1International Approaches to Trade Outcomes• Is domestic analysis sufficient to explain trade outcomes?– Domestic analysis ignores the role of the international system and the strategic interaction of nation-states. – Nation-states are positioned within an international political and economic system that constrains choices and conditions collective outcomes.2Theory of Hegemonic Stabilityassumptions and variables• States are rational (purposive, goal-oriented) and unitary (single decision-maker) actors. • Outcome variable: degree of stability in the int’l economy. The level of global economic stability is the outcome to explain.• Input (explanatory) variable: the structure of the int’l system, as measured by the relative size of nation-states.•Argument: Stable world economy is a function of “hegemony,” a int’l system characterized by the presence of a single, strongly-dominant nation-state (e.g., Great Britain in the late 19th century and the U.S. in the mid- to late-20th century).3Krasner’s version• Provision of Int’l Economic Stability– Economic openness is not necessarily preferred by allstates. Trade policy preferences vary across states depending on their positions in the int’l system.– Stability and openness arises only when the dominant state, which strongly desires free trade for political/security reasons, alters the behavior of others. • Why does the hegemonic state want free trade?– States have multiple goals and the hegemonic state gains more from free trade than other states in terms of some of these goals (Figure 5).– Predictions hold only if each goal is given equal weight.4Krasner’s VariantEffects of Economic Openness(direction of relationship) relative size level of development of country of country political power + + national income - ? economic growth ? ? social stability + + Note: In the column at the left are Krasner’s four goals of state policy. The signs indicate how openness (free trade) affects each goal given a country’s economic size and level of development (e.g., openness increases the political power of large, developed states).5Figure 6: U.S. in Relative Economic Decline?(Selected Indicators and Years)1938 1946 1950 1960 1970 1980 1990 1994% Gross WorldProduct21 30 26 24 23 21 21*% WorldManufacturing31.4 50 (est.) 31.5% World Trade11.3 18.4 15.3 14.4Relative GDP12.8(UK)4.1(UK)4.2(UK)2.4(USSR)2.3(USSR)2.4(USSR)2.4(Jap)2.4(Jap)Relative PerCapita GDP21.02(UK)1.43(UK)1.40(UK)1.31(UK/Ger)1.24(Ger)1.19(Ger)1.17(Ger/Jap)1.16(Jap)RelativeLaborProductivity(GDP per hourworked)31.44(UK)1.61(UK)1.41(Ger)1973data.98(Fr)1992data*based on figures for 1992. Angus Maddison, Monitoring the World Economy (OECD, 1995)1 Relative to next largest (in parentheses).2 Relative to next largest (in parentheses). Excludes small wealthy countries like Switzerland and New Zealand.3 Relative to next highest (in parentheses). Excludes small highly productive economies like the