged in trade, especially those selling exports
Government regulation of trade necessary to provide the largest national benefits. Trade merchants serve own interests and not the national trade in the absence of government guidance.
Before end 18th Century
Absolute advantage
Adam Smith (Wealth of Nations, 1776) Labor productivity is higher than the rest of world's labor productivity in good 1, while the rest of the world is better at producing, absolute advantage, good 2
Principle of comparative advantage
David Ricardo (early 19th C) A country will export the goods and services that it would otherwise produce at a high opportunity cost Key: comparative/ relative
Relative price
Ratio of one product price to another product price
Important for comparative advantage theory of David Ricardo
Production-possibility curve (PPC)
Graph that shows all combinations of amounts of different products that an economy can produce with full employment of its resources and maximum feasible productivity of these resources.
Greenfield investment
type of FDI in which a parent company creates a subsidiary in a different country
Brownfield investment
type of FDI in which a company or a governmental entity purchases or leases existing production facilities to launch a new production activity
state-power theory
Krasner, 1976, state power and the structure of international trade
Assumption that the structure of international trade is determined by the interests and the power of states acting to maximize their goals.
Neoclassical trade theory and state action
Krasner, 1976, state power and the structure of international trade
States act to maximize their aggregate economic utility. It recognizes temporary trade regulations to correct economic distortions
Four major state interests identifiable in the structure of international trade
- Social stability
- Agregate national income
- Economic growth
- Political power
Krasner’s model
1976
Shows the relation between the the trading structure, measured in degree of openness, and the economic power distribution, based on size and development of countries
Relative acceptance indicator
Krasner 1976, state power and the structure of international trade
Measures deviations from a null hypothesis in which trade between countries is what would be predicted on the basis of their total share of international trade. If null hypothesis holds, the RA indicator is equal to zero; values less than zero mean less trade than expected, higher than 0 means more trade than expected.
Relative acceptance- periods
Krasner, 1976, state power and the structure of international trade
1. 1820-1879: Increasing openness- tariffs are generally lowered and trade proportions increase. Not a universal pattern, US largely unaffected
2. 1979-1900: modest closure- tariffs are increased, trade proportions decline
3. 1900-1913: greater openness- tariff remain unchanged; Proportion of trade increases, except for US,. Trading patterns become less regional.
4. 1918-1939: Closure- Trade proportions decline, Trade becomes more regional, tariff levels are increased in 1920s and 1930s
1945-1970: Great openness- tariffs are lowered; trade proportion increases. Regional concentration.
Testing the argument: hegemony leads to more open trading structure
1820-1879: Britain rising hegemon, increasing openness
1880-1900: relative decline Britain’s relative power: modest closure with tariffs
1900-1913: more open
1919-1939: US doesn’t take role of hegemon, US policy doesn’t make effort for open structure of international trade, other countries follow lead of US with protectionist measures
1945-1960: Ascendancy US. US takes leading role for establishing open structure for international trade
1960-now (when article written): great openness, regional trade patterns are weaker
