International Economic Institutions Since World War II
Chapter 2International Economic Institutionssince World War IISlide 2-1
Lecture Objectives Discuss the history and functions ofinternational institutions in world economyIntroduce the role of regional tradeagreements in the global economyAnalyze the arguments opposinginternational economic institutionsSlide 2-2
Introduction Institutions – rules and organizations that govern andconstrain behavior, 2 types Formal institutions – written set of rules that explicitly statewhat is and is not allowed; example, a constitutionInformal institutions – custom or tradition that defineappropriate behavior, but without legal enforcement; disputeresolution mechanismsDifferent Positions Dani Rodrick: institutions are primary; then trade andgeography; Krugman: geography then trade and institutions;Sachs: trade (openness) then institutions and geography;IMF/WB: used to be only trade matters; now governance andattention to social effects of growth matter tooSlide 2-3
Taxonomy of InternationalEconomic InstitutionsSlide 2-4
Taxonomy of InternationalEconomic Institutions (cont.)Slide 2-5
International InstitutionsThe three global organizations playing a major role ininternational economic relations are: The International Monetary Fund (IMF) The World Bank The World Trade Organization (WTO)Read the Acheson: (1) “The Bretton Woods Agreements”and (2) “Preparation for an unknown World.”Let’s take a closer look at the functions of theseorganizations Slide 2-6
The IMF Founded by the Bretton Woods meetings between the Allies in July1944; delegates from 44 governments founded the IMF to prevent thedisastrous economic policies that led to the Great Depression.At the close of WWII, allied countries essentially drew up the charter(or Articles of Agreement) of an international institution to oversee theinternational monetary system and to promote both the elimination ofexchange restrictions relating to trade in goods and services, and thestability of exchange rates. The IMF came into being in Dec. 1945when 29 countries signed the Articles of Agreement.It is the central institution of the international monetary system ---- thesystem of international payments and exchange rates among nationalcurrencies that enables business to take place between countries.Aims to prevent crises in the system by encouraging countries to adoptsound economic policies; also a fund --- can be tapped by membersneeding temporary financing to address BOP problems.Has statutory purposes (see below)Slide 2-7
The IMF The IMF was established to (its functions): Promote international monetary cooperation; Promote exchange stability and orderly exchange arrangements To foster growth and high levels of employment, and to provide temporary financial assistance to countries to helpease balance of payments adjustment Avoidance of competitive devaluations Orderly correction of balance of payments problemsTo serve these statutory purposes, the IMFMonitors economic and financial developments and gives policyadvice.2.Lends to member countries with BOP problems.3. Provides governments and Central Banks technical assistance and trainingin its areas of expertise.1.Slide 2-8
The IMF Fundamental disequilibrium and exchange crisis A crisis occurs when a country runs out of foreign exchangereserves – a major currency or gold that can be used to pay forimports and international borrowingsMembers borrow against IMF quotas in the event of financial crisisIMF conditionality – requirement for the borrowing member to carryout economic reforms in exchange for a loan (very controversial issuein developing countries). Slide 2-9
IMF Quotas and SDRs Each of the 184 members charged a quota subscription (source offunding for the IMF). Each member is assigned a quota based on itsrelative size in the world economy.A member’s quota determines its maximum financial obligation(payments) and its voting power and its bearing on its access to IMFfinancing.Quotas are denominated in SDRS (IMF’s unit of account) [seeHandout]Subscription: member must pay in full at joining; up to 25% to be paidin SDRs or accepted currency (USD, euro, yen, or pound) while therest (75%) paid in member’s currency.Voting power: quota determines voting power in IMF decisions. Eachmember has 250 basic votes one additional vote for eachSDR100,000 of quota. US has 371,743 votes (17.1% of total); Palauhas 281 (0.013% of total).Slide 2-10
Challenges facing the IMFAccess to financing: the amount of financing a member can obtain from theIMF (access limit) is based on its quota. Under Stand-by & Extended Arrangements, a country can borrow up to 100%of its quota annually and 300% cumulatively. CHALLENGES FACING THE IMF1. Rapid tech. advances & communications (implies) increasing globalizationand integration of markets financial crises tend to spread faster.2. With interdependence, a country’s economic performance depends on othereconomies AND on a stable global economic environment.3. Economic &financial policies followed by individual countries follow how wellor how poorly the world trade and payments system operates. Thus, globalization calls for greater international cooperation which meansincreased responsibilities of international organizations such as IMF. Slide 2-11
Challenges facing the IMF(contd)4. Introducing reforms aimed at strengthening the architecture- orframework of rules and institutions --- of the international monetaryfinancial system to deal turbulence in emerging financial markets (LAand Asia).5. Work in complementary fashion with other institutions established tosafeguard global public goods (maintain order & reduction ofuncertainty); be an open institution (allow input from sub-nationalgroups (civic society)).Problems: (1) autonomy versus sovereignty – less national autonomydoes not imply loss of sovereignty! (2) quality of advice; (3) lack oftransparency in decision-making; (4) the dominance of allied powers ininstitutional structures and refusal to reform this imbalance.Slide 2-12
The World Bank Also founded at the Bretton Woods ConferenceFounded as the International Bank for Reconstruction andDevelopment (IBRD)World Bank has 184 Members Money comes from donor nation contributions and sales of debtsecurities in private markets Set to promote long-term economic development, including thefinancing of infrastructure projects (road-building and improving watersupply). The IMF and WB complement each other: IMF deals with BOP andinternational reserves during adjustment while the WB does long-termdevelopment and poverty reduction issues.Slide 2-13
The World Bank Main functions: development lendingToday, IBRD is one of the five subgroups makingup the World Bank Group IDA (International Development Assn.),IFC (International Finance Corp.),MIGA (Multilateral Investment Guarantee Agency),ICSID (Int’l Cent. For Settlement of Investment Disp.)Slide 2-14
The World Bank Main functions Investing in people, particularly through basic healthand education Focusing on social development, inclusion, governance,and institution-building as key elements of povertyreduction Strengthening the ability of the governments to deliverquality services, efficiently and transparentlySlide 2-15
The World Bank (cont’d) Protecting the environment? Supporting and encouraging private businessdevelopment Promoting reforms to create a stable macroeconomicenvironment, conducive to investment and long-termplanningSlide 2-16
GATT Began with 23 nations (1947) based on principlesestablished in 1934 Reciprocal Trade Agreement Act. Dueto the failure to establish the ITO, GATT was formalizedin 1960 to deal with trade issues. Nondiscrimination: enshrined in the concept of mostfavored nation (MFN); every WTO member must treatevery other member as it treats its most favored tradingpartner National treatment: imports must be given similartreatment on the domestic market as domesticallyproduced goods.Slide 2-17
GATT (cont’d) Functioned through trade rounds: inter-statenegotiations to reduce tariffs and other barriers totrade Geneva (1947) Annecy, Torquay, Geneva II, Dillon (1949-1961) Kennedy (1964-1967) Tokyo (1973-1979) Uruguay (1986-1993)Slide 2-18
From GATT to WTO The GATT functioned through trade rounds – inter-statenegotiations to reduce tariffs and other barriers to tradeAfter the Tokyo Round of the 1970s, tariffs were broughtto record lows However, Uruguay Round was launched in 1986 toaddress previously neglected trade issues, such as (1).agriculture and textiles, as well as new trade issues,such as (2) intellectual property rights and (3) trade inservicesSlide 2-19
From GATT to WTO Uruguay Round established the WTO reaches beyond GATT to new trade issues GATS, TRIPS, TRIMShas a more effective dispute settlement mechanismmonitors national trade practices more consistentlyDoha Round (2001-current)--- focus on development indeveloping countries Focused on trade between developed anddeveloping nations (wide areas of disagreement).Slide 2-20
Summary of GATT RoundsRoundN ofCountriesSubjects andModalitiesMain OutcomesValue of TradeCoveredAverageTariff essions on45,000 tariff lines 10 ionModest emNegotiation8,700 emNegotiationModest tariffreductions 2.5 otiationTariff adjustmentsfollowing creation ofEEC 4.9 billion20%17%Kennedy1962-196762Tariffs;Linear cuts30,000 tariff linesbound 40 billion35%8.7%Tokyo1973-1979102Tariffs; NTBs;Linear cuts;Codes 155 billion34%6.3%Uruguay1986-1994103 start,128 endTariffs; NTBs;Item-by-Item andLinear;WTO 3.7 trillion39%4.0%WTODispute ResolutionAverage PostRound TariffsSlide 2-21
From GATT to WTO (cont.) Uruguay Round Agreement signed in 1994The round established the WTO: 144 members as of 1 January 2002reaches beyond GATT to new trade issues;has a more effective dispute settlementmechanism; andmonitors national trade practices moreconsistentlySlide 2-22
The WTO Main Tasks of the WTO Administering WTO trade agreementsForum for trade negotiationsHandling trade disputesMonitoring national trade policiesTechnical assistance and training for LDCsCooperation with other international agenciesSlide 2-23
The WTO Interdependence Norms – 2 principles Liberalization – negotiations to reduce protection, i.e. towardsmore globalization1.Nondiscrimination – enshrined in the concept of most favorednational status (MFN): every WTO member must treat each of itstrading partners as it treats its most favored partner.Problem: The MFN clause allows trade discrimination, especiallyregional trade agreements (NAFTA, EU): WTO-allowed as longthey don’t harm overall level of international trade.2. National treatment – imports must be given a similar treatment onthe domestic market as domestically produced goodsSlide 2-24
The WTO Sovereignty Norms Reciprocity – negotiations proceed in terms ofexchange of “concessions” of substantiallyequivalent value.Safeguards – right of government to preserveeconomic stability through (nondiscriminatory)protection recognized.Slide 2-25
The Future of the WTO The Doha round? Deep conflict between developing countries andindustrial countries Costs of current commitmentsFailure of AICs (advanced industrial countries) to carry outtheir agreements on ATC( agreement on textiles and clothing)and agricultural trade/price supportsTRIPs (trade-related aspects of intellectual property rights)and TRIMs (trade-related investment measures) problemsDeveloping countries seem to be the real supporters oftrade liberalization these daysSlide 2-26
Regional Trade Agreements (RTAs) trade agreements between countriesA country can belong to different RTAs (for example,Mexico, Brazil)Besides economic organizations, regional trade agreementsform a key part of the institutional structure of the worldeconomyRegional trade agreements have proliferated around theworld since the beginning of the 1990sSlide 2-27
Five Types of Regional TradeAgreements 1. Partial trade agreement (PTA) – two or more countriesliberalize trade in a selected group of product categories.Note: as more product groups are included, PTA tend toFTA but excludes (safety, health, and technical standards).Example: US & Canada – mad cow disease2. Free trade area (FTA) – trade in goods and services fullyliberalized between two or more countries North American Free Trade Agreement (NAFTA)Slide 2-28
Five Types of Regional TradeAgreements (cont.) 3. Customs union (CU) – an FTA a common external tariff(CET). But excludes tariffs & quotas, e.g. quotas on Japanese autos European Union in the 1970s and 1980s MERCOSUR in South America 4. Common Market – a CU free mobility of factors ofproduction (without CET) , usually labor & capital. European Union in the 1990sPresident Fox (2000): pressed US to move from FTA to CM;September 11,2001 froze any negotiations.Slide 2-29
Five Types of Regional TradeAgreements (cont.) 5. Economic Union – common market coordination ofmacroeconomic policies (including common currency, harmonizationof standards and regulations) United States, the 50 statesCanada, the provincesBENELUX (Belgium, Netherlands, Luxemburg)The EU tends to become an Economic Union ?Problems: adoption of the social contract; mobility of factors ofproduction; the sovereignty issue (U.K.); old versus new members(the latter have non-conforming institutions).Slide 2-30
Prominent Regional Trade BlocsSlide 2-31
Prominent Regional Trade Blocs(cont.)Slide 2-32
The Role of InternationalEconomic Institutions Primary difference between international institutions andnational governments: the former have limitedenforcement powerHowever, international institutions help provide order andreduce uncertainty Order and certainty are public goods – intangibles thatare different from most goods and servicesSlide 2-33
Public Goods (Kindleberger goods) Public goods are:Non-excludable – the normal price mechanism does notwork as a way of regulating access to them Non-rival (or non-diminishable) – they are notdiminished or reduced by consumption Problem of free riding: the production of public goods(coordination and international financial and tradearchitecture) relies on voluntary association.Private markets fail to supply public goods because offree riding – people have no incentive to pay for a publicgood because they cannot be excluded from itsconsumption even if they did not pay. Slide 2-34
International Public GoodsSlide 2-35
Opposition to InternationalInstitutions International institutions receive two types ofcriticism 1. Globalization is dangerous and shouldbe limited However, how would curtailing economicand social interactions between people from different countriesbe beneficial?Idea: globalization, economic integration, openness maypromote economic growth BUT it gives rise to: increasingpoverty; skewed distribution of income; undermines humanrights, environmental standards etc.Slide 2-36
Opposition to InternationalInstitutions (cont.) 2. International institutions are undemocratic: decisionmaking is closed to participation by civic and socialgroups, and thus doesn’t focus on the most vulnerablegroups (Stiglitz critique) However, global institutions were created to resolve technicaleconomic problems; they have thus been slow to respond tosocial problemsBUT today, international institutions are today heavily focusedon social aspects: fostering education and health standards, andcivil and human rightsSlide 2-37
Opposition to InternationalInstitutions (cont.) International institutions face problemsin efforts to address criticism. Who is represented by the various groupsdemanding a voice? Who should the institutionslisten to first?Are the demands of a given group good for thenation’s development as a whole?Slide 2-38
Coming Attraction Chapter 3 deals with theories of tradeSlide 2-39
From GATT to WTO Slide 2-19 The GATT functioned through trade rounds – inter-state negotiations to reduce tariffs and other barriers to trade After the Tokyo Round of the 1970s, tariffs were brought to record lows However, Uruguay Round was launched in 1986 t
di erences in political institutions. Inclusive economic institutions are the result of polit-ical choices which arise under inclusive political institutions; a strong state and a broad distribution of power in society. When either of these conditions fails one has extractive political institutions that lead to extractive economic institutions.
measuring change in capacity of institutions. The framework can be applied equally to a variety of institutions: national and sub-national institutions; state and non-state institutions; partner institutions as well as those within the UN development system. Institutions can encompass organizations as well as the enabling environ-
the International Monetary Fund and the World Bank, emphasises the concept of 'good' . a nexus between institutions and economic growth. The correlation is explicitly developed by . (2012a), which advance a theory that claim institutions to be decisive for the economic development. Acemoglu and Robinson continue and update the .
Traditional, Command, Market 3. The former Soviet Union was an example of what kind of economic system? Command 4. Which economic system allows for the most individual freedom? Market 5. In which economic system does the government have the most control? Command 6. In which economic system do individuals do things based on customs & beliefs .File Size: 3MBPage Count: 55Explore furthertypes of economic systems worksheet answer key pdflaspalmasbr.comTypes Of Economic Systems Worksheet Pdf - worksheetnovenalunasolitaria.blogspot.c Types of Economic Systems Worksheet PDF Economic .www.scribd.comCommand, traditional, and market economiesdsfepf2015.weebly.comTypes of Economic Systems Worksheet.pdf - Name: Date .www.coursehero.comRecommended to you b
institutions. Institutions are the rules and norms constraining human behavior.8 Policies are choices made within a political and social structure, i.e., within a set of institutions. Institutions have a flrst order efiect over policies as a determinant of capital ows. Given this, it is important to know the role left for the policy.
or universities (under 5,000 students); 38% were medium-sized (5,001 to 14,999 students); 15% were large institutions (15,001 to 29,999 students); and 10% were very large institutions (over 30,000 students). Across Cohorts 1 and 2, 62% were public institutions, 38% private institutions, 20% religiously affiliated institutions, and 10%
institutions (e.g. a parliamentary system based on a constitution) need to be embedded within the existing informal institutions in order to be respected by individual actors (i.e. to "stick"). Embeddedness means that new formal institutions are adapted to local culture and to existing informal institutions 4. Japan's Meiji Era is often .
supporting our partner financial institutions' transition from conventional institutions to economic empowerment financial institutions that utilize Islamic financial instruments effectively. In this regard, this Economic Empowerment Design toolkit aims to provide guidance and practical tools to embark on this journey.
