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IE&IEO lecture notes complete
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IE&IEO lecture notes complete All slides included 2022/2023
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IE&IEO9 lectures, 3h each
Exam; answer two out of the 3 questions, both count for 50%
• lecture 1 (4 okt) GPG & BOP
• Lecture 2 (11 okt) IF 1
• Lecture 3 (25 okt) IF 2
• Lecture 4 (8 nov) IF 3
• Lecture 6 (22 nov) IF 4
IF 5
• Lecture 5 (15 nov) IT 1(dirk)
• Lecture 7 (29 nov) IT 2
• Lecture 8 (6 dec) IT 3
• Lecture 9 (13 dec) IT 4
1
,INTRODCUTION GPG AND THE BOP
lecture 1: Tuesday 4 oct
I. International Economics: a ‘global public goods’ approach (I) (Global public bads =
problem sides, e.g., pollution)
1. Basic characteristics of a (pure) public good:
- Non-exclusion (1) → once produced difficult to exclude people from benefiting the
good
- non-rivalry in consumption (2) → My consumption doesn’t affect your possibility of
consuming (street lights)
2. In practice: a lot of quasi-public goods, or ‘joint products’
3. Basic problem: under provision due to free riding.
• Typical solution; involvement of a public actor
• E.g. forcing people to pay taxes to actually produce the desired quantity
4. To overcome under provision by ‘rules’, ‘institutions’
5. Application to global context: global public goods (GPGs)
Public goods → Private goods
6. Private goods = by the market mechanism
• Particular characteristics whether you can or cannot exclude someone or
rivalry in consumption
• Rivalry in consumption = once I have consumed the good, another person can
no longer consume the good.
7. Public goods
• E.g., streetlight
• Problem = freeriding
• Consequence = under provision / underproduction
• Solution = taxes
8. Quasi-public goods
• Only meeting 1 of the 2 characteristics
• Club goods; exclusion, but no rivalry in consumption. E.g., NATO membership
• Common pool goods; non exclusion, but rivalry in consumption. E.g., Fishing in
international waters.
Global public goods (GPG) → international (global) dimension.
• Pollution does not stop at a national boarder
• Exceeding the national dimension
• Global goals/ambitions
• Additional problem = freeriding between countries and disputes
• Intervention mechanism consists of different countries collaborating
• Global institutions that are created by the international community to create this
global good.
9. Different technologies of provision exist (e.g., summation, weakest link, best shot)
Technologies of provision = how do industries or countries contribute to the total contribution
2
, • Summation
o Total production = sum of all individual contributions
o Global message = everyone has to contribute
o E.g. Pollution
• Weakest link = Everyone will have the ‘protection’ of the weakest link
o Je bent zo sterk als de zwakste schakel
o Individual contribution is crucial – target the weakest link
o E.g., Financial Crisis
• Best shot = The aggregate production / supply is provided by the one with the highest
contribution.
o E.g. Vaccines; the quality of a lab determines who will create a vaccine, invest
in those who are best qualified
I. International Economics: a ‘global public goods’ approach (II)
• Application to International economics
- Rules on trade
- International financial stability, optimal capital provision
• Applications on institutions:
- International trade issues: the WTO
- International Finance: IMF/World Bank
• Globalisation → more public goods that were national, but are now international
• Absent of global financial crisis = international global financial stability
• Countries that are poor / developing / in crisis:
• do not have sufficient means internally
• are also largely excluded from using money from the international / global
private market = MARKET FAILURE
• solution = public intervention
• e.g., by establishing global institutions (WTO), curing exclusion out of
international financial capital market.
3
, II. The concept of the Balance of Payments
• Balance of Payments (BoP): an accounting record (in monetary terms) of all
transactions of goods, services, income and financial assets between domestic
households, businesses and government of a given country and residents of the rest
of the world during a specific period (usually 1 year). All cross border transactions
between residents of one country and the rest of the world
• BoP ‘identity’:
current account + capital (and financial) account =0
10. Resident principle, so not nationality!
11. Usually, one per year(?)
12. Total BOP is usually zero, but you have many subdivisions in the total BOP
• Within can be:
• Positive = surplus
• Negative = deficit
Traditionally 2 parts; Sum 1 + 2 = 0
1. Current account → international trade transactions
2. Capital account → financial trade transactions
In the nineties, revise of this traditional set-up; 2 parts → 3 parts; Sum 1 + 2 + 3 = 0
1. Current account
2. Capital account
3. Financial account
13. The 3rd part is the one we are most interested in, because this is now where the
financial transactions are in.
14. In literature they still refer to this as the capital account.
4
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