Peng's Test
Hey everyone, below is the topics that could be on Peng's test this coming Thursday.
Vocabulary
- Investment Promotions
- Dependency Theory
Private Placements
- Four Little Tigers
- Economic Reform and Development
- East Asian Model
- Economic Reform in China
- Location Advantages
- Functions of Money
- Balance of Payments
- Bretton Woods System
- Regulations of MNCs
- Exchange Rate
- Gold Standard
- M1 and M2
- Bargaining with MNCs (Obsolescing Bargain)
- Reasons for MNCs to Invest Overseas
- Benefits of hosting MNCs
- Export-led Strategy
- Developing Countries and the WTO
- Firms as Exploiters of Imperfections
- Firms as Internalizers
- Current Account
- Capital Account
Essay Questions
- Development Strategy
- Import substitution
- take technology from different nation
- produce primary goods
- not much value added
- agriculture, basic
- manufacturing goods
- Produce manufacturing goods by self instead of relying on other countries.
- Costly, not to comparative advantage.
- Developing countries comparative advantage
- If not to comparative advantage, but want to be, use government protection.
- high tariffs
- spoils people
- If you have protection, why should you compete more?
- really asking for money
- Japanese farmers
- Export Orientation
- Labor intensive to capital intensive
- To start a Change: Reform
- Managing Corporations
Reading from the Book(from the syllabus)
October 8 (H) Economic Reform: Emerging Problems with Import Substitution Industrialization, the East Asia Model, Chapter 7
October 13 (T) Structural Adjustment and the Politics of Reform, Economic Reform in China, Developing Countries and the WTO Chapter 7
October 15 (H) Multinational Corporations in the Global Economy, Economic Explanations for MNCs, Locational Advantages Chapter 8
October 20 (T) Market Imperfections, MNCs and Host Countries, Redistributing Venezuelan Oil Profits Chapter 8
October 22 (H) The Politics of MNCs, Regulating MNCs, Sovereign Wealth funds, Bargaining with MNCs Chapter 9
October 27 (T) Luring the German Luxury Car Producers to the US South, International Regulation of MNCs, The Race to the Bottom Chapter 9
October 29 (H) The International Monetary System, the Economics of the International Monetary System, The Classical Gold Standard Chapter 10
November 3 (T) The Rise and Fall of the Bretton Woods System, From Dollar Shortage to the Dollar Glut, Who Should Adjust? Chapter 10
Vocabulary
Investment Promotions:
How to attract foreign firms to a developing country.
- "Tax Heaven" (Special Economic Zones)
- Cheap/Free land
- Public goods
- good transportation
- good structure
Once firms invest a lot they are comitted to the location.
Dependency Theory:
Developed in Latin America:
Developing nations can't catch up to devloped nations.
This is why many Latin American states tried Import Substitution.
Four Little Tigers and their populations:
South Korea 48M, Taiwan 23M, Hong Kong 7M, Singapore 4.6M.
Economic Reform and Development
East Asian Model:
A model in which economic development is conceptualized as a series of distinct stages of industrialization. In the first stage, industrial policy promotes labor-intensive light industry, such as textiles and other consumer durables. In the second stage, the empahsis of industrial policy shifts to heavy industries, such as steel, shipbuilding, petrochemicals, and synthetic fibers. In the third tage, governments target skill-intensive and R&D-intensive consumer durables and industrial machinery, such as machine tools, semiconductors, computers, telecommunications equipment, robotics, and biotechnology. Governments design policies and organizations to promote the transition from one stage to the other.
Economic Reform in China:
Deng Xiao Ping
Location Advantages:
Country characteristics, such as its factor or natural resource endowments or market size, that create incentives for a foreign corporation to invest in the country.
Functions of Money:
- Exchange/trade
- Give value to things (measure value)
- storage of value/wealth [investment]
- Policy tool*
- International trade
*Example: To fix a recession lower interest rate, will give incentives to spend money. Force people to use their money in other ways.
Balance of Payments:
An accounting device that records a country's international transactions. The alance of payments is divided into two broad categories: the current account and the capital account.
Bretton Woods System:
The international monetary system that was created in 1944 at Bretton Woods, New Hampshire. It was based on fixed-but-adjustable exchange rates in an attempt to provide a stable internatoinal monetary system and at the same time allow governments to use monetary policy to manage the domestic economy. The system collapsed in 1973 and represented the last time that governments attempted to create and maintain an international monetary system based on some form of fixed exchange rates.1 ounce of gold was worth $35US.
Regulations of MNCs
Exchange Rate:
A set of rules that together specify the amount by which currencies can appreciate and depreciate in the foreign exchange market. Under a fixed exchange-rate system, the rules require governments to restrict currency movements to a narrow range around some central rate. In a floating exchange-rate system, governments can allow their currencies to move by as much as they desire.
Gold Standard:
- International Money was made of gold coins in the past (started from Britian)
- The percentage of gold in the coin determined the value
- pegged to Britian
- Fixed exchange rates
- Don't have to worry about currency fluxuations
- difficult to maintain (limited supply of gold)
- Paper Gold
- Bretton woods
- US Dollar was linked to the value of gold
35$ = 1 oz of gold
- Most people could not transfer money for gold
M1 and M2:
Levels of Fluidity
- M1: Cash/Checking account
- M2: Savings Account & Money Market account with check writing privlidges
Bargaining with MNCs (Obsolescing Bargain):
Explains how a multinational corporation (MNC) and a host country government divide the income generated by an MNC investment in the host country. It asserts that the MNC has a bargaining advantage in the preinvestment negotiations. Consequently, the inital investment agreement will direct a larger share of the resulting income to the MNC and a smaller share to the government. Once the investment is made, howerver, the government gains bargaining power at the expense of the MNC. The government uses its enhanced bargaining power to renogotiate the inital agreement and claim a larger share of the investment income. The initial bargain is thus rendered obsolete by postinvestment changes in relative bargaining power.
Reasons for MNCs to invest Overseas:
- Cheap labor
- markets
- competition
- technology
- location
- Market Imperfections
- Monopoly (Coca Cola Forumla)
Benefits of hosting MNCs:
- management and technology
- competition (spill over effect)
- countries coming in bear glorious FDI
Export-led Strategy:
A development sstrategy in which emphasis is placed on producing manufactured goods that can be sold in international markets. Adoptedby the East Asian newly industrialized countries in the late 1950s to early 1960s after the gains from easy import substitution industrialization had been exhausted. During the late 1980s, this strategy and the apparent Asian success based on it provided the foundation for the "Washington Consensus."
Developing Countries and the WTO:
- Infant Industry argument for higher tariffs
- WTO helps developing countries develop
Firms as Exploiters of Imperfections:
MNCs use Market Imperfections in foreign countries.
MNCs using Monopolies.
Firms as Internalizers:
If Coca Cola invests in China, they will want to produce locally, but not give away their formula.
- make sure technologies don't leak out
MNCs invest overseas, but keep technology internalized.
Another example: The US Military producing Jets overseas. They're willing to produce abroad, but will keep the military secrets (trade secrets) internalized.
Current Account:
One of the two principal components of the balance of payments. It records all payments between the country and the rest of the world in connection with goods, services, income earned on foreign investments, royalties, licenses, unilateral transfers by private individuals, government expenditures on foreign aid, and overseas military spending.
Capital Account:
One of the two principal components of the balance of payments, it records all financial flows into and out of a particular country. Such financial flows include bank loans, equities (stocks and bonds, and foreign direct investment.
Some definitions taken from "International Political Economy" by Thomas Oatley (Forth Edition)