The Four Most Important Things to Know about IPE
IMPORTANT THING #1: The three main components of the international economic system are the IMS, ITS, and IF & II.
(1) The International Monetary System
· The means for exchanging currency or money between countries
(2) The International Trade System
· The system of exchange of goods and services between countries
· 2 types of trade:
1. Merchandise trade=primary and manufactured goods
2. Service trade
(3) International Finance and Investment
· Foreign Direct Investment (FDI)
· Foreign Portfolio Investment (FPI)
IMPORTANT THING #2: The system is highly interdependent.
For currency:
· Daily-$1.9 trillion flows through the system
-That's about $695 trillion/year
· 2/3 of that goes through banking centers in just 4 countries
-50% of that goes through just one city
· For bigger economies, or those with lots of debt, that can potentially devastate the entire system
-For example-the recent housing crisis starting in the US
For trade:· 1913-world trade totaled $20 B
· 2009-world trade was estimated to be totaled at ~ $11.9 T---Was an increase of $3.5 T in just 10 years
For investment:
· FDI and FPI have increased considerably since WWII
· FDI-$1.5 T in 2009 globally--a 1/3 increase over 2005
· Investment is not evenly distributed
IMPORTANT THING #3: The Global North largely dominates what happens in international economy.
Domination is reinforced in primarily three ways:
1) Through the organizations it created
A) International Monetary Fund (IMF)
Created at the Bretton Woods with the Bretton Woods Agreement in 1944
B) International Bank for Reconstruction and Development (IBRD) aka World Bank (WB)
Created at the Bretton Woods with the Bretton Woods Agreement in 1944
C) General Agreement on Tariffs & Trade (GATT) established in 1947-->World Trade Organization 1994
(2) Multinational Corporations (MNCs) are significant international actors that are primarily based in the GN
Characteristics of MNCs:
1) Lots of money, power, and mobility
2) Transnationality gives them unbounded mobility
3) They influence jobs, growth, and prospects for
development
4) They challenge tradition—they are the transmitters of
culture and values
5) They strongly impact other actors in the world
3) Trade as a political tool through economic sanctions
Economic sanctions are used as a way to try to push countries into changing their policies
IMPORTANT THING #4: There are huge disparities in the system between the GN and the GS.
For currency:
· Disparities
-amount of money they have
-financial transactions through their banks
-monetary stability
-need for assistance--> forced debt restructuring
For trade:
· Trade has not occurred evenly throughout the world
o EDCs-76% of all trade
o LDCs-24% of all trade (most of this from EEs)
o Merchandise flow (p.3)
For investment:
· MNCs are measured in GCP-gross corporate product (total revenue a company makes in a year)
· 2008-Royal Dutch Shell was top earner, displacing Wal-Mart
o In 2008, Shell earned $458.3 B in GCP, Exxon Mobil 2nd
-Versus $378.8 B in GCP for Wal-Mart the previous year
-It ranks higher than Norway's GDP
-In 2008, would have ranked 24th if a country
· MNCs overwhelmingly based in GN
-95% are owned by GN
43% are American or Japanese
-all but 5% held by EDCs
-few GS investors in or holders of MNCs
In overall standard of living:
Amount of corruption and transparency correlates with development
Africa has the 10 poorest countries in the world: GDP per capital $677 v. $28,550 for GN countries
1.3 b of 6 b live in absolute poverty
It also has showed improvement over the last decade