GINS 2010 Lecture Notes - Lecture 2: International Monetary Fund, Free Trade, Economic Globalization
13 Dec 2016
School
Department
Course
Professor
Week 2 – September 15th, 2016
Global Economic Institutions
Institutions supporting Global Economic Integration
-since the end of WWII, three key institutions have been set up to facilitate global economic integration:
-World Bank (WB)
-International Monetary Fund (IMF)
-General Agreement on Trade and Tariffs/World Trade Organization (WTO)
-they do not regulate international trade
-these promote a system of:
-pro-market economic policies (privatizations, deregulation, liberalization)
-open financial markets and stable exchange rates
-negotiated global trade liberalization
Why create these institutions and why charge them with that mandate?
-lessons from the Great Depression (1929-1937)
-create an environment to open economy, to not close own economy in trouble times, allow
other countries to help (ripple effect)
-trade protectionism leads to lower economic output and more unemployment
-financial integration is overly risky without exchange rate convertibility
-keeping currencies pegged to gold leads to worse recession and contagion
-states need space to engage into deficits when facing recessions
-lessons from WWII and aftermath (1939-19…
-colonialism no longer sustainable, new countries will aspire to higher levels of living and can
not be stopped
-whoever provides them with a better deal will win them over (USA vs USSR)
Underlying understandings of (international) economics
-before great depression most countries were independent, engaged in simple liberalism, low trade
barriers
-all changed during the Great Depression, income of US government began to shrink
-US increase tariffs (1933), trade barriers increase, most countries follow suit
-Great Depression taught
-if an economic crisis begins, it is rapidly transmitted across borders
-trade, finance and migration will produce contagion, regardless of politics
-markets alone do not self-correct, government intervention is therefore needs to correct
economy
-governments can intervene by fiscal and monetary policy, need to have space to do so
-adjustments done by markets alone can be very long and socially unsustainable
-capitalism is disruptive and unstable, to maintain its dominance, labour and capital
markets need to be regulated (central banks, minimum wage legislation, etc.)
-alternatives are out there: Soviet (and Chinese) Communism
-China and Japan (independent countries) at war
-other countries under colonial rule (mostly in Africa), tax colonies more for more work
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
General agreement on trade and tariffs/world trade organization (wto) Since the end of wwii, three key institutions have been set up to facilitate global economic integration: Create an environment to open economy, to not close own economy in trouble times, allow other countries to help (ripple effect) Trade protectionism leads to lower economic output and more unemployment. Financial integration is overly risky without exchange rate convertibility. Keeping currencies pegged to gold leads to worse recession and contagion. States need space to engage into deficits when facing recessions. Colonialism no longer sustainable, new countries will aspire to higher levels of living and can not be stopped. Whoever provides them with a better deal will win them over (usa vs ussr) Before great depression most countries were independent, engaged in simple liberalism, low trade barriers. All changed during the great depression, income of us government began to shrink. Us increase tariffs (1933), trade barriers increase, most countries follow suit.
