International Economic Relations
Week 1: The Great Divergence
As the global economy became more intertwined, importance of international economic relations
increased.
Concepts:
Economic history:
- The academic study of economies or economic events of the past.
- Applies economic theory to historical cases
- Perspective on history, as well as topic within
International relations:
- Study of relationships between international/transnational actors (actor = participant in
action of process)
- Study of systems, society, and order
- Aims to explain behavior that occurs across the boundaries of states
Great Divergence: process by which Western world overcame pre-modern growth constraints and
emerged during 19th century as most powerful and wealthy world civilization
Small Divergence: process of differential economic growth within Europe in the period 1300-1800
(North-Sea Area most prosperous)
Cultural Turn: movement early 1970s among scholars in humanities and social sciences to make
culture the focus of contemporary debates emphasis towards meaning
GDP: Gross Domestic Product
How and why states interact with each other?
International division of labor (Smith)
Trade: comparative costs (Ricardo)
Imperialism (Marx, Lenin)
Foreign Direct Investments (MNCs)
International Portfolio Investments
Monetary Relations
International Institutions (OECD, World Bank, IMF, European Union)
Perpetual Peace (Kant)
Old Institutional economics: emphasis on the importance of the way in which a society is organized
(politically, culturally)
New Institutional economics: emphasis on importance of property rights, transaction costs,
governments, social norms, etc. useful for explaining different outcomes of different countries
Schools of Thought in IR:
Realism:
- Realpolitik statesmanship – pursuit of security and self-interests
Institutionalism
- As realists, but international co-op may be in self-interest
- Development of normative institutions – UN, EU, etc.
Liberalism
- Rejection of power politics, international co-op, no state, but international corporations
Constructivism
- Rejects above as rationalist
- Ideas, culture, collective values, define international actors
English School
- Rejects above as rationalist
, - Centrality of international society, through study of history
(Neo-)classical economics?
“Classical” because it is based on the belief that competition leads to an efficient allocation
(toewijzing) of resources and regulates economic activity so create market equilibrium
broad theory that focuses on supply and demand as driving forces behind production, pricing, and
consumption of goods and services.
- Most important factor of product’s price is production costs
- Consumer’s perception of product’s price is driving factor of price
- Consumer’s first concern is to maximize personal satisfaction
Indicators of Economic Development: GDP
GDP: overall market values of all goods and services a country produces monetary value of all
finished goods and services within a country during a specific period. (zegt niks over economische
verschillen tussen mensen)
What does it measure?
- Total income of a state
- GDP/c = GDP / by population
For:
Indicator of productive capacity
Measures people’s/state’s command over economy
Reflection of living standards
Against:
Does not account for inequality
Does not register black market activity
Data incomplete or incomparable
Reconstruct GDP for historical periods
Indicators of Economic Development: Height
Height: uses average heights and indicator of biological standards of living. Diet, disease, etc.,
influence adult height
Wat does it measure?
- Biological standard of living
- Positive economic development greater income access to better food & medical care
growth
For:
Good indicator
Against:
No causation – access to public services
Selectivity and robustness of sources
o Limited data (Africa, Mid East)
o Conscription: what type of persons are conscripted?
Immigration
Data skewed: disproportionate influence of proteins
Indicators of Economic Development: Education
Education: sign of development as it is, arguably, an aspect of wealth.
What does it measure?
- Positive economic development increased spending on education & training higher
human capital
- Higher human capital more productive
, - Numeracy reflects education, education reflects human capital and human capital reflects
productivity
- Age-heaping: tendency of innumerate to report a rounded age, rather than an exact age
For:
Relatively easy and straightforward
Possibility to retrieve historical data
Against:
No causation – institutional factors important
Dubious data – age heaping or recording?
Too many moving parts
What if you are really a rounded age?
Not numeracy, or basic numeracy (how to measure advance numeracy?)
Why not measure literacy?
Indicators of Economic Development: Institutions
Institutions: humanly devised constrains that structure political, economic and social interaction
(Douglass North)
What does it measure?
- Measures growth promoting institutions growth promoting institutions:
o Full democracies
o Broad political participation and access
o Political checks and balances
o Law & order – private property & ability to enfore laws
- Measured by polity IV Index
GDP: go-to indicator, with limitations for distant past
Height: good countercheck
Education: straightforward check for distant past
Institutions: indicator of most powerful economic actor
Beeson and Bell literature
Bretton Woods System:
Institutions of BWS were established in immediate aftermath of Second World War to manage
international economy. Institutions:
- International Monetary Fund (IMF): supposed to lent money to a country that cannot attract
financial help from other sources help to restore currency stability
- World bank: supposed to help less developed countries grow
Goal: to create an efficient foreign exchange system.
national currencies were loosely pegged (vastgepind) to the US dollar, which in turn was
convertible at a fixed value into gold. Een stelsel van vaste wisselkoersen werd ingesteld ten opzichte
van Dollar en een koppeling (van de dollar) aan de waarde van goud.
Reasoning: states judged it to be in their interest een stabielie, rule-based order offered to
prospect of international economic stability and badly needed economic growth and development.
No coincidence BWS was anchored by US: Hegemonic economic and strategic position:
English School: hegemony is something that is granted by other actors in international system de
status wordt gegeven door anderen. Dit wordt vaak gegeven aan de states die er de resources voor
hebben om te leiden.
BTW came to an end because
- Created competitors for US
- Involved in huge expenses so standard of gold went down
, global economic stability could not be achieved by using a single national currency to act as a
global reserve currency
Lessons learned:
1. If structural conditions change, so does behavior: geopolitical solidarity less important.
Institutions came to be seen as too constraining or costly
2. Perceived national interests more important than international legitimacy: hegemons can be
selfish as well as benign (goedaardig)
3. Institutional orders can change in ways their original actors may never have imagined:
Global Financial Crisis
Systemic Risk: the possibility that an event at the company level could trigger severe instability or
collapse an entire industry or economy.
The federal government uses systemic risk as a justification—an often correct one—to intervene in
the economy. The basis for this intervention is the belief that the government can reduce or
minimize the ripple effect from a company-level event through targeted regulations and actions.
- Reforms will be difficult to implement
- Government in major economies have not questioned the scope and scale of their financial
sectors and the structural power they possess
English School: typically focuses on activities of sovereign states.
Major structural economic impacts lead to crises impacts on institutions and state sovereignty
ES theory good at probing conflict and cooperation among sovereign states and revealing shared
norms and standards in the institutions and practices of the members of international society.
But when encountering economy: critical attention is required regarding questions about structural
economic impacts, state sovereignty, and international cooperation.
Economic forces are especially important at a time of economic crisis.
- Interplay between economic actors and structures is potentially very different from
‘traditional’ international relations
- ES: economic integration seems to have big impact on conduct of international relations
Week 2: Capitalism, Development, and the Dawn of the State
Interaction between states and their economies
Concepts:
Mercantilism: economic policy designed to maximize exports and minimize imports aims to
reduce possible current account deficit or reach current account surplus and includes measures
aimed at accumulating monetary reserves by positive balance of trade.
Free trade: nations can swap goods/services without the constraints of tariffs, duties and quotas
lets nations concentrate on manufacturing their specialties. When countries agree, tariffs will be
lowered to import other specialities.
Institutions: constraint that structures political, social, cultural and economic interaction
Realism: view of international politics that stresses its competitive and conflictual side.
1. State-centrism: states are the central actors in international politics, rather than leaders
or international organizations
2. Anarchy: international political system is anarchic, as there is no authority to enforce
rules
3. Rationality and/or egoism: states act in their rational self-interest within international
system
4. Power: states desire power to ensure self-preservation
