Global Issues for Unit 7: Understanding the International Political Economy: Finance

What is an investment in fixed or productive assets in another country?

FDI

What is an investments by individuals or other stakeholders into financial assets in another country?

FPI

What is money sent from foreign workers back to family¸ friends¸ or other associates back home?

Remittances

What is the money¸ goods¸ and services that one country provides to another?

foreign aid.

What is the development strategies that emphasize the empowerment and participation of individuals and local communities?

bottom-up development. 

For people and countries to develop and prosper, they need:

Capital (money)

To stabilize currencies during the initial post-WWII era, countries:

fixed (or pegged) the value of their currency to the U.S. dollar, which was fixed to the price of gold.

The difference between foreign direct investment (FDI) and foreign portfolio investment (FPI) is that:

FDI is investing more in fixed assets (companies and real estate), as opposed to stocks and bonds, which is FPI. 

Capital:

ABC & D:

A. In the past¸ largely stayed at home¸ in domestic banks and stock markets.

B. Is seen through foreign direct investment¸ foreign portfolio investment¸

foreign aid¸ remittances¸and other channels. 

C. Today can cross borders at lightning speed¸ with trillions traded every day.

D. Is another word for money. 

MNCs build supply chains to:

a) Access foreign markets.

b) Find the most qualified and inexpensive labor.

c) Access abundant raw materials.

FDI can often help a country by:

a) Increasing competition in a host country making its industries more efficient. 

b) Generating employment and economic growth in host countries. 

c) Helping build physical infrastructure in a host country. 

d) Bringing in new technology and upgrading local labor skills. 

What was the gold standard?

An exchange rate system that tied each country’s currency to a fixed amount of gold, facilitating trade and investment. 

What is true about the Bretton Woods monetary system after WWII?

A,B,C, & D

A. Leaders agreed to let the dollar become the international reserve currency¸ with a value set at $35 for an ounce of gold. 

B. State currencies were fixed to the U.S. dollar

C. The U.S. maintained a large outflow of dollars through the Korean War¸ Vietnam War¸ Great Society programs¸ and other initiatives. 

D. Europe¸ Japan¸ + other parts of the world saw significant economic recoveries + growth. 

E. Maintaining the “dollar standard” became an increasing challenge. 

F. In 1971¸ with gold reserves low¸ President Nixon ended the dollar standard + the world switched to floating exchange rates. 

With floating exchange rates:

The market determines the price of the currency

An example of remittances includes:

Wages sent from Mexican workers in the United States to family and friends back home

Which country receives the most foreign direct investment?

The United States

As noted in the PBS video, with the efforts toward deregulation/liberalization of agriculture in India, many farmers:

• Thought they would “get wiped out,” as reforms came to a sector that is “widely seen as costly and inefficient, with outdated infrastructure”

• Feared business conglomerates, like the Reliance group, would now take over agriculture & put small farmers out of business

• Accused Prime Minister Modi of doing the bidding of wealthy industrialists

Neoliberal structural adjustment programs call for:

• Opening economies to foreign trade and investment

• Reducing government spending

• Selling state-owned enterprises

• Relaxing government controls on currency and interest rates

• Deregulation

Some downsides seen with structural adjustment programs in LDCs include:

• State-owned enterprises being sold to cronies of the political elite

• Privatized industries reducing employment as they seek to compete

• Small business owners being overwhelmed by international competition

• Reduced spending on education, healthcare, infrastructure, and other public goods

• Political institutions being unable to enforce key parts of a free market economy, such as labor rights or environmental protections

With “structural adjustment” in Latin America:

Inflation has dropped dramatically, and foreign investment has significantly increased. 

As the continent, what is true about economics in Africa?

Agriculture is over half of economic activity, and manufacturing remains low. 

Neopatrimonialism is:

When a ruler or ruling elites treat the state as an extension of their own personal property or interests.

Why did the Japanese economy falter in the 1980s:

• Close relationships between business, gov’t, and bankers led to ill-advised bank loans and economic decisions, preventing the normal growth and contraction of markets.

• The Japanese economy was flush with money and there were some questionable investment decisions, particularly in real estate. 

Where did the 1997 East Asian economic crisis begin?

Thailand

With the 1997 East Asian economic crisis, in which country did IMF-recommended belt tightening measures lead to open rebellion and many deaths?

Indonesia

Neoliberal advocates of the “Washington Consensus” argue that:

Opening economies to free trade, cutting back state budgets (fiscal responsibility), and privatizing state-owned enterprises is the best strategy for the developing world. 

Through _________________, the IMF and World Bank set a series of often stiff conditions when establishing an agreement with a borrowing country, pressing such steps as trade liberalization, fiscal responsibility, and privatization.

Structural Adjustment Programs.

IMF Structural Adjustment Programs (SAPs) have called for:

Privatization (sale to private owners) of state-owned enterprises (SOEs). 

With which country did the U.S. sign a free trade agreement in 2007 (coming to force in 2012), adding transparency and openness to their relationship?

South Korea

What is true about the Trans-Pacific Partnership?

• It was signed by 11 countries to counter China’s growing strength and help set the rules of the economic road along the Pacific Rim.

• The first Trump administration pulled the U.S. out of the agreement upon coming to office.

• It was hotly disputed by both the left and right wings of the U.S. political spectrum.

Under Mao Zedong, China followed a socialist command economy, in which the government: 

• Owned the means of production and limited trade with the outside world

• Almost completely banned foreign investment

• Did not see exports as a central part of the development strategy

• Set prices and determined employment by assignment

• Adopted policies that led China to become impoverished and isolated

• Sent production quotas and other targets to businesses and farms that had been nationalized or collectivized

Who initiated China’s reform efforts that began a dramatic economic transformation?

Deng Xiaoping

The first steps in opening the Chinese economy included:

• Allowing farmers to sell excess produce on the market¸ once they had sold a set amount to the state at planned prices. 

• Inviting foreign firms to invest in Special Economic Zones to produce for export. 

• Allowing businesses to sell excess production on the market¸ once they had fulfilled government quotas. 

• Sending students overseas for training¸ particularly to the United States. 

When did the Tiananmen Square massacre occur?

June 4, 1989

What are the challenges China faces today?

• Protest over its crackdown in Hong Kong. 

• Significant corruption. 

• Tens of thousands of popular protests each year. 

• International condemnation for placing over 1 million Uyghurs in concentration-style camps. 

• Some of the world’s most polluted cities and other urgent environmental concerns. 

• Sharp income and gender inequality. 

• Ongoing international tension over islands in the South China Sea. 

What accelerated the slowing in China’s rapid economic growth after almost 2 decades, where growth often exceeded 10 percent per year?

COVID-19

Under now more assertive Chinese nationalism:

• The government is more willing to require Western companies to follow its rules and to claim Western hypocrisy in the face of criticism. 

• Western companies operating in China are caught between Beijing's demands for silence and Western demands to avoid forced labor. 

• Many companies are bending to Beijing's pressure not to criticize Chinese human rights practices because the Chinese market is too large and the blowback in China too acute. 

Why is it hard for Western companies to avoid investment in China?

China has more middle-class potential consumers than the United States has population, and it remains the world's manufacturing leader. 

Mexico and Brazil are noted for:

Introducing conditional cash transfer programs to poor households, conditioned on families meeting requirements such as keeping their children in school. 

What is true about Bolsa Familia?

• It has been credited with lifting millions out of poverty and helping reduce Brazil’s searing inequality. 

• Payments start at $21 per month and are usually distributed to mothers.

• In 2020, Brazil’s populist right-wing government began cutting the program to reduce debt.

• It distributes financial aid to over 12 million Brazilian families each month. 

• It is often described as the world’s largest conditional cash transfer program

What does the M-PESA service do?

Allows money to be stored on a mobile phone and transferred between account holders via text message. 

What percentage of its budget does the United States give in foreign aid?

Roughly 1%

The two main forms of foreign aid include:

Economic assistance and security assistance

What category does this type of foreign aid match into: Health and education programs?

Economic assistance

What category does this type of foreign aid match into: Weapons procurement?

Security assistance

What category does this type of foreign aid match into: Battling drug war?

Security assistance

What category does this type of foreign aid match into: Economic development aid?

Economic assistance aid aimed at improving economic stability and growth in recipient countries, often through infrastructure, job creation, and investment.

What category does this type of foreign aid match into: Counterterrorism?

Security assistance aimed at enhancing the capabilities of nations to combat terrorism effectively.

What category does this type of foreign aid match into: Military operations?

Security assistance focused on enhancing military capabilities and operations to maintain or restore stability.

What category does this type of foreign aid match into: Disaster relief?

Economic assistance aimed at providing immediate support and relief to communities affected by disasters, ensuring basic needs are met.

What is true about China’s Belt and Road initiative?

It involves countries with 40% of global wealth and two-thirds of the world’s population. 

In total dollars, which country gives the most in economic aid?

The United States

How does Ambassador James Dobbins characterize the logic and reasons behind foreign aid in the Wall Street Journal video: 

• It’s enlightened self-interest¸ like helping rebuild Germany and Japan after WWII

• It’s geostrategic¸ helping build alliances

• It’s economic¸ helping create markets and customers

• It’s humanitarian¸ helping with natural disasters¸ refugee crises¸ urgent health issues¸ etc.

• It’s security related¸ like helping countries ward off threats from non-state actors¸ such as the Islamic state or al-Qaeda

As a percentage of its national income/GNI, the United States gives what in foreign aid:

Amongst the lowest level among rich countries (bottom third)

Who founded the Grameen Bank in 1976?

Mohammad Yunus

The Grameen Bank:

Offers loans to the poor in Bangladesh. 

A challenge that has developed in recent years surrounding micro-lending has been:

The development of for-profit micro-lending aggressively pushing high-interest loans and focused on maximizing profit. 

In the United States:

• Micro-lending has been supplemented by NGOs that give out “micro-grants”.

• Micro-lending has taken root through Grameen America and other organizations.

Micro-lending tends to focus on:

Women, who studies show are more community oriented and more likely to repay loans.

In a scientific study of foreign aid in Ethiopia, researchers found:

Significant gains for those that received the assistance in all major measures: revenues, savings, food consumption, and total assets. 

What is on the horizontal, x-axis, part of the Elephant Chart?

The entire world population, arranged by their incomes in 1988, poorest to the left, richest to the right.

What is on the vertical, y-axis, part of the Elephant Chart?

Personal income growth, in percentage terms, over 20 years

How have the world’s poorest people fared over the time period?

Poorly, with weak income growth and continued extreme poverty. 

How have the people on the back of the elephant, in the middle of the global income distribution, fared over the time period?

They have almost doubled their income.

Who are offered as examples of those on the back of the elephant in the middle of the global income distribution? 

• Indians in Bangalore

• South Koreans

• Chinese who have flocked from the countryside to the cities

• The Brazilian middle class

What is argued as part of the good news of the Elephant Curve?

Income inequality, from a global perspective, has gone down, as the incomes in the developing world have risen. 

How do the middle classes in the United States and other developed countries fare over the time period?

They have seen very little income growth for decades. 

Who is at the tip of the trunk, showing sharp income growth over the time period?

“The global one percent”.

What political economic dynamic does Branko Milanovic hypothesize might be explained by the Elephant Curve?

Middle-class people in developed countries, generally dissatisfied with their economic position and feeling threatened by migration and job insecurity, turn to anti-globalization populism.