JUNIATA COLLEGE
Accounting, Business and Economics Department
International Political Economy
EB 381 01
Professor Brad Andrew
BAC 205D
Office Hours: MWF 10-11 AM
TuTh 2:30-3:30 PM
and by appointment
Office: 814-641-3378
E-Mail: Andrew@juniata.edu
Home Page: http://faculty.juniata.edu/andrew/
Description:
We purportedly live in an age of globalization. Countless commentators endlessly repeat
this mantra. Most of those repetitions are imprecise about what the word means and
overstate how much it changes our lives. This course aims to restore precision, end
exaggeration, and identify the key problems that the global economy poses for
policymakers, whether in the US, developing countries, or in international organizations.
It builds on your training in economics by integrating political theory, allowing you to
better analyze and understand current policy issues.
The first goal of this class is to acquaint you with important topics and theoretical
approaches in “international political economy.” Second, the course provides you with
the kind of foundation you will need in to analyze public policy issues (even apparently
domestic ones) in this “globalizing” world. Third, because this course requires so much
from you in terms of active participation, you’ll experience a level of involvement in this
class that likely exceeds any you’ve encountered before. This can be quite intellectually
stimulating, because you will have the opportunity to help shape the direction of class
discussion. YOU ARE AS MUCH RESPONSIBLE FOR THE SUCCESS OF THIS
COURSE AS I AM!!! Finally, at the end of the course, it gives you a chance to practice
the skills of policy analysis in your paper and on the take-home final exam.
As the course proceeds, its main emphasis goes from the theoretical to the practical. We
begin by sampling several contemporary views of political economy, spotlighting two
that will reappear often in the course. Then, the rest of the course covers what I consider
the most important issue areas in international political economy--trade (the longest
section), finance, the organization of production, culture and economic development.
Requirements and Evaluation:
This will be a seminar. As such, it is essential that all reading be completed and
contemplated prior to the class meeting. Attendance is required and classroom
participation (quality, not just quantity) accounts for 30% of your final grade. One short
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paper will count for 10%. Your performance leading class once counts for 10% of your
grade. One eight page paper counts for 20%. A comprehensive take-home final exam
counts for the final 30%.
Readings:
The following required books can be found at the book store or at online bookstores such
as Half.Com and Amazon.Com:
Paul Krugman, Pop Internationalism (MIT Press, 1996);
Dani Rodrik, Has Globalization Gone Too Far? (IIE, 1997);
Joseph Stiglitz, Globalization and Its Discontents (W. W. Norton, 2002).
Lori Wallach and Patrick Woodall, Who’s Trade Organization? (The New Press,
2004);
Randy Charles Epping, A Beginner’s Guide to the World Economy (Vintage,
2001).
There are also items on reserve, handouts and online readings.
Academic Honesty & Integrity Policy:
Ethics are an integral feature of all personal, social, and professional considerations.
Thinking ethically and accepting responsibility for one’s actions are essential to personal
development. Juniata’s graduates are committed to their intellectual, ethical, professional,
and social development throughout life. Students are expected to understand and comply
with Juniata’s Academic Honesty & Integrity Policy.
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SCHEDULE
* = On reserve
1/16
** = Handout
*** = On p-drive under Andrew
Quick Overview of Important Framing Concepts
Kenneth Waltz, “Evaluating Theories,” American Political Science Review,
12/97.***
Excerpt from Milton Friedman’s Essays on Positive Economics.**
E Roy Weintraub, “Neoclassical Economics”, available at
http://www.econlib.org/library/Enc/NeoclassicalEconomics.html
Hal Varian, Intermediate Microeconomics, excerpts.**
William McEachern, Microeconomics: A Contemporary Introduction, excerpts.**
These readings introduce us to two important questions that help frame issues that
we will address during the next few weeks—how do economists theorize about the world,
and what qualifies as a theory? Regarding the first question, economists assume that
people are rational, meaning that they do what is in their best interest at the time. People
buy the products that give them the most satisfaction per dollar spent, firms try to
maximize profits, and under particular conditions these choices will lead to the best
possible outcome for all parties involved in the transaction. In other words, no
rearranging of the products or purchases can make anyone else better off without making
someone else worse off. This is what economists call Pareto efficiency, and it is the goal
economists seek with any policy choice. The second question, what is a theory?, is
important for our discussions throughout the rest of the semester. Waltz, while
commenting on a book review, argues for his particular interpretation of what a good
theory should accomplish. Milton Friedman offers a different view, though there is some
overlap. In general, theories of political economy fit under the category of “positive
political economy” because they seek to explain the world using a few key variables.
Public Choice theory is outlined in the McEachern reading.
1. Economists argue that a theory’s main goal is to predict outcomes. How does this
differ from Waltz’s view? In what ways does Waltz’s definition of a theory fit
with the typical economist’s view, as espoused by Friedman?
2. What are Waltz’s general views on the balance of power? What tacit assumptions
underlie his arguments?
3. What are the tacit assumptions that economists make that, were they not true,
would undermine the prediction of a Pareto efficient outcome?
4. How do economists apply the microeconomic principles to government
decisions? Is this argument compelling?
1/18
Background on Key Issues of Globalization
“Globalisation and Its Critics, The Economist, 9/29/01.**
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I. Two Approaches to International Political Economy
1/23
The New Institutional Economics and Public Choice
Douglass North, “Institutions and Economic Growth: A Historical Introduction,”
article 3 in Frieden and Lake.*
Paul Collier, “Economic Causes of Civil Conflict and Their Implications,” World
Bank, June 2000. Available at
http://www.worldbank.org/research/conflict/papers/civilconflict.pdf
Austin Merrill, “Citizen Soldiers”, The New Republic, October 17, 2005, Pg. 14.
(available on Lexis-Nexis).
Bruno Frey, “The Public Choice View of International Political Economy,” in
Vaubel and Willett, eds., The Political Economy of International
Organizations: A Public Choice Approach.*
These readings introduce two closely related schools of political economy. Both
begin from a premise that political actors are narrowly self-interested maximizers of
some combination of power and personal wealth (the mix depends on the circumstances
and the author). In a fundamental way, it is the economist’s approach to explaining
politics, and builds upon the topics studied in the last class. Public choice theories (ala
James Buchanan’s work on rent-seeking) apply this to analyses of voting and public
finance, with most practitioners writing about the US. Frey focuses on international
applications of public choice. Collier’s paper is shaped by long experience in Africa, and
present issues that arise when government can’t form and function. North and the New
Institutionalists use similar assumptions to raise issues that Adam Smith sometimes
glossed over. They do not assume the presence of an effective government to channel
everyone’s self-interest into beneficial directions; rather, for them the greater or lesser
effectiveness of institutions is a major reason for wealth inequality among different
societies and different times.
1. North has stated that “Third world countries are poor because the institutional
constraints define a set of payoffs to political/economic activity that do not encourage
productive activity.” What does he mean by this statement? What evidence does he
provide? Is it plausible?
2. What, for Collier, explains rebellion and civil war? Does his explanation seem right
for cases you are familiar with—say, the Civil War or the Bosnian conflict? What
does his analysis suggest about Iraq’s future? How would you relate Collier’s analyis
to North’s analysis?
3. What, according to Frey, does the sober eye of public choice analysis add to our
understanding of IPE? Can you think of any other examples where such an approach
sheds light? In what areas is this mode of analysis inadequate?
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1/25-1/30
Power, States, and Exchange
Samuel Bowles and Herbert Gintis, “The Revenge of Homo Economicus:
Contested Exchange and the Revival of Political Economy,” Journal of
Economic Perspectives, 7:1 (Winter 1993), pp. 83-89, propositions 1, 2,
and 5 from pp. 89-98, and 98-end.*** (be ready to look up some words
for this article)
Susan Strange, “An International Political Economy Perspective,” ch. 4 from
Dunning, ed., Governments, Globalization, and International Business
(1997)*
Robert Keohane, “Realism, Neorealism and the Study of World Politics,” pp. 116 from Keohane, ed., Neorealism and its Critics (1986).*
Kenneth Waltz, “Globalization and Governance,” PS, Dec. 1999 available at
http://www.mtholyoke.edu/acad/intrel/walglob.htm
Bowles and Gintis try to combine the microeconomic-behavior approach of the
theorists we read last week with a focus on inequality. Economists assume that
competitive markets only serve an allocative function, yet in fact they also serve an
enforcement function. No economist has ever attempted to argue that it also serves this
role efficiently, as they have with the allocative function (remember Pareto efficiency and
the other concepts that we studied last week). This generates intriguing issues for IPE,
even assuming that trade is free. Strange is an eclectic analyst: her work focuses on
inequality and on multinational corporations. Her distinction between relational and
structural power is an important one. The remaining readings owe something to a
realist/neorealist view of international relations, in which state power is the ultimate end
in an anarchic world, and governments are assumed to dedicate themselves to the pursuit
of this power in its various forms. The view can be traced back to Machiavelli and
Thucydides, but Waltz is the biggest name in neo-realist theory today. This focus on
power also makes one aware of its unequal distribution in the world.
1. Bowles and Gintis suggest (100), without much elaboration, that contested exchange
and short-side power ought to be important concepts in thinking about international
economic relations. Based on their argument, can you think of examples?
2. What are the key elements of Waltzian neo-realism? How does it differ from realism?
3. How does Waltz respond to those who claim that globalization is making the nationstate less and less relevant? What evidence does he offer?
4. For Strange, what is the difference between structural and relational power? Doesn’t
relational power somehow also determine structural power? What are her examples
of structural power?
2/1
Economic Sanctions: Power and Trade in Practice
Albert O. Hirschman, National Power and the Structure of Foreign Trade (1945),
read pp. 3-12, skim 13-23, read 23-34.*
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Daniel Drezner, “The Hidden Hand of Coercion”, working paper.***
These readings focus on the economic exercise of power via the asymmetrical
interdependence that trade relations typically create. The first reading is from Albert
Hirschman’s first book, shaped by his experiences in World War II. Its central insight is
that a gain from trade can be seen as that which is in the power of your trading partner to
take away. This is the thread that connects the Hirschman analysis with the sanctions
literature, and also the previously discussed neorealist literature. Although the connection
between trade and power is usually an implicit one (allowing us to forget it exists),
economic sanctions remind us of it. Drezner’s reading challenges the claims of the most
important research project about sanctions in the last two decades, Huffbauer et. al.’s
Economic Sanctions Reconsidered.
1. Can you think of more recent parallels to Hirschman’s description of trade and power
between large and small countries? Are his arguments plausible?
2. Pick a sanction you consider to have been effective and one that you think was
ineffective. Explain how the sanctions and their effects differed.
3. Assume that countries follow through on sanctions. Speculate on how effective they
will be in general.
4. What kind of sanctions do you believe the U.S. should use, and under what
conditions?
2/6-2/8 The International System (note assignment on next page)
Dani Rodrik, “How Far Will International Economic Integration Go?”, Journal of
Economic Perspectives 14:1 (Winter 2000).***
Stephen D. Krasner, “State Power and the Structure of International Trade,” in
Frieden and Lake, article 1.*
Stephen Brooks and William Wohlforth, “American Primacy in Perspective,” and
Stanley Hoffman, “Clash of Globalizations,” both from Foreign Affairs July/Aug
2002. (Both are available on ProQuest)
While the last readings focused on economic power in bilateral relations, these
consider the international system as a whole. While alike on this point, they differ on
where they start. Rodrik begins from open-economy macroeconomics to discuss varieties
of world order and their connection with national economic policies. Rodrik has been an
outspoken critic of WTO policies because of their impact on developing countries.
Beginning from politics, Krasner’s classic article argues that free trade requires a
hegemonic power. Hoffman criticizes the results of this hegemony for poorer countries.
Also using politics as the point of departure, Brooks and Wohlforth measure the present
hegemony of the USA and discuss what this implies for world order, including world
economic relations.
Let me offer a few words to help contextualize this section. “Realism” broadly
means that expanding national state power is the objective of any government, and
governments are assumed to dedicate themselves to the pursuit of this power in its
various forms. “Neorealism” is realism applied to the system as a whole, drawing
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conclusions about international alignments from the pattern of relative power capabilities
among individual states. Security is assumed to be the ultimate reason for pursuing
power, rather than power for its own sake. In its strongest form it today predicts (e.g. in
the works of Kenneth Waltz) that our current unipolar system (US hegemony) is unstable
and will soon give way, via “balancing” behavior by other states, to something else.
Questions for section 1—due February 8 in class
1. Rodrik’s framework and Krasner’s framework may be in conflict because a
hegemon is required for free trade to exist. Is that correct? If it is explain why. If
it is not explain why and think of a situation in which they would not be in
conflict. (short answer)
2. How do Brooks and Wohlforth connect the realm of international security to
international economic relations? Are you persuaded by their argument? (short
answer)
3. In a sense, Hoffman wants globalization to take account various objections to the
current international system. Why, for him, is it in the US’s—or the world’s—
interest to do so? Do you think it likely to happen? (short answer)
4. Realists and Neo-realists (like Waltz and Krasner) are state-driven theories. Does
the existence of international organizations make their theories less relevant?
Why/why not? Or if your answer is maybe, under what circumstances are they
invalidated?
5. In a world where terrorism is an increasing threat, is a hegemon’s relative power
reduced? Why/why not?
6. Some of the theorists of IPE that we’ve studied assume that patterns and
behaviors within international political economy and international relations repeat
themselves, making theories like Neo-realism and Public Choice possible. This
assumption implies that the people in power don’t matter that much because they
all pursue similar goals. Do you accept that conclusion? Why/why not?
7. Is it dangerous for an administration to be in power, make the assumptions that
Neo-realists do and follow through on those assumptions in your foreign policy?
Or is it more dangerous to not make those assumptions and not follow through on
them? Explain your answer. Referring to historical examples would strengthen
your answer.
II. Trade
2/13
The Economics of Trade
Coughlin, Chrystal, and Wood, “Protectionist Trade Policies,” article 19 in
Frieden and Lake.*
Paul Krugman, “Is Free Trade Passé?,” Journal of Economic Perspectives 1:2
(Fall 1987).***
Paul Krugman, “Myths and Realities of U.S. Competitiveness” and “What do
Undergrads need to know about Trade”, both in Pop Internationalism,
1998.
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These readings pull together some of the more accessible writings on trade
economics. The first article gives an overview of Ricardian theory and more recent
developments such as strategic trade theory in a discussion of arguments about
protectionism. The pieces by Krugman go into his rebuttal of the argument that trade
deficits reflect dangerous losses of competitiveness and how economists view trade.
1. Coughlin, Chrystal and Wood go through the standard neoclassical (mainstream)
arguments for free trade. What assumptions do they make about the firms engaging in
trade? What happens when a government institutes protectionist policies under these
assumptions?
2. What aspects of international trade caused economists to question neoclassical
assumptions as a basis for theorizing about the results of trade? How do increasing
returns to scale and external economies of scale differ from each other? How do they
affect our assessment about trade policy?
3. Do nations compete?
2/15-2/20
Trade, Wages and Income Inequality
Paul Krugman, “Does Third World Growth Hurt First World Prosperity?” in Pop
Internationalism.
Dani Rodrik, Has Globalization Gone Too Far? , chap. 2 and first part of chap. 3 (to
p. 35), 69-71.
Dani Rodrik, “Sense and Nonsense in the Globalization Debate”, Foreign Policy,
Summer 1997. (Available on ProQuest)
Stephen Cohen and Brad DeLong, “Shaken and Stirred”, The Atlantic, Jan/Feb
2005. (Available on ProQuest)
Dan Drezner, “The Outsourcing Bogeyman”, Foreign Affairs, May/June 2004.
Available at: http://www.danieldrezner.com/policy/outsourcing.htm
Drusilla Brown, Alan Deardorff and Robert Stern, “The Effects of Multinational
Production on Wages and Working Conditions in Developing Countries”,
Conference Paper, 8/02 (pp. 2-24, 46-61 only).***
These articles focus on the problem of increasing wage inequality and the extent that
it can be attributed to international trade, focusing primarily on the United States.
Krugman argues that the impact of international trade on wages is minor in comparison to
the effect of changes in technology and productivity. In contrast, Rodrik claims that
conventional methods of measuring the impact of trade on wages are inadequate so that
the impact is in fact very large. In his second article, Rodrik critiques many of the current
writing about international trade and also provides some fascinating arguments about free
trade and government size and scope. This article has been assigned in IEI for the last
couple years, but a couple of you haven’t seen it, plus it is a great summary article.
Drezner addresses the most recent controversial trade issue: outsourcing. His evidence
shows that the impacts of outsourcing are weak, despite what Lou Dobbs might think.
Brown, et. al. study a slightly different issue, reviewing recent evidence about FDI,
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wages and working conditions in developing countries. This article’s summary created a
little controversy on Juniata’s Alternative News board on the ARCH.
1. Define factor price equalization. Why do wages not equalize in Krugman’s models
one and two?
2. What effect does increased elasticity of demand for unskilled labor have on their
wages? On their job security?
3. What facts do all the authors agree on with regard to the impact of trade on income
inequality in the U.S.? Do you think this impact is small or large (important or
unimportant)?
4. Contrast Krugman’s view on trade and income inequality with Rodrik’s.
5. How does the DeLong/Cohen article alter the debate?
6. Do you find that Drezner’s analysis ignores some of the issues that Rodrik and
Cohen/Delong raised?
7. Economists often argue that if there is a net gain in changing a country’s policy but
that some people are hurt, the winners should compensate the losers so as to make
everyone better off. These are called “side payments.” Based on these readings, in
particular Rodrik’s “Sense and Nonsense” article, what policies would you
recommend to increase the well-being of unskilled workers in the U.S.? Are they
feasible? How would your policies affect our trading partners?
8. How are Brown, Deardorff and Stern addressing the flip side of factor-price
equalization? Why do you think this article create such a controversy on the barelybreathing Alternative News group on the ARCH?
2/22-2/27
Domestic Politics and Trade Policy
Bruce Ingersoll, “Big Sugar Seeks Bailout, Gives Money to Help Get Way,” WSJ
4/27/00. http://online.wsj.com/article/SB956797227674205904.html
Scot Lehigh, “Trade-Offs: Labor as We Might, China Deal Won’t Be Fair for
All,” Boston Globe, 5/28/00 (Available on Lexis-Nexus).
Robert Baldwin, “The Political Economy of Trade Policy,” Journal of Economic
Perspectives, 3 (4), Fall 1989, to p. 131 only (available on JSTOR).
Ronald Rogowski, “Political Cleavages and Chanking Exposure to Trade”.*
James Alt and Michael Gilligan, “The Political Economy of Trading States”.*
Rather than asking about the desirability of free trade, these readings are mainly
devoted to explaining why free trade, which economists regard as the obviously best
policy, has historically been the exception rather than the rule. As such, they are good
examples of a kind of political economy that looks behind policy outcomes to find their
political causes. The Baldwin article is a widely cited summary of the literature; its
discussion of the first (self-interest) approach is revisited in the other pieces, but its
second approach (social concerns) is not. (The Ingersoll and Lehigh articles are examples
of these two approaches.) The two articles from the reader are part of the same literature.
Rogowski introduces the idea of predicting trade politics using economic theory, as he
does with the Stolper-Samuelson factor scarcity analysis. The Alt and Gilligan is a step-
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by-step summary of how to reason from the economic theory of trade, through a
consideration of how factor characteristics and other economic factors matter to politics,
to an examination of how a country’s existing institutions may further affect political
outcomes.
1. What are Baldwin’s two approaches to explaining why protection is so common,
despite the objections of economists and other apparently reasonable people? What
would count as evidence for one or the other explanation?
2. Looking at the “social concerns approach,” could this be made into a case for
embracing free trade anyway, but with Pareto-efficient compensation (side payments)
for those who lose from trade? Looking at Alt and Gilligan, what might be some of
the barriers to a compensation scheme? How might Rodrik (based on readings and
discussion of earlier this week) answer these concerns?
3. The Alt and Gilligan piece can be read as a backhand critique of two well-known
models of the political economy of trade—the “concentrated benefits, dispersed
costs” idea of James Buchanan and Mancur Olson and the factor scarcity model of
Rogowski. Under what circumstances does their framework predict trade policy
outcomes that differ from those predicted by the other two? In your judgment, are
these circumstances likely to be common?
3/1-3/13
The Politics of International Trade Agreements
“The WTO in Brief” and additional links at
http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm
“World Trade Survey”, articles 1, 2, 3, 5-11 (of 14), The Economist, 10/3/98
(available on Lexis-Nexis—search under “World Trade Survey” on this
date).
Ralph Nader and Lori Wallach, “GATT, NAFTA, and the Subversion of the
Democratic Process,” in Jerry Mander and Edward Goldsmith, eds., The
Case Against the Global Economy (Sierra Club, 1996).*
Walden Bello, “Reforming the WTO is the Wrong Agenda,” Danaher and
Burbach, eds., Globalize This! The Battle Against the WTO and Corporate
Rule (2000).*
Lori Wallach and Patrick Woodall, Who’s Trade Organization?, pp. 55-63, 68-82,
235-251.
“Tequila Sunset in Cancun; World Trade”, The Economist, September 17, 2003.
(available on Lexis-Nexis)
Jagdish Bhagwati, “Don’t Cry for Cancun”, Foreign Affairs, Jan/Feb 2004
(available on ProQuest).
“Weighing Up the WTO”, The Economist, 11/23/02 (available on Lexis-Nexis).
Balls, et. al. “Resigned response to limited WTO deal”, 12/19/05; “At a Glance:
The Doha Challenge”, 12/19/05; Guy de Jonquières, “Tentative Steps
better than none at all”, 12/18/05; All from The Financial Times.
(available on Lexis-Nexis)
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These readings focus on the other big, current issue in international trade—
multilateral trade-promoting institutions such as the WTO. Begin with the WTO website.
After reading each of the other articles (most critical) you can go back to the site to see if
the arguments of the critics are adequately answered. The Nader and Wallach piece
discusses the genesis of the WTO in outraged terms with detailed arguments about the
undemocratic nature of the agreement. Bello’s article, written after Seattle, gives a
critical history of the origins and provisions of the WTO, similar but not the same as that
by Nader and Wallach, in arguing that the WTO does not deserve to be reformed.
Panagariya provides an analysis of the Doha round issues from the perspective of
developing countries. Bhagwati provides an unusual spin on the Cancun meetings, one
that differs from the Economist’s take at the end of the meetings. The FT articles
summarize the modest accomplishments of the recent Hong Kong ministerial.
1. In the Economist articles and in the writings of the critics, what theories of
international politics do you see operating? Specifically, where do they see
international power acting, and who wields it?
2. Consider the critics now in the spirit of positive (explanatory) political economy and
our previous readings on the subject. What do they tell us about the politics of trade
that helps explain why advocates of free trade would want “fast track” and a powerful
WTO?
3. Should the WTO exist in its current form? Should it be reformed?
3/15
Random Day
Student Selected Topics
I am giving you the opportunity to vote on which topics that we cover over the last
month. We have five (5) classes during the final three weeks in April, and we can cover
only a portion of these topics in the time remaining. Please review the topics on the last
few pages of the syllabus. You vote on March 15.
III. Capital Movements
3/20-3/27
Theory and History
Resources on financial market terms and concepts:
Global Investor glossary http://www.finance-glossary.com/pages/home.htm
Bloomberg financial glossary http://www.bloomberg.com/analysis/glossary/bfglosa.htm
“Money and Finance” (introduction to section IV), from Frieden and Lake, pp.
193-97.*
“Global Finance,” Economist survey 5/3/03 (available on Lexis-Nexis; search
under individual article names)
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A Cruel Sea of Capital
Catching the Tide
Hot and Cold Running Money
The Trouble with Banks
Sudden Storms
Safety First
Shipbuilding
A Slightly Circuitous Route
A Place for Capital Controls (not part of survey but in 5/3/03 issue and related)
Barry Eichengreen, “Hegemonic Stability Theories of the International Monetary
System,” article 14 in Frieden and Lake.*
Dani Rodrik, “Trading in Illusions”, Foreign Policy, March/April 2001. (available
on ProQuest)
John Gerard Ruggie, “International regimes, transactions, and change: embedded
liberalism in the postwar economic order,” International Organization, 36:
2, Spring 1982. (available on Project Muse)
J. Bradford DeLong, “Financial Crises in the 1890’s and the 1990’s: Must
History Repeat?,” Brookings Papers on Economic Activity 2 (1999).***
Readers of The Economist are probably accustomed to reading periodic surveys
that are detailed and thought-provoking; this one is all of those things, plus quite
surprising in its concerns regarding capital markets. The previous capital markets survey
was unusually long and polemical, arguing with a straight face that capital markets were
not that powerful yet the exercise of their power was beneficial. Eichengreen and Ruggie
are the key IPE pieces among these readings. Eichengreen applies Krasner’s hegemonic
theory to the monetary system. Ruggie adds some important nuance to the neorealist
position, using the post-WWII period to illustrate his point. Rodrik suggests that
increasing international integration, particularly financial integration, has become the
goal rather than a tool toward improving the status of people. The DeLong piece argues
that financial crises are a part of the developmental process. It compares two periods in
an attempt to discern the relative importance of capital mobility and international moral
hazard in creating or aggravating crises. DeLong’s work relates to the theme of today
while also setting up a links to the later sections on financial crises and IMF’s role.
1. With regard to international regimes, why are monetary relations different from
trade?
2. Why do countries choose the monetary authority structure that they do? Do any
theories of international political economy shape this decision?
3. How does international capital mobility affect monetary policymaking? Fiscal
policy? What kinds of adjustments to this mobility does the survey recommend?
4. How would Waltz react to Ruggie’s argument? How does Ruggie’s analysis hold
up almost 25 years after the publication of his paper, given the creation of the
WTO?
5. Why does DeLong conclude that financial markets are inherently prone to
instability?
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3/29
Crisis and Contagion in Emerging Markets
Francisco Gil-Diaz, “The Origin of Mexico’s 1994 Financial Crisis,” CATO
Journal, Volume 17, no. 3 Winter 1998.
http://www.cato.org/pubs/journal/cj17n3-14.html
Wessel and Davis, “How Global Crisis Grew Despite Efforts of a Crack U.S.
Team,” WSJ, 9/24/98. (available on ProQuest)
Frederic S. Mishkin, “Global Financial Instability,” Journal of Economic
Perspectives 13: 4 (Fall 1999).***
“Through Fire and Troubled Waters,” The Economist 9/2/00 (available on
ProQuest).
Brad DeLong, 9/15 Weblog entry on “The Coming Dollar Crisis”:
http://delong.typepad.com/sdj/2005/09/the_coming_doll.html
David Levey and Stuart Brown “The Overstretch Myth”, Foreign Affairs
March/April 2005.
http://www.foreignaffairs.org/20050301facomment84201/david-h-leveystuart-s-brown/the-overstretch-myth.html
These readings are about the systemic implications of big global financial crises.
What are its causes? How does the present international financial system compare to
systems in the past? Is global capitalism fated to suffer perpetual instability? What can be
done? The CATO piece offers an overview of the Mexican crisis. Wessel and Davis show
the failure of policy to deal with contagion its early months. The Mishkin article is both
an overview and a spotlight on domestic financial weaknesses as key causes of instability
in Mexico and East Asia. The last piece updates the issue and discusses the possibly
destabilizing implications of the growing importance of equity markets, relative to bond
markets, in international financial flows. Brad DeLong has an insightful blog post on one
the next potential crisis. It clarifies the split among economists about the potential danger
of this issue. Levey and Brown dismiss the issue.
1. What were the reasons for the US team’s failure to contain the Asian crisis?
2. What happened to bank lending and non-financial balance sheets in the period leading
up to the crises in Mexico and East Asia?
3. What sources of financial instability described by Mishkin are discussed in the
Franko excerpt?
4. To what extent is financial stability a local problem, not a systemic one, requiring only
the extension to more and more developing countries a trustworthy system that includes
good prudential regulation, limited deposit insurance, and greater transparency? And
would any of these solutions address the current issue of the US’s current account
deficit?
4/3-4/5
Policy Responses to Global Capital Flows
“Two Kinds of Openness,” The Economist, 9/12/98 (Available on ProQuest).
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Sebastian Edwards, “Capital Mobility, Capital Controls, and Globalization in the
21st Century,” both from Annals of the AAPSS 579 (Jan 2002).*
Brad DeLong, “Should We Still Support Untrammelled International Capital
Mobility? Or are Capital Controls Less Evil than We Once Believed?,”
The Economists’ Voice, 2004.***
Hardev Kaur, “Capital Controls Produce Faster Economic Recovery”, Business
Times (Malaysia), 2/19/01. (Available on Lexis-Nexis; search under
“World News” and “Asia/Pacific News Sources”)
Juan Luis Moreno, “Panama: No Central Bank, No Capital Controls, No
Problem,” WSJ 9/10/99.**
Clive Crook, “The Pan-American Greenback: Coming Soon?,” National Journal
10/9/99 (Available on ProQuest).
“Adopting the Greenback brings Mixed Fortunes”, The Banker, August 4, 2003.
(Available on Lexis-Nexis)
These readings mainly concern two of the policy responses tried since the Asian
crisis, capital controls and the adoption of another country’s currency (using the U.S.
currency, it would be “dollarization”). DeLong is sanguine about free capital movements.
Edwards writes mainly about controls on inflows in Chile, offering a cautionary view of
their effectiveness. The last three articles refer to countries that have adopted or are
considering adopting the US dollar.
1. What are the main arguments for capital controls? Could they, for instance, have
prevented the Asian crisis?
2. What are the advantages and disadvantages of dollarization? Would you favor the
addition of another Federal Reserve district headquartered in, say, Argentina?
3. Why didn’t Ecuador adopt the Euro?
4. Who is more convincing, the pro capital-control writers or the anti-control writers?
Are there any specific circumstances under which capital controls would be
advisable? Circumstances when they would not be advisable? Does your answer
change given the type of control?
5. Given DeLong’s earlier reading, should anything be done?
4/10-4/12
What Role for the IMF?
Joseph Stiglitz, Globalization and its Discontents (2002), preface, last part of
chap. 4, first part of chap. 8, and second part of chap. 9 (pp. ix-xvi, 12032, 195-206, 222-44).
Kenneth Rogoff, “The IMF Strikes Back,” Foreign Policy 134 (2003) and at
http://www.imf.org/external/np/vc/2003/021003.htm; and “The Sisters at
60,” Economist 7/24/04. (On Lexis-Nexis)
Milton Friedman, “Markets to the Rescue,” WSJ, October 13, 1998 (Available at
http://www.imfsite.org/recentfin/rescue.html )
Report of the International Financial Institution Advisory Commission [Meltzer
Report], March 2000, Executive summary (only its first five pages, on the
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IMF, are relevant here). View entire document at
http://www.house.gov/jec/imf/meltzer.htm
Brad DeLong, “The Meltzer Report,” and comments on the webpage, from
http://www.j-bradford-delong.net/TotW/meltzer.html
Anne Krueger, “Lessons from the Asian Crisis”, February 12, 2004.
http://www.imf.org/external/np/speeches/2004/021204.htm
“Krueger Offers Fresh Details…” and “Success of SDRM Idea…,” IMF Survey,
6/24/02 (Available at
http://www.imf.org/external/pubs/ft/survey/2002/062402.pdf )
“Dealing with Default”, The Economist, May 10, 2003 (Available on Lexis-Nexis.
Search under “General News” and “Magazines and Journals”)
Like the last section, in this one our final readings cap it off by asking about
international institutional solutions, in this case, the IMF. The focus of all this is on the
Fund’s role during financial crises in emerging markets and on the attitude of the Fund and
Bank toward poorer countries generally. Joseph Stiglitz is highly critical of IMF actions. Ken
Rogoff, a normally mild-mannered international economist, provides a vigorous reply to
Stiglitz. Friedman has always thought that speculation was inherently stabilizing; crises,
therefore, must have another cause. This is the Classical Liberal view. Krueger, chief
economist at the IMF, notes many of the problems the IMF has originate from conflicting
goals. Allan Meltzer was the chief author of the International Financial Institutions Advisory
Commission, the Meltzer Report, which made recommendations about reforming both the
IMF and the World Bank. This portion of the executive summary addresses their
recommendations fro the IMF. DeLong points out many of the contradictions in the Meltzer
Report. The last three articles address Sovereign Debt Restructuring Mechanism (SDRM)
and Collective Action Clauses (CACs). There had been a major debate going in 2002 as to
whether a SDRM or collective action clauses should be instituted, or some combination of
each. The SDRM idea has been shelved as of now, with the Bush Administration initially
supporting CACs. However, at the Gleneagles summit in July 2005, the heads of state from
the G-8 countries—the United States, Canada, France, Germany, Italy, Japan, Russia and the
United Kingdom—called on the International Monetary Fund (IMF), the World Bank and the
African Development Bank to cancel 100 percent of their debt claims on the world's poorest
countries.
1. On what basis does Stiglitz blame the IMF for the Asian Financial Crisis? Do his
suggested reforms appear adequate to solve the problems he alleges?
2. Does Rogoff adequately answer Stiglitz?
3. Do the authors of these articles have personal or political agendas that might
affect their views of the IMF?
4. Which are better for restructuring debt: Collective Action Clauses or a Sovereign
Debt Restructuring Mechanism? Or both? Or, if your answers to question three is
no and no, then how would you propose dealing with debt-ridden countries?
5. Is an international solution necessary to stabilize the world’s financial system? Do
you think an international solution is politically feasible? These questions include
the entire range of options, from doing nothing to reforming the IMF to adding a
new international institution.
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Your paper is due Friday, April 20 by 10 AM
Student-Chosen topics
Organization of Production
One day
The Multinational Firm
“Big is Back: A Survey of Multinationals,” Economist, 6/24/95.**
James Markusen, "The Boundaries of Multinational Enterprises and the Theory of
International Trade," Journal of Economic Perspectives, Spring 1995
(Available on JSTOR).
In recent years, many multinational corporations have changed their structure
fundamentally, taking advantage of freer trade and capital movements to move toward
globally differentiated productive structures--with very important implications for how
we think about international economic integration. The Economist survey documents this
shift. It also asks about its causes and implications, both for policymakers and for
managers. The Markusen article summarizes the most widely accepted economic
explanation for why firms go multinational rather than just producing at home and
exporting from there, and why they own plants rather than contracting out work abroad.
His article suggests that theories of the firm will become just as important as trade theory
for understanding the world economy.
1. Describe the “old” organization of the typical MNC, comparing it to the “new.”
What policies and global forces shaped the old one? On what policies does the new
one depend?
2. What does OLI stand for? What are the different implications of each part (letter) of
the framework? So what kinds of firms are most likely to have an MNC, rather than
an alternative structure?
3. Some people have recently hailed the rise of the “virtual corporation,” in which
everyone except a few managers and human resource people works under specific
and time-limited contracts, organized on the basis of the tasks at hand, and ready to
break apart and move on when the task ends—a lot like Hollywood. What do the
readings for today tell you about how this works, and whether or not it is the wave of
the future?
4. Markusen claims that 30 percent of international trade is actually made up of intrafirm transactions. Does his article give you reason to think this will grow? Does it
mean we have to revise our theories of international trade? If so, how?
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Two Days
Global Firms and Governments
“The Mystery of the Vanishing Taxpayer” The Economist, January 29, 2000.**
Shah Tarzi, "Third World Governments and Multinational Corporations," article
10 in Frieden and Lake.*
Byron Dorgan, “Global Shell Games,” Washington Monthly July/Aug 2000,
available at
http://www.washingtonmonthly.com/features/2000/0007.dorgan.html
Duane Swank, “Political Institutions and Welfare State Restructuring,” chap. 7 in
Paul Pierson, ed., The New Politics of the Welfare State (2001).*
Vito Tanzi, “Globalization and the Future of Social Protection,” Scottish Journal
of Political Economy, 49:1 (Feb 02).***
Here are a few papers on relations between firms and governments, with some
focus on taxation. The Economist piece documents the coming problem of footloose
capital but immobile labor and its impacts on relative taxation (you may recall that Dani
Rodrik made that argument in chapter one of Has Globalization Gone Too Far?). Tarzi
analyses the relationship between firms and governments in terms of factors that affect
the bargaining positions of each. Dorgan has long fought for the “unitary tax” or
Worldwide Combined Reporting, under which global firms would not be able to diminish
their tax exposure by artificially shifting taxable streams (profits, etc.) from high-tax to
low-tax jurisdictions. As he nicely points out, the “transfer pricing” MNCs use often
leads to obvious absurdities. Swank argues against the claim that globalization has led to
reduced taxes on business (This article includes a significant amount of statistical
analysis. Try to understand the basic points without being concerned about the numbers).
Tanzi disagrees with Swank.
1. Why, according to Tarzi, does the relative bargaining power of firms and
governments change over time?
2. With Markusen’s paper in mind, what does Tarzi’s analysis have to say about
possible strategies for developing countries?
3. What would be the advantages of a WCR system for taxation?
4. Can you reconcile Dorgan’s and Vito Tanzi’s argument with Swank’s?
5. With Markusen’s paper in mind, what does Tarzi’s analysis have to say about
possible strategies for developing countries?
Economic Development
Three days
Why Do Some Nations Grow and Develop While Others Don’t, Part 1?
It’s savings, investment and everything mainstream economists said it was (or
“Neoliberalism works”):
Paul Krugman, “The Myth of Asia’s Miracle”, in Pop Internationalism.
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It’s industrial policy and Neoliberalism:
Steven Radelet, Discussion Paper No. 43, “Manufactured Exports, Export
Platforms, and Economic Growth”. Available at
http://pdf.dec.org/pdf_docs/Pnach178.pdf or on reserve.
It’s good policy and luck, but not foreign Aid (or is it?):
William Easterly, “Can Foreign Aid Buy Growth?”, Journal of Economic
Perspectives, 17 (3), Summer 2003: 23 – 48.***
Steven Radelet “Think Again: U.S. Foreign Aid”, Foreign Policy, February 2005.
Available at http://www.cgdev.org/content/opinion/detail/3151/
Lant Pritchett and William Easterly, “The Determinants of Economic Success:
Luck and Policy”, Finance and Development, December 1993.**
And it can be helped by debt relief (sometimes):
Serkan Arslanalp and Peter Blair Henry, “Policy Watch: Debt Relief”, Journal of
Economic Perspectives, Winter 2006.***
Trade is important for economic growth:
Anne Krueger, “Why Trade Liberalisation is Good for Growth”, Economic
Journal, 108: September 1998 (available on JStor).
BUT…it’s impossible for international trade to help the development process under the
current rules regime:
Dani Rodrik, “The Global Governance of Trade as if Development Really
Mattered” (2001). Available at:
http://ksghome.harvard.edu/~.drodrik.academic.ksg/papers.html] or copy
on reserve.
Note: read the appendix of the Rodrik article first (listed just above) for a
description of both the old and new versions of the Washington Consensus.
Many of the issues discussed in this class can be broken down based upon the
income level of the country. Hence, economic development becomes a crucial factor in
our discussion. There are several views as to why development occurs. The neoclassical
view can be traced back to Adam Smith, and rests fundamentally on savings and capital
accumulation, combined with greater specialization and division of labor, as the sources
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of economic growth and development. Closely tied with this argument is the belief that
free trade and capital movements promote economic growth and development. Krugman
argues that standard neoclassical theory explains the development of East Asia. Radelet
basically accepts the neoclassical view, but believes that industrial policy plays an
important role. Easterly and Radelet have different views about the usefulness of foreign
aid. Arslanalp and Henry tell a cautionary tale about debt relief. Rodrik’s piece is not
about why development doesn’t occur, but rather focuses specifically on trade policy and
its impact upon development.
1) According to Krugman and Radelet, what are the sources of economic growth and
development?
2) Would Krugman support the Washington Consensus? Why or why not? What are
the sources of the critique of the Washington Consensus put forth by Stiglitz in
his earlier writings?
3) How does Rodrik provide a middle ground between the two camps?
Why Do Some Nations Grow and Develop While Others Don’t, part 2
It’s geography and positive feedback mechanisms:
Jeffrey Sachs, “Notes on a New Sociology of Economic Development,” in
Harrison and Huntington, eds., Culture Matters (2000).**
It’s institutions:
Kenneth Sokoloff and Stanley Engerman, “Institutions, Factor Endowments, and
Paths of Development in the New World”, Journal of Economic
Perspectives, Summer 2000.***
These articles look beyond the standard resource-based arguments as to why
nations develop, instead looking at geography, feedback loops and formal and informal
institutions. Sachs argues that geography and positive feedback mechanisms have been
the main determinants of development, with geography seemingly becoming less relevant
today. Positive feedback mechanisms are reminiscent of Myrdal’s circular and
cumulative causation, which we discussed in IEI. The Sokoloff/Engerman articles
represent an expansion on the North article that we read in the first week. Institutions
have become a major area of interest recently in economic development.
In another article not required but recommended (for those who are interested in reading
more because hey, you just didn’t read enough international political economy this
semester—see below, it’s on reserve*), North et al. argue that sound formal and informal
institutions are the key to development, and contrast North and South American
developmental paths to make their argument (Their conclusion is different from that of
Sokoloff and Engerman). The use institutional theory to offer a different explanation of
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South American under-development, offering a better explanation than the largely
discredited dependency/structuralist theories of Andre Gunder Frank, Raul Prebisch and
Immanuel Wallerstein.
1) Relate the Sokoloff and Engerman piece back to North’s article during the first
week of class. How are they similar? What are the differences in the focus?
2) If we accept Sachs’s argument about geography, how does that impact the
institutional argument put forth by North, et al
3) Of all the arguments considered over the last week, which seems most convincing
and why? Or, if that question is too difficult, what other information would you
need to answer this question?
* North, Summerhill and Weingast, “Order, Disorder and Economic Change,” from
Bueno De Mesquita and Root, eds., Governing for Prosperity (2000).
Various International Issues
One day
Intellectual Property Rights: TRIPs as Corporate Tool?
Michael Santoro, Pfizer: Global Protection of Intellectual Property, Harvard
Business School. Case Study, 9-392-073, April 6, 1995 (at bookstore)
Vandana Shiva and Radha Holla-Bhar, "Piracy by Patent: The Case of the Neem
Tree," in Mander and Goldsmith, eds.*
“Patently Problematic,” The Economist 9/12/02 (Available on Lexis-Nexis).
Jagdish Bhagwati, “Patents and the Poor,” Financial Times 9/16/02 (Available on
Lexis-Nexis)
Elizabeth Becker, “Poor Nations Can Purchase Cheap Drugs under Accord,” NYT
8/31/03 (Available on Lexis-Nexis).
Lori Wallach and Patrick Woodall, Who’s Trade Organization?, 87-102, 201-208.
These readings take on the issue of intellectual property and its international
regulation, with a focus on the pharmaceutical industry. Here we come back to the WTO
(its TRIPS agreement) and the critiques of Bello and others. It has been alleged that big
MNC drug makers routinely take traditional medicines, patent them, and then sue
traditional practitioners for patent infringement—with the support of TRIPS. Drug
companies respond that much of this goes on in countries whose weak IP enforcement
allows the production of cheap copies of patented drugs. After the Pfizer case study, the
first print article covers the most famous case where traditional and patented knowledge
collided. The other articles look at various aspects of IP rules over pharmaceuticals and
their relation to poorer countries.
1. Are patents justifiable under the circumstances described, or is this “piracy”. If it
is piracy, who is guiltier of piracy, the drug companies or the governments that
allow local manufacturers to flout patents in making cheap imitation drugs?
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2. What considerations does a developing country face in choosing an intellectual
property rights regime?
3. How did TRIPS become part of the WTO if it is against the interests of
developing countries? What role did Pfizer play?
4. What would a just and useful intellectual property rights regime look like? On
what moral philosophy do you base that view?
One day:
Immigration Economics
George Borjas, Heaven’s Door, chaps. 4-6.*
Jagdish Bhagwati, “Behind the Green Card,” A Stream of Windows, 1998, pp.
319-36.*
World Bank, Globalization, Growth and Poverty, chap. 2 part 3 (pp. 76-83).*
How have culture and territory, as bases of the nation-state, lost relevance in this
age of globalization? In labor markets the standard assumptions of neoclassical
economics may have little relevance for politics (“we looked for labor, but got people”).
Borjas’s work has become part of the larger debate about the net costs or benefits of
migration in the U.S. (and about who bears or enjoys them). Bhagwati’s chapter is
mostly a review of a pro-immigration book by Julian Simon. He doesn’t agree with
Simon, but his disagreement is nuanced and thoughtful. Finally, the World Bank argues
for more openness among rich countries to the migration of the unskilled—rather than
just taking advantage of the brain drain.
1. What are the net effects of immigration on the labor market?
2. Why do you think support for freer migration tends to correlate positively with
income in the US?
3. What is Bhagwati’s objection to an argument he links to conservatives, that
immigration creates enough benefit that the winners could potentially compensate
the losers?
One day:
Immigration Ethics and Policy
Economist survey on Immigration, 11/2/02; there are eight articles, seven with
“SURVEY” in caps on the title line plus the initial article titled “Opening
the Door” (Available on Lexis-Nexis; search The Economist using term
“survey” in full text for the date 11/2/02. You should get the titles listed
below. If you have trouble, just search under each of the titles).
Opening the Door
The Longest Journey
Irresistible attraction
The Best of Reasons
Feeling at Home
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The view from afar
A modest contribution
A better way
Robert E. Goodin, "If People Were Money..." and
Brian Barry, "The Quest for Consistency: A Sceptical View," from Barry and
Goodin, eds., Free Movement.*
The Economist survey brings us from economics to culture to policy. Then, in a
widely cited philosophical exchange, Goodin and Barry debate the proposition that there
should be no inconsistency between policies regarding the international movement of
money and of people.
1. Where do you stand on the issue debated by Goodin and Barry? What might
Goodin say in response to Barry?
2. On what other values, beyond economics, do you base your position on
immigration?
One Day
Common Pool Issues--Introduction
Garrett Hardin, “The Tragedy of the Commons”, Science, (1968). Available at:
http://dieoff.org/page95.htm
“The Sea” (An Economist Survey), 5/23/98 (Available on Lexis-Nexis).
This section concerns the management of global public or common-pool goods.
Hardin’s article is the classic that identified the common pool problem to a wide
audience. As a concrete example of the common-pool problem, we begin with the oceans,
many of whose benefits can be described as common-pool resources. The Economist
article discusses the problems caused by bad policy, the feasibility of property-rights
solutions (turning parts of this “commons” into private property) and the complications
arising from the international scope of most ocean resources.
1. What are some of the most important resource problems of world’s oceans? What
does the survey suggest we do to solve them?
2. How do common-pool resources compare with other kinds of goods, such as private
or public goods? How do these characteristics expose them to unusual degradation
(as in the “tragedy of the commons”)?
Two Days
Common Pool Issues—Analysis and Potential Solutions
Alison Butler, “Environmental Protection and Free Trade: Are they Mutually
Exclusive?” in Frieden and Lake, article 29.*
John Vogler, “The Governance of the Commons” in The Global Commons: A
Regime Analysis (1995), pp. 1-18.**
22
John J. Fialka, “Clear Skies Are Goal as Pollution Is Turned into a Commodity,” WSJ
10/3/97 [Note: Entire article is not included. Read from subheading on]**
McKibben and Wilcoxen, “The Role of Economics in Climate Change Policy”,
Journal of Economic Perspectives, Spring 2002.***
Richard Cooper, “Toward a Real Global Warming Treaty,” Foreign Affairs,
March/April 1998 (available on ProQuest).
These readings expand upon those in the previous section. Butler reviews
economic arguments (i.e., Coase) behind the property-rights solution. Vogler, the key IPE
reading here, summarizes the basic issues, including a discussion of property-assigning
solutions toward the end (you do not have to read the book synopsis that ends this
chapter). Fialka provides an update on the effectiveness of market-based regulation of
sulfur dioxide emissions. Cooper offers an example of the recent politics of global
warming and a policy proposal to deal with these problems. McKibben and Wilcoxen
present a classic Coasian view of how to deal with global warming, expanding on the
Economist piece using standard neoclassical analysis.
1. How do we apply the Coase theorem internationally? Who awards and enforces the
property rights? Do we take a poor country’s price on environmental goods to be its
revealed preference? What alternative do we have?
2. Why is it so hard to reach a global warming treaty?
3. What do you think of Cooper’s uniform tax solution? The McKibben/Wilcoxen
proposal?
We will stop fifteen minutes early on the last class so that we may have a debriefing on
the course. You may comment on what you liked and disliked, and what you would like
to see changed.
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