International trade, globalization
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Tuesday January 26
- Discussed state of the union address / Obama’s speech – the world has changed etc
- Obama was basically asking:
How can we encourage / generate new growth?
There are 2 schematic answers to that
1. More traditional answers: we have to minimize state intervention – the market will
solve everything – neoliberalism
2.The state needs to provide the infrastructure for growth
Firms aren’t going to finance infrastructure and take care of various types of
What’s the IR impact on this debate?
- Economic theory: free trade benefits all (Smith) ; comparative advantage (Ricardo)
- Winners and losers
Internationally: Terms of Trade
- 19th C: the industrial revolution: the repeal of the Corn Laws: a dramatic growth in
See the correspondence of the rise of the hegemons (US & UK) and the rise of free trade. Can
we establish a causal link that will connect the international structure of power with the
development of trade, and free trade in particular?
Hegemonic Stability Theory I ( Krasner ) : Assumptions
A1: States prefer to avoid vulnerability
A2: Protectionism is costly
- Small states cannot afford the cost of protectionism – they have no choice but to
open up- Large states can choose to opt for stability and security over the benefits of free
trade - A hegemon takes up such a large share of the world’s market that it can enjoy the
benefits without compromising stability
The state as a whole, loses. Protectionism is costly.
However, complete free trade means a lot of vulnerability
There’s a dilemma: we don’t want to be vulnerable, but if we close our market, we lose a lot of
So Krasner suggests this logic: small states – they’re too weak and small in order to adopt
protectionism, the cost for their economy will be too big. So small states are generally going
to be pro-free trade so they have to choose vulnerability. Larger states – they can choose,
because their economy is big enough to withstand the cost of protectionism. What happens
with the hegemon? If you have a huge state, that actually controls a chunkj of the world
economy --- Krasner suggests that they have a dilemma – they are large enough that they
are no longer vulnerable. So the hegemon, once it reaches a large enough chunk of the world
economy, it can opt for free trade without paying the cost for vulnerability.
Evidence that Krasner’s wrong or right: diagram of global top 20 (the most open countries in
the world – level of personal conduct, technological conduct, economic and political conduct)
--- if you follow Krasner`s logic – the more open you are, the more vulnerable you are….
(Ireland, Switzerland….US & Norway in the middle…New Zealand & Malaysia)
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