Summary
Summary International Economics and International Economic Organizations
- Course
- Institution
Summary of 112 pages for the course History Of International Relations at UA
[Show more]
Seller
Follow
BAC
Reviews received
Content preview
International Economics and Organizations1. INTRODUCTION
➢ Overview of the course:
o Introduction to basic concepts, theories, policies and institutions related to international
trade and finance
➢ Practical:
o 9 sessions of 3 hours
o Organized in introduction and two main parts
▪ International finance
▪ International trade
o Written exam
▪ 3 questions for each part
• Of which to select and answer 2
• 50%-50% division of marks
o Everything is in PPT
o Book by Gerber (2014 or 2018 edition)
▪ Copy in the library, the book itself is expensive
▪ Or an alternative in dutch: international economy – De Jonge
▪ But the focus is on the ppt
• = the exam material is on the ppt
1.1 International Economics: a “global public goods” approach
➢ A “global public goods” approach
o Basic: characteristics of a (pure) public good
▪ Non-exclusion
▪ Non-rivalry in consumption
▪ = a public good has two characteristics. The first one is non-exclusion. Once this
good is produced you can’t exclude people from using/consuming/enjoying the
good. The second one is non-rivalry in consumption. My consumption of the good
does not change the way someone else can or can’t use the good.
o In practice: a lot of quasi-public goods or joint products
▪ When this good is produced, the market can’t have a compensation for it
▪ Few goods are pure public goods → there are a lot of quasi public goods
• Comply with one of the two characteristics
• Joint products
o Goods that can be produced according to the market mechanism,
but it has some public characteristics
o There is public intervention needed to ensure that the goods are
produced
▪ Ex.: transport
o Basic problem: underprovision due to free riding
▪ Why would you pay for such a good if it is freely accessible?
o To overcome underprovision by rules, institutions
▪ The public sector must intervene
• Taxes to pay for the public goods
• It conditions to make supply interesting
o Private market goods
▪ If you want it you have to pay for it
• Goods provided by the market mechanism
• If you have it, there is less for others
1
,o Application to global context: global public goods (GPGs)
▪ Link to global public goods: applying the concept to an international level
• Desirable goods that should be produced in sufficient quantities but…:
o Underprovision due to the market mechanism
o Underprovision due to individual states
▪ Global public bads
• Ex.: pollution (>< GPG clean air)
o Problem that needs to be resolved, but needs global laws, rules,…
to fix it
o Has a transnational nature → these problems don’t stop at the
border
• Due to globalization
o = the intensification of cross-border transactions
o Things that were national are becoming
global/international/regional
o So you need international interventions
o And global institutions
o Different technologies of provision exist
▪ = the relationship between the individual efforts and the total supply of the Public
Goods
▪ E.g. summation, weakest link, best shot
▪ Three main technologies of provision:
• 1: Summation
o If you apply the concept of summation to the relation above
o The total is the sum of the individuals
▪ Ex.: pollution
o What you do matters
▪ Effect of the individual to the total
o Sum of the aggregate is the sum of what we do together as a
whole
o What is the policy message of pollution that the prof should say to
all of us? → everyone counts, everyone matters, what you do is
important and the more you do, the better the results
• 2: Weakest link
o The effect of everyone’s contributions on the aggregate is not the
sum of everyone together, but just of the person who does the
least, who has the smallest contribution
o Ex.: island surrounded by water
▪ Each one has a plot of land that borders the water, but no
fences (globalization)
▪ Fear of flooding → we build dams → some make the dam
higher than others
• Someone did not put as much effort into it as others
▪ The water starts rising → comes onto the land by the lowest
dam → will flood the whole island
▪ What is our collective level of protection against this flood?
The level of the weakest
o So: you have to target the weakest link → he matters the most
o Ex.: global public goods
▪ Creation of international financial stability (>< global public
crisis)
• Weakest link: one country in a global crisis creates a
large change of spill over to a global financial crisis
o Weakest link
• That weakest link will cause this crisis to spread
across the world
o SO: the IMF should target the weakest link
2
, • 3: Best shot
o The aggregate effect is determined by the one with the biggest/
strongest effort
o You should target your efforts to the one with the highest effort
o Ex.: finding new vaccines/drugs
▪ So it’s the most efficient to target resources to the one with
the best effort → focusing on one (or two) with the highest
chance
o Application to International Economics
▪ Rules on trade
▪ International financial stability, optimal capital provision
• See ex on global crisis by weakest link (above)
o Applications on institutions
▪ Because:
• Optimal capital provision
o You cannot rely on the private capital market mechanism to supply
these global public goods
o So you need institutions to solve this problem of exclusion for poor
countries in the global market
▪ International trade issues: the WTO
▪ International Finance: IMF/ World Bank
• Curing a market failure: financing and necessary development in the
countries that need this
o As a cure for exclusion
• World Bank: mission can be clearly translated in a global public good
context
1.2 The concept of Balance of Payments
➢ The concept of Balance of Payments:
o = 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)
o Cross-border transactions = everything that crosses the national border
▪ These are between domestic actors and the rest of the world
o The BoP is the key format/identity/tableau where you can see the amount and
magnitude of this cross-border trade and transactions
o BoP “identity”
▪ Current account + capital (and financial) account = 0
• So you have a current account balance and a capital account balance and
the sum of these is zero
• Current account openness: trade etc.
• Capital account openness: country engages themselves to be open for
cross border financial transactions → allowing for investment and loans,…
o The extent to which you allow yourself to trade with the rest of the
world to allow investments etc.
• But you also have the financial account
o So you have three parts
o All of the flows on the former capital account are now on this
account
3
, ➢ (Im)Balances:
o Conceptually, a BoP must always balance (sum to zero): a total BoP surplus or deficit
cannot exist!
▪ Because of system of double entry-booking: one entry indicating the nature of
the transaction, other one indicating the foreign exchange consequence
• Forex inflow or outflow
▪ Otherwise you made an error
o General rule:
▪ Note to self: gaat over het geld en dus de dollars → import is – want het geld
gaat weg (nr. 1 en 11)
• Voor 11: om 11 te bekomen moet je alles wisselen van teken en optellen
• 11 moet het omgedraaide van 1 zijn
Everything leading to forex inflows is +, so forex inflow itself is –
Everything leading to forex outflows is -, so forex outflow itself is +
▪ SO:
• Credit (+) = exports, income and current transfers received, decrease of
foreign assets, increase of foreign liabilities
• Debit (-) = imports, income and current transfers paid, increase of
foreign assets, decrease of foreign liabilities
▪ Ex.: Tanzania exports coffee
• Incoming payment, coffee leaving to another country
• So:
o 1: goods are exported
o 2: dollars come in
▪ Transactions are always in dollars on the balance
▪ Is import leading to foreign exchange outflows? YES
• So import is put with a –
• And foreign exchange outflow is put with a +
• If you import goods, you need to pay for it, money is leaving the country
o Dollars leaving the country is a - → so import is a –
o But the foreign exchange outflow itself is +
o BUT each of the different BoP components individually can be unbalanced
(surpluses/deficits!)
o In reality, of course, errors are made: balancing item ‘errors and omissions” added to
BoP
▪ Registrations are done by different agencies
• Import and export is at customs
• Payments are registered by banks
▪ Extra element to the Balance of Payments: errors and omissions
• So the balance is balanced
▪ Ex.: you go to Tanzania with a suitcase filled with dollars
• Not registered
• But you are going to spend this money
• The money will be registered at the banking system of the country
• So: errors and not so official transactions
4
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller BAC. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.94. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
62890 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now