POLS 1301 Lecture Notes - Lecture 18: Floating Exchange Rate, Bretton Woods Conference, Washington Consensus
15 Dec 2017
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Document Summary
Law of comparative advantages: any country should specialize in a good that it is comparatively best at producing and exchanging for those goods it is comparatively less adept at producing. Stolper-samuelson theorem: abundant factors of production and producers who use those factors intensively gain from free trade. Scarce factors of production and producers who use those factors intensively lose from free trade. Why invest and borrow abroad: higher return, investing in a foreign country can sometimes get a higher rate of return because they are expanding to an emerging market, access to natural resources in that country, enhance efficiency. Sovereign risk different laws fewer rights different rights and privileges different economic trends: higher costs of information and transactions. Imf and moral hazard: moral hazard can be overcome through conditionality, fiscal austerity reducing the amount of government borrowing, tight monetary policy, currency devaluation.
