Poli sci 103 Final Study Guide
Poli sci 103 Final Study Guide Poli Sci 103
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This 7 page Study Guide was uploaded by Sarah Arndt on Wednesday May 4, 2016. The Study Guide belongs to Poli Sci 103 at University of Wisconsin - Madison taught by Mark Copelovitch in Spring 2016. Since its upload, it has received 72 views. For similar materials see Intoduction to International Relations in Political Science at University of Wisconsin - Madison.
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Date Created: 05/04/16
Midterm 3/Final Study Guide International Political economy Study of two key issues: political determinants of economic outcomes, economic determinants of political outcomes Problems and limits of markets Competition rarely perfect-opec with oil Producers and consumers rarely have perfect info Markets fail often for political reasons Gov’t act in the economy IPE different from int’l security In ipe liberalism dominant theory instead of realism Emphasis on domestic polices and economic choices Classical (Economic) Liberalism Efficient market hypothesis: individually rational behavior in a free market will produce the most efficient social outcomes Efficiency=max output, minimizing waste Pareto optimality: allocation of resources state where it’s impossible to make any individual better off without making another worse off Emphasizes pareto optimality and absolute gain Mercantilism Emphasis on state power: economic growth and efficiency are subordinate in state power concerns Money is fungible Emphasis on relative gains: trade as a zero sum game Triangular trade Negative connotation in policy circles Economics of Int’l Trade Max efficiency is free trade Contra mercantilism: focus on mutual gains Comparative Advantage A country will export goods that make intensive use of the factors of production that it has in relative abundance Countries differ in factor endowments: labor/capital/land US is capital abundant, Brazil is labor If something is abundant it is cheap Specialization is a win for consumers Trade maximizes aggregate welfare Collective action problems Trade theory Int’l trade patterns should correlate with county’s factor endowments Within countries, owners of abundant factors should support free trade Protectionism 1. Tariffs: tax at the border on goods Across the border (all from china) or specific (certain products only) 2. Quotas: quantity protection measure Only a certain number of something 3. Non-tariff barriers: loopholes around illegal tariffs and quotas Movie industry in france 4. Export subsidies: help cover cost of production when a country doesn’t have the comparative advantage Ex. Airbus 5. Sanctions: security implications for political reasons Economic sanctions: to use trade policy as foreign policy (Iran) Trade Costs of free trade: concentrated in particular sectors, firms, and industries Losers lobby hard for protection Benefits: spread widely among consumers Eu’s common agricultural Policy To address food shortages after ww2, but they overproduction and surpluses Farmers got subsidized Mutual trade liberalization as Prisoner’s Dilemma Everyone wants free trade, but no one does it GATT: 1947-1994 Trade liberalization through institutionalized cooperation Most favored nation and reciprocity Set of bargaining rules Periodic trade rounds Key exceptions: agriculture, non-tariff barriers, regional trade agreements Results: trade/gdp doubled, rapid growth and development From GATT to WTO Deepening and institutionalizing, rounds are more difficult, harder enforcement, can now sue other countries WTO Controversy 1.Trade and Jobs claim: WTO promotes trade which costs jobs, free trade=job losses sort of true only because the costs of lowering trade barriers are concentrated 2.Race to the Bottom claim: WTO forces states to lower labor standards and environmental regulations safety and health regulations suffer not much evidence 3.Sovereignty claim: the WTO disregards states sovereignty to pass rules on trade pretty much true but, developed complain about NTBs, but also the lack of TO rules on labor/human rights issues 4.Development WTO biases against poor countries, deny them the ability to protect domestic sectors Not really true, no evidence of bias Evidence that trade openness is correlated with development Without WTO there would be more bias because the most powerful countries would set the tariffs Agricultural subsidies: major source of north/south tension Developing want them cut, developed don’t 5.The DSM WTO’s dispute settlement mechanism (court) is biased against poor developing countries yes: developing state file very few cases because they can’t afford to no: bias is towards plaintiffs problems: retaliation, expertise, cost Money Three functions 1. Medium of Exchange 2. Unit of account 3. Store of value Exchange rates Price of one currency in terms of another When a currency goes up it appreciates another currency When a currency goes down it depreciates Floating exchange rates rise or fall Causes of movement Changes in relative returns of financial assets, consumer tastes, relative national Incomes, and market sentiments Appreciation Bad for exporters: more expensive for foreigners to buy your goods, good for consumers, cheaper to import goods from abroad Depreciation Good for exporters: cheaper for foreigners to buy your goods Bad for consumers: more expensive to import abroad Flexible exchange rates Driven by market forces: gov’t lets currency float against others Fixed Gov’t chooses and defends a peg against another currency Maintained by direct gov’t intervention in the market and macroeconomic policy changes Monetary and fiscal Benefits: stability of exchange rate, good for more trade and financial flows, low inflation Costs: susceptibility to currency crises, loss of domestic monetary autonomy Intermediate Where most countries fall Decide? Trade/financial ties with specific countries, vulnerability to shocks or recessions Correlations of shocks with key trading partners Political factors: interest groups, domestic political institutions, int’l institutions, issue linkage IMS 1.Do most fix or float? Fixed: gold standard Float: contemporary system 2.Monetary standard Commodity standard: a good with some intrinsic value-precious metals Commodity-backed paper standard Hybrid: Bretton woods, us dollar fixed to gold, all others to us Public good: all countries benefit from a stable monetary agreement with clear rules of the game Gov’t have domestic incentives to cheat Intervene to keep currency depreciated in a floating system Devalue in fixed system: competitive devaluations Prisoner’s dilemma Solutions: power/hegemony, formal int’l org., informal int’l cooperation among central banks Eurozone 19/28 in EU that have a fixed exchange rate with each other, the euro hard form of exchange rates good idea? Trade ties, had currency instability, inflation had success: Euro had been the stable, low inflation currency everyone had hoped for intra-EU trade has grown one size monetary and fiscal policy doesn’t fit all surplus countries: low inflation, low unemploymentwant high interest rates and balanced budgets (Germany) deficit countries: low inflation, low unemployment want low interest rates and deficit spending to stimulate the economy (Greece) Crisis: one money, different economies U.S. fixes by labor movement and redistribution of funds Eurocrisis Started around 2010 PIIGs: gypsies and pigs A looming grexit: Greece may have to leave and will be in a depression for a long time Four solutions 1.”Loose” monetary policy lower interest rates, more inflation, problem- likely to work economically unacceptable to Germany politically, ECB could print $1 trillion euros, buy up PIIGs debt 2.Permanent Bailouts problem: might bankrupt the surplus countries (Germany), politically unsustainable in a monetary union of equals 3.Permanent austerity problem: politically acceptable to Germany, but not to PIIGs 4.Partial Break-up of the Eurozone problem: slippery slope to complete collapse of EMU Global Finance Benefits: greater access to capital, consumption smoothing, market discipline Costs: loss of national autonomy, greater inequality, crises Pattern: countries open borders, lots of lending/borrowing, accumulate large debt, threat of default scares foreign lenders, pushed into more debt Causes of Financial Crises 1.Bad policy countries adopt unsustainable economic polices: debt, deficits, and inflation, deregulation of finance, insolvency 2.Financial Panic int’l lenders panic and pull their money out of a country, triggering a crisis crises as collective action problem among lenders core problem: liquidity problem-short term cash flow Housing Crisis Many bad mortgages from subprime borrowers Led to problems of uncertainty Northern Rock borrowed money from American banks and caused collapse IMF Focus on international crisis lending 185 members Lender of last resort: works as a credit union All members contribute a portion Goal is for short-term stabilization, stop crisis, prevent default, long-term growth IMF Conditionality Definition: policy reforms mandated by IMF in exchange for money Rationale: change bad policies that cause crises Limit: moral hazard Policy form in lieu of collateral Types: fiscal austerity, tight monetary policy, foreign exchange reserve requirements, structural Adjustment-privatization, regulation, etc. Bailouts vs. moral hazard IMF loans (bailouts) help a borrow country pay its debt But they create moral hazard for borrowers and creditors Two views 1.French Bureaucrats 2.United States Treasury’s lap dog Evidence 1.Powerful states do have substantial influence 2.IMF staff also has power voting in this institution isn’t equal Criticisms of IMF 1.One size fits all same conditionality but different crisis causes, crises share things in common 2.Adjustment costs too high burden of adjustment costs often fall on poor 3.Moral Hazard bailout mentality Foreign Direct Investment Contra portfolio investment or currency holdings Investment for lasting interest Multinational corporations: a firm that owns or manages productive facilities in a different country Pros: savings/capital transfer Cons: foreign control over major economic decisions within a country Measuring Development Per capita income Infant mortality, poverty, life expectancy, electricity, look at trends not levels Development problems Literacy, water and sanitation problems, immunizations Factors contributing to under development 1.History former colonies: artificial borders, can distort civil society enclave economies 2.Geography tropical regions tend to be more Malaria Resource Curse 3.Gov’t Policies types of policies 4.Int’l Factors trade Import Substituting Industry Deliberate gov’t policies to replace imports of manufactured goods by promoting domestic industries Core elements: high tariffs, tax breaks/subsidies for industry, high taxes/export limits on agriculture Infant industry LDCs may have potential comparative advantage in manufacturing, but they can’t compete initially with well-established industries Protect now, free trade later Prebisch-Singer Hypothesis The terms of trade between primary products and manufactured goods tend to deteriorate over time Commodity prices are also more volatile
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