The Political Economy of International Finance
Cornel Ban
Assistant Professor
The International Relations Department
Boston University
cban@bu.edu
Professor: Cornel Ban
Office hours: 1-2 on Tues, Thurs and Fri
How has the evolving nature of international finance constrained and/or enlarged national
sovereignty? How do states finance wars and how do insurgents fund insurgency? Do regional
organizations complement or undermine international organizations? What roles can states still
play in economic development given the constraints of global and regional governance? Is the
ongoing crisis exceptional and what should be expect to find in its debris? Should Western
finance be the only referent and what place do Islamic finance or market-socialist finance have at
the table?
This course attempts to address these questions through a tour de force of stability and crisis in
the world economy, with an emphasis on the role of public international organizations (IMF,
World Bank, regional institutions) and private ones (globalized financial institutions and stocks of
exchange, central banks, credit rating agencies, epistemic communities, a wide diversity of
private financial institutions). While some of the readings cover historical developments, the main
focus remains on developments from the past two decades, with the current crisis being reserved
a prominent role.
While the main objective of the class is to give you a sophisticated perspective on the main
questions posed above, it also aims to endow you with concrete skills used in policy: assuming
opposing views in debates, translating research findings for non-specialist audiences, writing in
policy formats (press releases, policy memoranda, op-ed pieces etc.).
The readings used in the class were intended for a general audience, rather than a specialist
readership endowed with heavy training in economics.
Course guidelines
The course format is as follows: (a) the professor will deliver a short lecture, framing the issues of
the day in the broader context of the class. (b) next, specific students present the assigned
readings and draw the rest of the class into a debate that is germane to the main issues highlighted
in the readings (c) after the break, the professor will deliver an interactive lecture focused on
relevant aspects not discussed in the readings.
By February 30th, each of you owes a 2,000 words literature review on a relevant issue to be
decided together with the instructor. The final paper consists of a 4,000 words paper addressing a
policy question that is high on the current policy agenda. The format is not the academic paper
but the policy memorandum.
Special note: The format of the seminar emphasizes discussions and therefore there is no need to
use laptops, ipads and iphones following the professor’s lecture. You can use handwritten notes at
any time, however.
Grading policy
Each of the literature review essays will be worth 20 points of the final grade, while the final
paper will be worth 40 points. The remaining 20 points will be covered in the following way: 10
points for class participation and 10 points for an editorial/letter to the editor prepared for
Financial Times on one of the issues discussed in class to be delivered at any point before the end
of the class, along with evidence of its submission (forward the letter to the professor).
To keep up to speed with the latest research on hot topics in economics and political economy
you are strongly encouraged to keep an eye on the following blogs:
http://www.voxeu.org/
http://triplecrisis.com/
http://ineteconomics.org/blog
http://blog-imfdirect.imf.org/
http://nakedkeynesianism.blogspot.com/
http://www.project-syndicate.org/
http://baselinescenario.com/
http://www.guardian.co.uk/global-development
http://chrisblattman.com/
The daily reading of Financial Times is highly recommended
Work and Ethics
You are responsible to know Boston University’s Academic Conduct Code. Link:
http://www.bu.edu/academics/resources/academic-conduct-code/
Books
Eric Helleiner States and the Reemergence of Global Finance: From Bretton Woods to the 1990s, Cornell
University Press, 1996
Barry Eichengreen, Globalizing Finance: A History of the International Monetary System, Princeton
University Press, 2nd edition, 2008
Mark Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press, 2013
William Janeway, Doing Capitalism: Capitalism in the Innovation Economy, Oxford University Press,
2012
Ronen Palan The Offshore World, Cornell University Press, 2005
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Session 1. Introduction
Session 2, Feb 24, Taking Stock
Dani Rodrik, “Goodbye Washington Consensus, Hello Washington Confusion? A Review of the
World Bank’s Economic Growth in the 1990s” Journal of Economic Literature, 2006.
Helleiner, Eric. "Understanding the 2007-2008 global financial crisis: Lessons for scholars of
international political economy." Annual Review of Political Science 14 (2011): 67-87.
Richard Deeg and Mary O’Sullivan, “The Political Economy of Global Finance Capital” World
Politics, 2009, Vol.61(4), pp.731-763
Mark Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press, 2013, ch. 1
Eric Helleiner and Stefano Pagliari “Towards a New Bretton Woods? The First G20 Leaders
Summit and the Regulation of Global Finance”, New Political Economy, Vol. 14, No. 2, June
2009
Andrew Haldane and Robert May, “The birds and the bees, and the big banks” Financial Times,
February 20, 2011
Fun stuff:
Nassib Taleb, “Antifragility” http://www.youtube.com/watch?v=7IpTpjhVo7I
http://www.guardian.co.uk/books/2012/nov/21/antifragile-how-to-live-nassim-nicholas-talebreview
Watch this documentary
http://www.pbs.org/wgbh/pages/frontline/meltdown/view/
Session 3, Jan 31: Economic Development Strategies and Money
Robert Wade “Beware of what you wish for: Lessons for international political economy from the
transformation of economics” Review of International Political Economy, 16,1, 2009.
Justin Lin and Ha Joon Chang “Should Industrial Policy in developing Countries Conform to
Comparative Advantage or Defy it?” Development Policy Review, 2009.
Penelope Prime “Utilizing FDI to Stay Ahead: The Case of Singapore” Studies in Comparative
International Development” 47, 2, 2012.
Arturo Escobar, “Beyond the search for a paradigm? Post-development and beyond”
Development, 43, 4, 2000.
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Session 4, Feb 7: Capitalist Development and International Finance: From the Gold
Standard to Interwar Instability
Eichengreen, Globalizing Capital, ch. 1-3
Session 4, Feb 14. Financing the Economy during the Bretton Woods Era: From Wall Street
to Vietnam War Finance
Eric Helleiner States and the reemergence of global finance, part. 2
Eichengreen, Globalizing Capital, ch. 4
William Janeway, Doing Capitalism: Capitalism in the Innovation Economy, Oxford University
Press, 2012, ch. 2
Session 5, Feb 21. Financing the Economy after the Bretton Woods Era: From Wall Street
to Insurgency Finance
Eric Helleiner States and the reemergence of global finance, part. 2
Eichengreen, Globalizing Capital, ch. 5
William Janeway, Doing Capitalism: Capitalism in the Innovation Economy, Oxford University
Press, 2012, part 1
Graham Myres, “Investing in the Market of Violence: Toward a Micro-Theory of Terrorist
Financing” Studies in Conflict & Terrorism, Volume 35, Issue 10, 2012
Fun stuff:
Michael Lewis, “Wall Street on the Tundra,” Vanity Fair (Apr. 2009) at
http://www.vanityfair.com/politics/features/2009/04/iceland200904
Session 6, Feb 28: Why and how financial crises occur
Charles Kindleberger, “Anatomy of a Typical Crisis,” Manias, Panics, and Crises, New York,
Wiley 1987/2011
Reinhart and Rogoff “This Time it’s Different” NBER 13882, Available at
http://www.nber.org/papers/w13882
Hyman Minsky, Stabilizing and Unstable Economy, McGraw-Hill, 2008. Ch1-2 and conclusions
Mark Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press, 2013, ch. 2-3
Philip Arestis and Ajit Singh, “Financial globalisation and crisis, institutional transformation and
equity” Cambridge Journal of Economics, (2010) 34 (2): 225-238.
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Optional:
Randall Wray “Minsky, the Global Financial Crisis and the Prospects Before Us” Development
52, 2009, pp 302-307.
Michael Lewis on The Blow up and AIG
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-WallStreets-Boom
Blyth on Bouncy castle finance
http://www.foreignpolicy.com/articles/2009/09/14/bouncy_castle_finance
Brunnermeier, M. (2009). “Deciphering the Liquidity and Credit Crunch 2007-08,” Journal of
Economic Perspectives, 23, 77-100.
Joe Nocera on value at risk analysis, http://www.nytimes.com/2009/01/04/magazine/04risk-t.html
Felix's Salmon's piece on the Gaussian Cupola, http://www.wired.com/techbiz/it/magazine/1703/wp_quant?currentPage=all
Matt Taibbi on Goldman Sachs
http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine
Session 7, March 7: Austerity and Crises
Mark Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press, 2013, the rest of
the book
Optional:
Dawn Holland, Jonathan Portes, 1 November 2012, Gauging the multiplier: Lessons from history
Session 8, March 14: Break
Fun stuff
Session 9, March 21: Money, Trade Imbalances, Innovation and Development
Leonardo Baccini and Soo Yeon Kim “Preventing protectionism” International institutions and
trade policy” Review of International Organizations, 7 (4) December 2012
Robert Wade, “From global imbalances to global reorganizations” Cambridge Journal of
Economics, 33, 4, 2009
William Janeway, Doing Capitalism: Capitalism in the Innovation Economy, Oxford University
Press, 2012, part 3
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Session 10, April 4: Finance and Regional Governance in Europe
Sheri Berman and Kethleen, McNamara “Bank on Democracy,” Foreign Affairs (2000)
“Debate on the future of the euro: Commentary,” Review of International Political Economy,
October 2012
Watch the video of Martin Wolf at Brown here: http://brown.edu/web/livestream/archive/2012euroconf.html
Mark Blyth Austerity: The History of a Dangerous Idea, Oxford University Press, 2012 (ch 4)
Jay Shambaugh, ‘The Euro’s Three Crises’ available at
http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring
_BPEA_shambaugh.pdf
Session 11, April 11: Finance and Regional Governance and Finance in the Global South:
From Islamic Finance to Mercosur
Lena Rethel, “Whose legitimacy? Islamic finance and the global financial order,” Review of
International Political Economy, 18 (1) 2011.
Mahrukh Doctor “Prospects for deepening Mercosur integration: Economic asymmetry and
institutional deficits” Review of International Political Economy, May 2012
Injoo Sohn “Toward normative fragmentation: An East Asian Financial Architecture in the postglobal crisis world” Review of International Political Economy, Oct. 2012
William Grimes, “The Asian Monetary Fund Reborn? Implications of Chiang Mai Initiative
Multilateralization,” Asia Policy, no. 11, January 2011, pp. 79-104.
Optional
Justin Lin: Demystifying the Chinese Economy
Review: http://www.ft.com/intl/cms/s/2/5acad17a-1cdf-11e1-a13400144feabdc0.html#axzz2B69Rfnfz
Session 12, April 18: Where now? The future of development and global finance
Eric Helleiner, States and the reemergence, conclusions
Barry Eichengreen, Globalizing Capital, conclusions
Eric Helleiner and Stefano Pagliari “The End of an Era in International Financial Regulation? A
Postcrisis Research Agenda”, International Organization, 65, Winter 2011, 169-200.
Mark Blyth, Austerity, Conclusions
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William Janeway, Doing Capitalism: Capitalism in the Innovation Economy, Oxford University
Press, 2012, part 4
Optional
IMF (October 2012), World Economic Outlook.
DeLong, J B and L H Summers (2012), ‘Fiscal policy in a depressed economy’, Brookings
Papers on Economic Activity 2011
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Session 13, April 28: Offshore they went
Ronen Palan The Offshore World (Cornell 2005), select chapters
Session 14, May 2, Wrap-up
Warwick Commission Report, at www2.warwick.ac.uk/research/warwickcommission/.../report/
Andrew G Haldane, “What have the economists ever done for us?”, www.voxeu.org, 1 October
2012
Mosley, Layna (2010), Regulating globally, implementing locally:
The financial codes and
standards effort,” Review of International Political Economy, 17:4 October 2010: 724–761
Helleiner, Eric and Stephano Pagliari (2010), “The End of Self-Regulation? Hedge Funds and
Derivatives in Global Financial Governance,” Helleiner, et al, Global Finance In Crisis, London
Routlege.
Blyth, Austerity, Conclusions
Data Sources on International Finance:
1. The IMF's publication, IMF Survey, is an invaluable resource. The publication is posted on the
IMF’s website, www.imf.org. Data on aggregate, regional and countrywide financial sector and
macroeconomic performance are presented in International Financial Statistics (IMF/World
Bank). This volume is published annually and is kept in the Reference section of Penrose Library
(call number is-- HJ8899.W672). The IMF’s quarterly publication, World Economic Outlook,
provides a survey and analysis
of key trends in the global financial system. The IMF’s Global
Economic Prospects is also a useful publication. IMF publications are available on the
institution’s website. The IMF’s quarterly publication, Finance and Development, is a useful
resource on financial policy issues in the developing country context.
2. The IMF’s Balance of Payments Statistics Yearbook presents detailed data on the balance of
payments.
3. The World Bank’s two-volume publication, Global Development Finance,
provides comprehensive data on capital flows (www.worldbank.org).
4. Cross-national macroeconomic data can be found in Main Economic Indicators, published by
the
Organization for Economic Cooperation and Development www.oecd.org
5. The May issue
of the US Commerce Department’s Survey of Current Business summarizes US
international transactions for the preceding year (see www.stat-usa.gov or www.doc.gov). 6. The
United Nations (www.un.org) publishes the annual World Economic Survey, which
covers
major issues facing the world economy.
7. The website www.cepr.net/, http://www.peri.umass.edu/home/peri/,
http://www.epi.org/,
http://www.iie.com/ publishes many useful studies of international
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financial policy issues and debates.
8. The website http://www.financialpolicy.org/ is the best source for critical policy analysis of
derivatives and hedge funds.
9. Many blogs, e.g., http://www.project-syndicate.org/,
http://triplecrisis.com/, http://rodrik.typepad.com/, present useful discussions of international
financial issues.
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