1 / 52

Lecture 2 Institutions of the International Economy

Lecture 2 Institutions of the International Economy. Econ 340. Announcements. We will start discussing news next week, on Monday Jan 20. You should be watching for international economic news. GSI: Hyejin Rho Office: M-101 Lorch Hours: Tuesdays 3:00-4:00 PM

holt
Download Presentation

Lecture 2 Institutions of the International Economy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Lecture 2Institutions of the International Economy Econ 340

  2. Announcements • We will start discussing news next week, on Monday Jan 20. You should be watching for international economic news. • GSI: Hyejin Rho • Office: M-101 Lorch • Hours: • Tuesdays 3:00-4:00 PM • Thursdays 9:00-10:00 AM Lecture 2: Institutions

  3. Lecture Outline: Institutions of the International Economy • The Three Main Institutions (IMF, World Bank, WTO) • Why They Were Created, and When • How They Have Changed • Their Reputations Today • Other Institutions • United Nations • OECD = Organization for Economic Cooperation and Development • Preferential Trading Arrangements • What’s Happening Now? • The World Financial Crisis • The Euro-Zone Crisis • The Doha Round • PTAs • Trade Disputes Lecture 2: Institutions

  4. The Three Main Institutions • Functions • IMF (International Monetary Fund): Financial Assistance • World Bank: Development Assistance • WTO (World Trade Organization): Trade Policy Regulation and Negotiation Lecture 2: Institutions

  5. The Three Main Institutions • History • Before World War II • Great Depression • High Tariffs on trade • Competitive Devaluations of Currencies “Beggar Thy Neighbor Policies” (we’ll see why later) Lecture 2: Institutions

  6. The Three Main Institutions • History • End of World War II • BrettonWoods Meeting (Bretton Woods, NH) • IMF • World Bank • ITO (International Trade Organization) • Never ratified • Instead: GATT (General Agreement on Tariffs and Trade) Lecture 2: Institutions

  7. The Three Main Institutions • History • Changes since 1940s • IMF • Originally enforced pegged exchange rates • Purpose: To prevent “beggar-thy-neighbor” exchange-rate policies • Major currencies switched to floating in 1970s • IMF still provides financial assistance • Until recently, mostly to developing countries • Subject to “conditionality” = required policy changes • In 21st century, many countries were paying off their loans, until financial crisis. • IMF was wondering about its income, but now is lending to countries in crisis, such as Greece and Ireland. Lecture 2: Institutions

  8. The Three Main Institutions • History • Changes since 1940s • World Bank • =IBRD (International Bank for Reconstruction and Development) • Originally intended for reconstruction from war • Now mainly assists development • Much of it by funding and assisting with projects Lecture 2: Institutions

  9. The Three Main Institutions • History • Changes since 1940s • GATT • Rules of international trade policy • “Rounds” of negotiation • Uruguay Round • Created WTO in 1995 • Currently is/was doing the Doha Round Begun 2001 in Doha, Qatar Negotiations started and stopped several times • Finally reached limited agreement in Bali, Indonesia, December 2013 Lecture 2: Institutions

  10. The Three Main Institutions • Reputation today, among some: Lecture 2: Institutions

  11. The Three Main Institutions • Reputation Today: Criticized by • Opponents of globalization • Opponents of corporations • Some in Developing Countries for dominance • by US • by rich countries • by corporations • Some in US for undermining US power Lecture 2: Institutions

  12. The Three Main Institutions • Reputation Today: Criticized by • Scholars for institutional flaws • IMF: Has sometimes imposed misguided policies • World Bank: Wastes resources on corrupt elites • WTO: Dominated by rich countries, corporations Lecture 2: Institutions

  13. Lecture Outline: Institutions of the International Economy • The Three Main Institutions (IMF, World Bank, WTO) • Why They Were Created, and When • How They Have Changed • Their Reputations Today • Other Institutions • United Nations • OECD = Organization for Economic Cooperation and Development • Preferential Trading Arrangements • What’s Happening Now? • The World Financial Crisis • The Euro-Zone Crisis • The Doha Round • PTAs • Trade Disputes Lecture 2: Institutions

  14. Other Institutions • G-7, G-8, G-20: These are Groups of countries • G-7 = US, Canada, Japan, Britain, France, Germany, Italy • Finance ministers meet • G-8 = G-7 + Russia (since 1998) • Heads of state met annually, until recently • G-20 = G-8 + Australia & EU, + 10 major EMEs (Emerging Market Economies) = 19 Countries + EU Lecture 2: Institutions

  15. Other Institutions • G-20 • Used to meet regularly, but only the finance ministers • First G-20 summit (i.e., heads of state) met November 2008, London • Met again September 2009, Pittsburgh • Now looks like G-20 summits will be the main regular meeting, probably once a year • Last, the 8th, was September 2013, in St. Petersburg, Russia • Next, Nov 5-6, 2014, will be in Brisbane, Australia • Finance Ministers still meet, as needed • 2013: Feb, Jul Moscow; Apr Oct Washington, DC • 2014: Feb, Sydney Lecture 2: Institutions

  16. G-20 Lecture 2: Institutions

  17. Other Institutions • UN = United Nations • UNCTAD (United Nations Conference on Trade and Development) • ILO (International Labor Organization) • WIPO (World Intellectual Property Organization) Lecture 2: Institutions

  18. Other Institutions • EU = European Union • NAFTA = North American Free Trade Area (or Agreement) • OECD = Organization for Economic Cooperation and Development • Club of high-income countries • Does research, collects data, drafts policies Lecture 2: Institutions

  19. Lecture Outline: Institutions of the International Economy • The Three Main Institutions (IMF, World Bank, WTO) • Other Institutions • What’s Happening Now? • The World Financial Crisis • The Euro-Zone Crisis • The Doha Round • PTAs • Trade Disputes Lecture 2: Institutions

  20. What’s Happening Now?– Recovery from The World Financial Crisis • Crisis started in US with burst of housing bubble in 2007-8 • Loans had been made, expecting that house prices would rise • With burst of bubble, loans went bad • Banks and other institutions were interlinked via • Bad loans • Complex financial instruments whose value fell and/or was uncertain Lecture 2: Institutions

  21. What’s Happening Now? – Recovery from The World Financial Crisis • Crisis spread • To most other developed countries through financial institutions • To some developing countries too • Income and expenditure fell, causing world-wide recession • Falling house prices alone reduced wealth • Failures in financial markets made it worse • Banks stopped lending Lecture 2: Institutions

  22. What’s Happening Now? – Recovery from The World Financial Crisis • Recession caused immediate drop in international trade • This made matters worse • It spread the recession to countries that had not been exposed to financial markets Lecture 2: Institutions

  23. Source: IMF Lecture 2: Institutions

  24. July 2008 Feb 2009 Down 43% Lecture 2: Institutions

  25. Global Recession StatusJanuary 10, 2010 In Recession Moderating Recovering Expanding Source: Dismal Scientist Lecture 2: Institutions

  26. Global Recession StatusDecember 31, 2010 Source: Dismal Scientist Lecture 2: Institutions

  27. Global Recession StatusJanuary 8, 2012 Source: Dismal Scientist Lecture 2: Institutions

  28. Global Recession StatusSeptember 3, 2012 Source: Dismal Scientist Lecture 2: Institutions

  29. Global Recession StatusJanuary 13, 2013 Source: Dismal Scientist Lecture 2: Institutions

  30. Global Recession StatusJanuary 12, 2014 Source: Dismal Scientist Lecture 2: Institutions

  31. What’s Happening Now? – Recovery from The World Financial Crisis • What was done about it? • Central banks, cut interest rates and extended credit. • Banks were rescued. • Countries used “Stimulus Packages” (tax cuts and spending increases) to stimulate economies. • G-20 began meeting in summits, first in London Lecture 2: Institutions

  32. What’s Happening Now? – Recovery from The World Financial Crisis • What was done about it? • IMF is back in business making loans. • Packages already in hand for • Iceland • Hungary • Ukraine. • Many more • G-20 promised more funds to IMF Lecture 2: Institutions

  33. What’s Happening Now? – Recovery from The World Financial Crisis • What will prevent future problems? • Financial regulation • restraints on bank lending • reform of credit rating agencies • Managed currency policies? (US concern with China’s currency.) Lecture 2: Institutions

  34. What’s Happening Now? – Debt Problems of EU • In 2010, starting with Greece, countries in the Eurozone found themselves with unmanageable debts • Markets feared default; interest rates rose • EU and IMF stepped in with loans • Similar things happened later to Ireland, Portugal, and Spain Lecture 2: Institutions

  35. What’s Happening Now? – Debt Problems of EU • Leaders of the EU have met repeatedly • They disagree over • Who will pay for any bailout of Greece and others • Whether the bond holders should bear some cost • Result has been repeated “fixes” that don’t fix • Some say this all threatens the euro. • In July 2012, European Central Bank (ECB) announced that it will “do whatever it takes” to save the euro. That seems to have worked. Lecture 2: Institutions

  36. What’s Happening Now? - Doha Round? • Doha Round: See Donnan • Had ministerial meeting December 2013 in Bali, Indonesia • Doha Round was officially “at an impasse.” Not likely to reach a full agreement on its objectives in the near future (if ever) • In Bali, they did agree on several things, largest being “trade facilitation” – reducing impediments to trade at the border (red tape, delays, etc.) • Likely instead to be increased move toward PTAs/RTAs among pairs and small groups of countries Lecture 2: Institutions

  37. What’s Happening Now? - PTAs • PTAs (Preferential Trade Agreements) • Most countries are in some of these and are negotiating to form more • Typical PTA is “Free Trade Area” (FTA) such as • NAFTA (North American Free Trade Area) • We’ll study the effects of these later in the course • They are not necessarily economically beneficial Lecture 2: Institutions

  38. What’s Happening Now? - PTAs Lecture 2: Institutions

  39. What’s Happening Now? - PTAs • Trans-Pacific Partnership (TPP) • Started in 2006 as Trans-Pacific Strategic Economic Partnership: Singapore, Brunei, Chile and New Zealand • In 2008, US said it would negotiate to join, and this brought in 4 more countries: Australia, Peru, Malaysia, and Vietnam. • Since then, Mexico, Canada, and in 2013, Japan joined. • The countries are extremely diverse. Lecture 2: Institutions

  40. What’s Happening Now? - PTAs • Objective of the TPP • To negotiate a “state of the art” trade agreement • It would go beyond existing agreements • It would permit additional countries to join • US claims it will • Enhance competitiveness • Promote US employment • Demand high standards for • Labor, environment, intellectual property Lecture 2: Institutions

  41. Regional Trade Agreements (RTAs) Notified to GATT/WTO Lecture 2: Institutions

  42. What’s Happening Now? - PTAs • Most recently, in 2012-13: • June 2012: EU signed FTAs with Colombia, Peru • November 2012: Asian nations plan FTA • January 2013: US-EU FTA negotiations began • February 2013: India seeks FTA with EU • March 2013: EU-Japan FTA negotiations began • April 2013: China-Iceland FTA agreed • August 2013: Brazil sought FTA with EU • October 2013: Canada-EU FTA agreed Lecture 2: Institutions

  43. What’s Happening Now? - Disputes • Trade Disputes • Boeing-Airbus: US vs EU over aircraft subsidies • This has been going on for many years, as each has filed complaints against the other in the WTO. • Both have won! • Yet nothing has been done Lecture 2: Institutions

  44. What’s Happening Now? - Disputes • Trade Disputes • Solar panels • Both US and EU complain that China’s solar panels are both subsidized and dumped • EU negotiated a settlement under which China promises to sell for a minimum price • US imposed tariffs of 24-36% on Chinese-made solar panels • Now Chinese manufacturers have moved production to Taiwan to avoid the duties. Lecture 2: Institutions

  45. What’s Happening Now? - Disputes • Trade Disputes • US-EU beer dispute • US taxes beer: • Big brewers: $18 per barrel • Small brewers: $7 per barrel on their first 60,000 barrels • Purpose of the lower tax on small brewers is to encourage small “craft” brewers. • But EU brewers, even if small, are not eligible for the lower rate. EU complains. Lecture 2: Institutions

  46. What’s Happening Now? - Disputes • Trade Disputes • China’s currency (the yuan) • Was pegged to US $ at 8.2765 ¥/$ and considered undervalued • Allowed to rise as of July 21, 2005. It rose 2.1% • Rose steadily until July 2008, to 6.8363 ¥/$ about 20% Lecture 2: Institutions

  47. What’s Happening Now? - Disputes • Trade Disputes • China’s currency (the yuan) • In July 2008, dollar itself started to rise, and yuan went back to being fixed to dollar • Many, in US and especially in EU, think yuan should rise much more. China says no! • Yuan did start to rise, a little in summer 2010 until early 2012; then again last year in 2013. Lecture 2: Institutions

  48. How China’s Exchange Rate BehavesUS$/yuan Exchange Rate Lecture 2: Institutions Source: IMF

  49. Recent Movements of the Yuan 2.5% Lecture 2: Institutions Source: X-Rates.com

  50. What’s Happening Now? - Disputes • Other Trade Disputes • EU vs. Brazil over 30% tax on imported vehicles • US catfish farmers unhappy over catfish from Vietnam, want harsher inspections • EU vs. Russia over “recycling fee” on imported cars. • US ban on some Samsung products due to patent infringement • Russia bans imports from some uncooperative former Soviet-bloc countries, claiming health hazards Lecture 2: Institutions

More Related