POL208Y1 Lecture Notes - Deflation, Openup, Foreign Direct Investment
13 Feb 2013
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Economic theory: free trade (absolute advantage benefits all (smith); comparative advantage (ricardo) Power distribution matters: hegemony free trade | no hegemony protectionism, structural variable (power) economic/political outcomes (neorealism) A hegemon enjoys comparative advantage- would benefit from free trade. Hegemony suggests stability and security: beneficial for trade. A hegemon would set trade rules that benefit its interests. A hegemon could use its power to force other countries to open-up . A hegemon solves the prisoner"s dilemma by institutionalizing freer trade enforcing the rules and preventing defection. In times of crisis a hegemon can prevent beggar thy neighbor policies by enforcing trade to remain afloat so that panic doesn"t lead to protectionism. Since the hegemon benefits from the stability of the current system it will be willing to pay the cost of preserving it thus paying for collective goods: policing enforcing rules providing safety nets. 1870-1900 decline in trade despite britian"s leading power.
