Poli 260 - Week 10 (Lecture)

Poli 260 Week 10 - Poli 260 Week 10 Lecture Despite gains from trade economy doesnt function in a vacuum Globalization is a CHOICE not a fact

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Poli 260 Week 10 Lecture Despite gains from trade, economy doesn’t function in a vacuum… - “Globalization is a CHOICE, not a fact” - Frieden o Is not constant: happened around 1900, is happening now, but trade diminished significantly between 1930’s and 1980’s - The ‘laws’ of economics involve lots of politics: 1) Use of military and police force 2) Domestic political competition 3) Dealing with the losers of free markets (aggregate benefit, but not everyone gains equally) Coercion in the world economy: - E.g. Leopold’s Congo in 1890’s - Puzzle: why is Congo exporting rubber and ivory, importing weapons from Belgian troops? o Read Frieden, 83 Was not allowed to use money, so had to be paid in goods, but none were given to the people - Weapons were used by Belgian troops to coerce Africans to tap rubber o Taxes o Taking women and children hostages – released them when men supplied quota of rubber - Sometimes free markets are made free by the use of force (part of general opening of markets across the global) good example of this is colonization - Lessons of Leopold’s Congo o Free trade doesn’t happen due to purely economic forces like comparative advantage, self-interest (they’re important but they’re not always why free trade happens) o Free trade is often created through coercion Example: Opium War – Britain and China – when Emperor of China wanted to stop trade of opium from Britain to China – Britain sent gunships to China to open the market o Free trade is often the product of state intervention to open economies/role of IO’s like IMF Domestic political competition over trade: Winners and Losers - Winners: o Consumers everywhere Price of goods falls due to competition o Workers in low-wage economies Demand for cheaper goods overseas creates jobs o Exporters Get access to markets with higher demand o Producers goods with abundant tradable factors of production within their economy (Frieden, 109-111) Tradable: something you can physically transfer across the border Abundant cost of FOP lower than competitors - Losers: o Low-skill workers in high-wage economies (divergence goes according to skills of workers) Get hit first Foreign competition depresses wages/reduces jobs jobs can be done anywhere as long as cost of transportation is low o Producers for domestic market Exporters gain from having a bigger market…and those who produce for a domestic market get hurt because the supply was low within the domestic market, but when the supply increases, the prices decrease (hurt domestic producers) o Producers of goods with scarce factors of production
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When a good is scarce, cost is high reduces ability to compete when someone with a lower cost is in the market Cost of FOP relatively higher than competitors, reducing profits Eg. Oil producers in Texas - What do losers from trade want? o
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This note was uploaded on 12/07/2011 for the course POLI 260 taught by Professor Sens,allen during the Winter '09 term at The University of British Columbia.

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Poli 260 Week 10 - Poli 260 Week 10 Lecture Despite gains from trade economy doesnt function in a vacuum Globalization is a CHOICE not a fact

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