Chapter 8 (pp. 269-283) International Political Economy

Mercantilism

Goal of the govt. is to build economic wealth as instrument of state power

• Needs strong central government

• Tax collection and maximization exports over imports *

• Prioritize industrialization

• Protecting domestic production against competition

• Intervening in trade to promote employment

Protectionism

Policies like high tariffs to protect the growth of a nation’s domestic manufacturers. Also discourage foreign investment to achieve national self-sufficiency.

Economic radicalism

Core belief: That society is fundamentally conflictual, stemming from the competition for scarce resources between groups, owners of wealth and workers

• Emerged due to harsh living condition of the working class and economic disparity

• They blame the capitalist system under liberalism and see internationalization that led to the domination and exploitation of poorer classes

Macro economic policies

Made up of two major policies: fiscal and monetary that influence domestic and international economic policy

Fiscal policies

Policies that affect a government’s budget: level of government spending and the tax rates

• Stimulate the economy: Government increases spending or decrease tax rates

• Slow the economy/balance the budget: states may choose to cut government spending or increase tax rates

Monetary policies

Increasing or decreasing the money supply, accomplished through the manipulation of short-term interest rates

Microeconomic policies

These are policies selected by states regarding regulation subsidies, competition, and antitrust actions

Exchange rates

The price of one currency in relation to another. Facilitates the exchange of goods and services and has an immediate impact on the price of a country’s goods and assets

Tariffs

The taxes on goods and services crossing borders. Key trade policies used to provide the amount of protection a state desires from the international market.

Non-tariff barriers

Restrictions on international trade designed to protect health, safety, or national security

Capital accounts

Measure the flows of capital between countries, including foreign direct investment and portfolio investment both into and out of the country

Current accounts

Current accounts measure the net border flows between countries of goods, services, governmental transfers, and income on capital

Balance of payments

Composed of a country’s current and capital account balances. A country’s balance of payments is either positive (in surplus) or negative (in deficit)

The World Bank (Intergovernmental Bretton Woods institutions)

Loan capital funds for economic-development project, funded by member-state contributions and borrowing in international financial markets

The IMF (International Monetary Fund)

• Originally: provide stability in exchange rates

• Currently: Acts as a lender of last resort to keep debtor countries from collapsing (short terms loans for member states facing temporary balance-of-payments deficits)

GATT

General Agreement on Tariffs Treaty formed the third part of the liberal economic order after WWII, series of multilateral trade negotiations designed to stimulate by lowering trade barriers.

WTO

World Trade Organization replaced GATT in 1995, is the forum for negotiating new trade agreements and includes stronger dispute-settlement procedures

Most favored nation principle (MFN)

Nondiscrimination in trade, states agree to extend the same treatment to all other GATT members that they giver to their best (most-favored) trading partner

• Key Liberal principle enshrined in GATT

Foreign Direct Investment (FDI)

Mechanism through which international capital moves. Involves the construction of factories and investment in facilities for the extraction of natural resources by Multinational Corporations (MNCs).