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Midterm Study

Terms in this set (24)

Heckscher-Ohlin trade theory
countries will export products that use their abundant and cheap factor(s) of production and import products that use the countries' scarce factor(s)
Capital, land, and labour (Ricardian model is just labour)
Give predictability (who export what?); global market; means that if you're a coffee/banana country, never going to industrialize
Stolper-Samuelson theorem
is a basic theorem in Heckscher-Ohlin theory describes a relation between the relative prices of output goods and relative factor rewards, specifically, real wages and real returns to capital.
Comparative advantage
ability to produce a good at a lower Opportunity Cost than another country
Implies what a state will trade; trade is beneficial (if OC is less to trade then produce, utility rises)
Embedded liberalism
is a term for the global economic system and the associated international political orientation as it existed from the end of World War II to the 1970s. The system was set up to support a combination of free trade with the freedom for states to enhance their provision of welfare and to regulate their economies to reduce unemployment. Multilateralism, Liberalization, Political autonomy, Social safety nets
Mercantilism
is an economic doctrine based on the theory that a nation benefits by accumulating monetary reserves through a positive balance of trade. High tariffs is a feature of mercantilism.

Mercantilism dominated Western European economic policy.

US sugar protection
Hegemonic stability theory
indicates that the international system is more likely to remain stable when a single nation state is the dominant world power, or hegemon. Thus, the fall of an existing hegemon or the state of no hegemon diminishes the stability of international system
Non-tariff barriers
are trade barriers that restrict imports but are not in the usual form of a tariff

import quotas, unreasonable standards for the quality of goods, bureaucratic delays, export restrictions, export subsidies, sanitary measures
Trade barrier
are government-induced restrictions on international trade; the imposition of some sort of cost on trade that raises the price of the traded products
Ricardo-Viner or specific factors approach
specific factors model, which is a variant of the Ricardian model. Assumes that cannot move capital form one industry to another (toy machines cannot be transferred into war machines)
Demonstrate effects of labor allocation
US protection of sugar
Tariff on imported sugar; indirect subsidies
You should buy US sugar (make imported sugar more expensive to make US sugar competitive)
Congress hijacked by small interests; implications for sugar producing countries
Most-favored nation (MFN) status
Has to receive same deal as the current lowest deal
Lowest tariffs and lowest barriers with EU; if grant China MFR, they get same low tariffs and low barriers
World Trade Organization
is an organization that intends to supervise and liberalize international trade
Conditionality
Enforcing of Washington Consensus; we lend money on the condition that you behave the way we want you to
Petrodollars
money that oil producing countries make from oil that they deposit into international commercial banks
Oil states have lots of Petrodollars- want to invest to be more productive capital; International commercial banks don't want to sit on it either; Banks make money by lending and charging interest; Easy for developing nations to get loans (i.e. Latin America) for develop' projects; Countries went into debt; reckless lending and borrowing; Latin American debt spike- credit froze for developing (banks refuse to lend any more money)- to try to rescue
Asian financial crisis
All about currency speculation; Speculative attacks on the Thai baht $ (started by George Soros)
Start chain reaction-call for Thailand to prove; Thailand currency value drop dramatically; Investors pulling out of Asian countries; Herd mentality-pull out despite different economics; Devastating effects on Asia (Korea, Hong Kong, Taiwan, Singapore); Offensive to Asian counties; Got IMF funding-used the opportunity to push Washington consensus- impose conditions to reform East Asian economy (state lead capitalism) into US/UK model (liberalize, privatize); Had to comply in order to get economy back on track; Didn't want to be vulnerable like that again
2008 financial crisis
is considered by many economists the worst financial crisis since the Great Depression. Financial crisis based off of these things and started in US: China growing quickly, easy credit, underestimated risk, housing bubbled, failures of corporate government, households saving too little and borrowing too much, federal budget deficits, stock market bubble, foreign debt, Gulf instability, Oil prices, housing crash, stock market crash
It resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. Additionally, the housing market suffered
International migration
Human movement involving movement across international boundaries
Competitive devaluation
When a country tries to devalue its currency to increase its international competitiveness.
Floating exchange rates
The market sets the value of the currency
Allows currency to adjust to big shocks in world economy
This is in contrast to a "fixed exchange rate" regime
The gold standard
Under the gold standard, the backer of major international currency must balance its accounts. Needs to intervene a lot in order to maintain
GB was on gold standard until great depression and till 1971 (Nixon) the US was on the gold standard (countries did better the sooner they ditched it)
Bretton Woods monetary system
Goal: to reintegrate world economy (with democratic policies and political autonomy)

Keynesian

Nearing end of WWII (1944)
At end of WWII (1944) many countries fixed their exchange rates relative to the U.S. dollar and central banks could exchange dollar holdings into gold at the official exchange rate of $35 per ounce

Embedded liberalism

wanted policy autonomy: Great Depression taught other people downside to global connection. Want a buffer/protection from economic downturn- provided for by the government: welfare policies (also requires political autonomy)
But also want liberal ideals: Multilateralism (have communication and institutions) Talk to each other through international organizations
Have democratic politics and policy autonomy
Embedded Liberalism (Multilateralism, Liberalization, Political autonomy, Social safety nets)
Balancing Nationalism and Liberalism
Based off of Keynesian
Led by US

Impossible Trinity:
Wanted monetary autonomy and international free flow of capital
Couldnt spend the way he wanted to spend if he was to maintain steady
So he cut off fixed exhange rate
Unting hegemon's (US) hands; done with its promise
Export subsidies
intended to "protect" domestic production by restricting foreign competition

legal restrictions on the quantities of imports from the foreign sector that are imposed by the domestic government

WHY we do it:
subsidizing exports and increasing domestic production also increases domestic employment.

"levels the competitive playing field" compared to imports produced by foreign workers who receive lower wages

level the competitive playing field against dumping policies of other nations
BRICS
Brazil, Russia, India, China, South Africa
Counters philosophy of Washington Consensus

Have minimum wage policy, capital controls, selective privatization, state owned industries, exchange rate policy (keep down to make exports more valuable in international market)

are state led

IMF and IFIs step into to enforce W Consensus but cant enforce in BRICS; BRICS don't need the money (stronger plus China help)
Have greater policy autonomy

Brazil/Russia = commodity; China/India-technology
International Monetary Fund
=international organization founded during the Bretton-Woods Conference

=goal was to assist in the reconstruction of the world's international payment system post-World War II

=objectives are to promote international economic co-operation, trade, and stability

=Washington Consensus
=market fundamentalism
=Conditionality of loans are intrusive and compromise sovereignty:
Privatize state owned enterprises
Raise taxes
Reduce government spending
Remove trade barriers
Encourage capital flow
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