Lecture slides (Topic 2)2007

Lecture slides (Topic 2)2007 - Background notes on...

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1 Background notes on globalization September 2007 Narrow definition of globalization: Economic integration, through increased flows of goods, services, investment and labor, information, and ideas. Broader definition includes cultural, political, military integration.
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2 Basic disagreement about role of markets Debate over merits of globalization have “taken the place” of previous debates over merits of capitalism and imperialism. Pro- and anti- have different views of roles of markets and governments. Globalization associated with increased role of markets, changing role (“internationalization”) of governments. Real policy choice is not either/or, but about the rules under which the market operates
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3 Brief overview of policy, last 60 years The “orthodox view” changes over time Post WW II orthodox view favored reform of capitalism, heightened government intervention Creation of IMF, World Bank, attempt to create International Trade Organization Post Soviet (early 1990s) orthodoxy saw markets as pre-eminent.
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4 Changing perception of international institutions Role of IMF to avoid financial crises by making short term loans to countries with severe short term balance of payments deficits. Today IMF critics see its role as enforcer of “neo-liberal” policies. IMF does not want to subsidize policies that contribute to a country’s financial crisis.
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5 The ITO—GATT—WTO ITO Charter agreed at UN in 1948 Objective to promote free trade US critics call it “Economic Munich” (explain “Munich”), claim excessive reliance on government interventions. US refuses to ratify 1950. GATT adopted 1948 by 28 of 50 countries negotiating ITO. Seen as forum to enable trade negotiations. Several rounds of GATT.
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6 The World Trade Organization (WTO) Uruguay round leads to WTO. Critics object that WTO is a wealthy nations’ club that promotes special interests, e.g. agriculture, pharmaceuticals (via special agreements on ag and intellectual property/patents). Current “Doha round”, billed as the “development round” appears to have collapsed, largely over disagreements about rich countries’ ag policies, and developing countries’ liberalization requirements.
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7 Trade and development strategies A simple model divides economic activity in “export” and “import” sectors. Basic economic fact: When factors of production enter one sector, they leave some other sector. A subsidy on one sector is an implicit tax on other sectors. (Illustrate using production possibility frontier) Import substitution policies: promote growth by subsidizing/protecting industries that compete with imports. (Latin America) Export promotion polices: promote growth by subsidizing/protecting export sectors. (Southeast Asia)
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8 Effect of policies, debate over their merits Import substitution policies decrease trade, export promotion policies increase trade. Both involve government intervention in market.
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Lecture slides (Topic 2)2007 - Background notes on...

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