Notesale: Turn your study into money

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Poli305

Politics: (government/state) concerned with law
Economics: (markets) concerned with math
The state’s function is to regulate the market
Regional integration: countries from a particular region pool their sovereignty together
Law! denotes a repeatedly observed relationship between two or more phenomena; laws
are descriptive
Theory! explanation of the law
Hypothesis! “if…then…” (Involves a relationship) – can be tested
*We cannot prove a hypothesis, we can only falsify (prove wrong)
Deduction (drawing of conclusions from postulates) vs
...
sufficient condition (no spurious relationship, works in both
direction)
IV (Intervening Variable): can strengthen an existing relationship and the relationship
still holds even without an IV
...
Econ
...
When consumers
have perfect information on products and can make adequate buying decisions
2
...
Ex: A purchase

Adam Smith
2 concepts:
-Division of labor/Specialization (doing a particular task)
-Invisible hand (when society benefits from your specialization, where your interest is
personal)
...

The great increase in the quantity of work is due to: the increase of dexterity in every
particular workman, the saving of the time which is commonly lost in passing from one
job to another and lastly, the invention of machines, which facilitate labor
...
He was possessed by the idea of “universal freedom of trade” and by
his own discovery “the division of labor”
...
*theory of
productive powers)
...

'Say's Law Of Markets'
An economic rule that says that production is the source of demand
...


David Ricardo (19th century)
-Comparative advantage
UK
Portugal

Wine
3 workers
1 workers

Cloth
7 workers
5 workers

Ratio
3/7
1/5

Step 1
...
Thus, in this example, Portugal has an absolute
comparative advantage
...
In the UK, cloth is relatively cheaper to produce compared to wine
...


Step 2
...

Step 3
...
How? Giving more income to individuals
by lowering taxes and interest rates
-Supply management: the state supplies individuals with more disposable income,
through tax breaks
...

If a country’s GDP decreases or remains the same 3 semesters in a row, it is a recession
Inflation: when increase in price is higher than economy growth rate
3 assumptions:
1
...

2
...

3
...


Mercantilism (strategic trade theory/about the trade) - the oldest theoretical approach
3 groups:
1
...
Economic nationalism (early 19th century, Hamilton & List): relationship between
less developed countries and industrialized countries
National productive powers: what does a state have to do in order to become
productive?
a) Education
b) Become industrialized (infant industry)
c) Shelter your infant industry from custom duties
Eventually this leads to free trade because custom duties go away once countries are
competitive
*Terms of trade: how many units (raw materials) should a less developed country export
in order to import one unit of a product (machinery)
...
New Mercantilism (20-21st century)
Neo-mercantilism! defensive (protecting one’s economy because other side isn’t
playing by the rules) Ex: Health standards; accusing another country of health hazards,
this way this stay out of the market
...

List talks about the concepts of infant industry and customs duties
Paul Krugman
Realism (the foundation of neo-mercantilism) focuses on anarchy as the most important
condition of international politics, requiring nation states to secure their own physical
survival
...
Relative gains differ from absolute gain, which is the total effect of a
decision on the state or organization, regardless of gains made by others
...

1
...
By damaging or weakening another country without any coercive attempt to make
another actor do something he would not otherwise do
...

b) Reducing another country’s military economic potential through (a) or by
minimizing the development of capabilities specific to military production
...

d) Reducing another state’s economic power through (a) or by reducing specific
sources of economic strength
...

The more a society is dependent on foreign trade and capital transfers, the more of its
welfare is at stake in cross-boundary transactions
...

Klaus Stegemann- The new international economics
*Strategic trade policy
*Infant industry
*First mover advantage
Vladimir Lenin
Imperialism
-

Emerged as the development and direct continuation of the fundamental attributes
of capitalism in general
...
Imperialism is the monopoly stage
of capitalism
...
Classical Marxism (Marx/Engels)
Dialectic!one term has no meaning without its opposite (ex: you can’t say it’s
cold if you don’t know what hot means)
2 classes (differ according to their economic health)
From a liberal perspective, what can we do to avoid the clash of the classes? Create a
middle class (buffer) which is bigger than the lower class
...


A
...
It’s moving people from lower to
middle
...
Solution: antitrust law to prevent mergers, Wealth State to prevent poverty
...
Solution: State investment in research and development
...
Materialism: everything one thinks “economically” is based on one’s personal
economic situation (always been this way)
Feudalism: gentry (owners/higher class) vs
...
Capitalism: private property and wage labor
*Subsistence wage = salary, enough to let you survive and keep you in the
production/workforce
*Surplus value = profit
The gentry (bourgeois) can enlarge the surplus value in 2 ways:
-By making the working day longer (absolute increase)
-By replacing some workers with machinery (relative growth)
4
...

5
...
Value is determined based on the amount of labor involved in the
production (Ricardo’s comparative advantage is also based on a labor theory of
value)
...

Socialism vs
...
The deal was giving Lenin all the resources
to conduct a revolution and end the war against Germany
...
Communism, feudalism, capitalism, imperialism (global),
global communism
...
A revolution is predicted
...

Semi-periphery=in between (originally periphery countries)*infant industry
Dependency Theory (what to do as a peripheral country?)
1
...
ISI (import, substitution, industrialization)
requires a sufficient market size and a proper political system
End of Marxism
General theories-Positivism (desirable and possible)
a) Class (unit of analysis)
b) Agency-structure analysis
...


Review
Absolute gains: Liberalism-two individuals both gain absolutely more through an
exchange
...
MFN (most favored nation) Status – special treatment must be given to all GATT
members (no discrimination)
*Regional integration
2
...
Exception: agriculture
Uruguay round=last round (1986-1993)
NTB (non tariff barriers) were converted in 1993 to monetary tariffs in order to make it
clear to countries how much a country is protecting its market
...

WTO replaced GATT in 1995
A dispute is initiated when a country accuses another of not playing by the rules
...

Seattle round – failure (negotiations weren’t completed)
-Protests at the meeting (first time), the violence was reported (the meeting itself didn’t
matter)
In 2001, the WTO began a new round of talks in Doha, Qatar
...


“Beautiful mind”
BRICS- large economies that have joined the WTO
Game Theory
3/3
Pareto
optimum
4/1

1/4
2/2 Nash
equilibrium

Nash equilibrium (most stable outcome given that both parties pursue their highest
option
...
No
cooperation
Pareto optimum (collective outcome; everyone is equal)
...


Battle of the sexes (He vs
...
Free trade vs
...
Paths to development (theory and evidence-2 less developed countries)
3
...

Include bibliography and word count (on the title page) includes everything (max
3500)
...
Title includes title name, student id and word
count
...
Current account:
a
...
Services (export/import)
...
Government (import/export) – industrialized countries export foreign aid
d
...
Capital account (inflow/outflow)
1
...
Long-term investment (more than a year)

3
...
Statistical discrepancies – black market (small for industrialized countries)

Exchange rate
If you export, you rather have a weak currency whereas if u import, you want to have
a strong currency since it will make your imports cheaper
...
So in that case UK
citizens sell pounds to get Can$, therefore Can$ rise and pounds decrease
...

Trade surplus and trade deficit goes back and forth until the currencies float
(variable)
...

The government however can’t set exchange rates
...


What central banks do: monetary policy
BOC connects with charter banks
...

2 ways to do it: discount rate; prime lending rate
- Rate at which any commercial bank in Canada can refinance itself, get more money
from the BOC (When lowered its easier to refinance)
...
BOC can sell an IOU to a
commercial bank
...
So number 3 is given
...

Why do we care? Because it has distributional consequences
...
There was a time when financial capital
was not mobile (BCM):
Pursuing expansionary monetary policy (monetarism, Friedman): expand the amount
of money available in the Canadian economy
...
So
the demand for money goes up
...

This leads to an increase in capital outflow (because of the low interest rate)
...
The Canadian
economy loses investments
...

Pursuing expansionary fiscal policy (Keynes): increase taxes, interest rates go up and
demand for money goes down (crowding out)
...


Pursuing expansionary fiscal policy: interest rate goes up; capital inflow; exchange
rate goes up
...
Since it borrows so much, interest rates are
very low (LDC’s get money from the WB for cheap)
...

Financial Crisis: banking sector
Prime lending rate: rate at which commercial banks get money from the central bank

Sub-prime mortgage rate
2/3 to ¾ of world trade is done between MNC’s (multi-national corporations)
Kindleberger:
1
...
MNC’s – subsidiaries (typically independent)
3
...
Companies get together to
develop the next big thing under MITI, and once it is developed, they market it
separately [ex semi-conductors]
...
ipe305@gmail
...
LDCs
Social aspect-winners/losers
Cultural aspect- cultural differences/how connected people are

Question: Convergence? Are states becoming more alike?
Regulation (money, time zones etc
...
FTA: free trade area: group of countries that have no tariffs (between them only)
Rules of origins: identifies any possible product imaginable and defines what it
takes to be considered a product originating from the free trade area
...
Customs union: has a common external tariff [always the lowest one] (defined by
the WTO): all member countries have no tariffs amongst them and the same
tariffs towards non-members!MFN status
3
...

Finance!government procurement: where any member can participate in a
government project
...
Economic union!money (same currency)
5
...
European court of justice! overrides national law (an individual can go directly to
ECJ if your issue has to do with the constitution)
2
...
European council! member states (president gets elected every 2
...
European Commission (meet constantly)
Commissioner=minister
Competition minister=most important one, gets money from Microsoft, Google…

History
1958 Rome treaty (started as a customs union) ! inner 6 (west Germany, Italy, France,
Belgium, Netherlands, Luxembourg)
1973! first enlargement (Ireland, UK, Denmark)
1980s! Spain, Portugal, Greece
A country is considered poor if its GDP is lower than 75% of the average of all countries
1995: Austria, Finland, Sweden (rich countries)
2000s: 12 countries

Policies
1
...
ERDF! funding regions within countries
Cohesion funds go to member states for infrastructure & environmental protection (40%
of budget)
3
...
Good for Mexico? In terms of GDP yes but if broken down by region, only
the North did well
...
Consequence? IMF was to blame for the crisis
A+6 (India, Australia, New Zealand ! in discussion)
APEC 1989
Canada, US, Australia, New Zealand, Chili, Vietnam
No institutions! countries gather once a year

African Union (53 member states) 2002
Annual meeting with max of 30 countries (not everyone can afford sending their
president to the meetings)
AU is trying to get a single currency for all 53 countries
ECOWAS
SADC (Southern American Development Cooperation)
GCC! Trade is only done with outside countries, no intra-trade
...
! Privatization
Who ran these state-lead companies? Nomenclatura; these people continued running
these companies even after they’ve been privatized
...
ecology
Is there a purely economic component to sustainability?
For many ldc’s sustainability is mostly an economic aspect than an ecological one (in
terms of trade)
...


Last class-review
Format:
2 (30%) essay questions
4 short answer questions (10%)
-theory: mercantilism, liberalism, marxism
-money, trade & finance
-hypothetical economy; write a memo for the head of state, give a recommendation on
what to do about this economy
Robert Gilpin said all theories have ad hoc (made up as you go along) hypotheses
Susan Strange said the difference between the theories is the emphasis on particular
values (security, wealth, equality & justice)
Based on your knowledge on the theories, you are asked to side with one of them and
explain why
How many stages of regional integration? Five (part 4)
Game theory
Comparative advantage
Mundell–Fleming
1
...
Monetary policy autonomy (independent central bank)

3
...

Expansionary monetary policy
*No pencil and skip lines



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