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POS160 Week 5 Notes

by: Alexandra Notetaker

POS160 Week 5 Notes POS160

Alexandra Notetaker
GPA 3.5

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About this Document

These Notes cover Financial Globalization
Global Politics
Dr. Reed M. Wood
Class Notes
POS160, political science, global, Politics, classnotes, Lecture Notes, study
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This 3 page Class Notes was uploaded by Alexandra Notetaker on Tuesday September 13, 2016. The Class Notes belongs to POS160 at Arizona State University taught by Dr. Reed M. Wood in Fall 2016. Since its upload, it has received 6 views. For similar materials see Global Politics in Political Science at Arizona State University.

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Date Created: 09/13/16
POS160 FINANCIAL GLOBALIZATION  CapitalFlows  Foreign exchange:  Flowsofmoneythat occurascurrenciesareboughtandsold  $1.2trillion/day(“hotmoney”)  Bank LoansandSovereignLending:  Banksin one countrylendtoborrowersin another country  Prevalentin 70s-80s  Investment:  PortfolioInvestment:(liquidandvolatile)  Short-termcapitalflows(time horizon <1yr.)  Common assetsarestocks(equity)andbonds(debt)  Managedbypensions,mutualfunds,andhedgefunds  Foreign DirectInvestmentFDI:(stable)  Investmentsin specificcompany/projectincluding new facilitiesabroad  Longertime horizon  ToolsusedbyMultinationalCorps.(MSCs)  FinancialGlobalization  Increaseddramaticallyin last20yrs.  DevelopedNations:  50s/60s:Protected/closed market  70s:restrictionsdecrease =opening  90s:restrictionsremoved  Developing Nations:  80s:protected/closedmarket  90s:restrictionsdecreased  Stillhighlyrestricted  Benefits  Capitalflowsarean aspectoffreetrade  H-Otradetheory:  Developedstates:capitalrich=benefitbyexportcapital  LDCs:capitalpoor(labor rich) =benefitbyimportcapital  LiberalMarketTheory:  DevelopedstatessentinvestmenttoLDCs  Labor richLCD usecapitaltoheadproduction ofgoodstoexporttoDevelopedstates.  Benefitsboth:  LCD importinvestment  Exportgoodsproducedbyinvestment  Developedstatesimportgoods  LDCseconomicgrowth  Problems  FearsofLDCs:  Economicexploitation  Asymmetricbargaining relationship  Financialopennesscreateuncertainty/instability  Market crash=devastatingfor LCD  Hardtomanage economybecause liquidcapitalflows  FearsofDevelopedStates:  MNCsinvesting overseas  Outsourcing jobs  Lowerlabor standards  Decreasedenvironmentalregulations  Institutions  Promoteeconomicinteractionsamong statesandcontribute toglobalization  Globalization:opening andincreasedrelationshipsofglobaleconomies  WTO(GATT)  Reducedtradeprotection  IMF  “Lender ofLastResort”  Loansin exchangefor economicrestructuring  WorldBank  Promotesinternationaldevelopment  Loanstoinitiate developmentin ordertomodernizeLDCs  IMF  Bretton WoodsSystem(1944-1973)  Promoteglobalfinancialstability  LendstoLDCs  Short-termcashloans  “Lender ofLastResort”  Lendstoacountrywhen itison theverge ofeconomiccollapse  Loanscome withconditions:  Requiresreforms:  AusterityMeasures:  Reduction in governmentspending  Reduction in publicsector employment  Increasedprivatization  GreaterLiberalization(trade/capitalopenness)  Pressure toreformtoliberalmarkets  Thissolution isbetterthan economiccollapse,butitis questionable thatit producesgrowth.  Funding =control  IMFresourcescome frommembergovernments  Larger contributionsleadtogreater voting power  US holds17%(largest)  Wealthycountrieslead  Criticism  Toolofinternationalfinanciers  Doesnotassisteconomicgrowth/development  Pressure for western liberalmodels  Negative impactson poor,children,workers,andwomen  Destabilizecountries  Createsdebtfor citizens  Source ofmoralhazard  Moralhazard:astateismorelikelytoengagein riskybehavior iftheyknow theywillbe bailedout.  The WorldBank  PromotesinternationaldevelopmentofLDCs  Integration intoglobalmarket  Sister toIMFandproductofBretton Woods  Contributions=control  Relieson membercontributions  Voting basedon economysize(GDP)  US 16%(largest)  PresidentfromUS,andnominatedbyUS President  Economicpowerbuysinfluence  Advocatedeconomicreforms  Basedon Washington Consensus(liberalmodel)  Focuson GDPgrowth  Liberalization,deregulation,privatization,governmentdownsizing  Loanspromote:  Infrastructure development  Projectspromoting liberalizationin the economy  Promotespecialinterestareas:  Povertyreduction  Environmentalprotection  Women’srightsetc.  Criticism  SameasIMF  Economicimperialism  “cookiecutter”developmentstrategies  Focuson growth ofGDPandliberalmarketsvssustainability,equality,andqualityof life  DestabilizeLDCs  WorksthroughMNCsandwealthycountries’agendaatexpenseofLDCs


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