1 Heckscher Ohlin trade theory Factors of production land loaded w natural re sources fertile land i e china buys african land labor smaller big force skilled labor Germany or unskilled china capital abundant or scares If you trade what you are abundant in also known as comparative advantage 2 Stolper Samuelson theorem If you are member of an abundant factor you will sup port free trade member of scare factor will favor protectionism 3 Comparative advantage If a country open trade barriers they will produce what they are good at and vice versa 4 Embedded liberalism system was set up to support a combination of free trade with the freedom for states to enhance their provision of Welfare and to regulate their economies to re duce unemployment Multilateralism and Liberlization liberal Policy Autonomy and Social Safety nets embedded 5 Mercantilism The world as a meaningful unit emerged after 1492 sought goods to satisfy empire chocolate tea slaves security through power and control of markets and resources few international institutions beyond the norm of sovereignty interactions of a zero sum bargaining MORE IN NOTES 6 Hegemonic stability theory world is more stable as a hegemonic state Gilpin 7 Non tariff barriers Trade resurrections restrict imports but are not in the usual form of a tariff 8 Trade barrier redistribute income from consumers and foreign producers to domestic producers why countries restrict trade 9 Ricardo Viner or specific factors approach Industry based support for your area for free trade more affiliation towards industry trade protection 10 US protection of sugar protected tariff on the import of sugar to protect the industry in the US 5th largest producer 11 Most favored nation MFN status The term means the country which is the recipient of this treatment must nominally receive equal trade advantages low tariffs high import quo tas as the most favored nation by the country granting such treatment WTO are MFN except for developing get prefrontal treatment 12 World Trade Organization intends to supervise and liberalize international trade placed Global trade agreement GATT in 1994 150 members stronger institutions 13 Conditionality 14 Asian financial crisis countries were developing really rapidly started in Thailand they saw lack of currency they overspent started to spread to other countries no capital control peo ple pulled assets out of asia 15 2008 financial crisis Banks had extra money laying around so they decided to give out cheep mortgages to people who were unreliable so when they couldn t be paid they were sent to investors around the world The bursting of the housing bubble plummeted the values of all houses 16 Competitive devaluation Beggar thy neighbor where countries compete against each other to achieve a relatively low exchange rate for their own currency As the price to buy a par ticular currency falls so too does the real price of exports from the country Imports become more expensive So domestic industry and thus employment receives a boost in demand from both domestic and foreign markets 1930s As countries abandoned the Gold Standard during the Great Depression they used currency devaluations to stimulate their economies Since this effec tively pushes unemployment overseas trading partners quickly retaliated with their own devalua tions 17 Floating exchange rates Fixed exchange rates have to do with constant government intervention currency fixed to amount of gold or another currency floating means it is deter mined by the market completely dependent on supply and demand the value fluctuates depend ing on the foreign exchange market most currencies are like this today US 18 The gold standard 19 Bretton Woods monetary system 20 Export subsidies 21 Nixon s 1971 surprise 22 The Wizard of Oz Kanas is the farmers they wanted silver and gold bimetalism yel low brick road gold standard scarecrow farmer and their troubles toto muckraker tin man industrialist who failed to increase international competition at the time lion capitalist Dorothy naive young american people emerald city paper money that only pretends to have value ruled by a scheming politician wizard who tricks people into thinking he is all powerful 23 Glass Stegall Act of 1933 Banks were losing money so they placed this act to pro tect it which prohibited commercial banks from participating in the investment banking busi ness The Act was passed as an emergency measure to counter the failure of almost 5 000 banks during the Great Depression to stop the unprecedented run on banks and restore public confi dence in the U S banking system and to sever the linkages between commercial and investment banking that were believed to have been responsible for the 1929 market crash The banks were losing depositors money so it was repealed 24 Subprime mortgage lending 25 Capital controls 26 Toxic assets 27 Collective action 38 Mundell Fleming tri lemma or impossible trinity Impossible to have all three but you want two monetary autonomy fixed exchange rates and international free flow of capital Post nixon gave up fix rates and Bretton woods gave up monetary autonomy 39 Is the Euro about stability or autonomy