Table of Contents
INTERNATIONAL FINANCE AND THE ECONOMICS OF THE IMF..........................................................2
GLOBAL PUBLIC GOODS/THE BALANCE OF PAYMENTS.................................................................................2
INTERNATIONAL ECONOMICS: A GLOBAL PUBLIC GOODS APPROACH......................................................................2
THE CONCEPT OF THE BALANCE OF PAYMENTS.................................................................................................4
IF1 - TRADITIONAL CASE FOR FREE CAPITAL MOBILITY..................................................................................8
DEFINING AND MEASURING CAPITAL ACCOUNT OPENNESS..................................................................................9
GLOBAL CAPITAL FLOWS.............................................................................................................................10
EXPLANATORY FRAMEWORK.......................................................................................................................15
POLICY IMPLICATIONS................................................................................................................................17
IF 2 - EXCHANGE RATE ECONOMICS.......................................................................................................18
EXCHANGE RATES.....................................................................................................................................18
EXCHANGE RATE REGIMES/POLICIES: FLEXIBLE................................................................................................18
OTHER EXCHANGE RATE REGIMES................................................................................................................19
EFFECTIVE EXCHANGE RATE........................................................................................................................20
SPOT VERSUS FORWARD EXCHANGE RATES....................................................................................................20
FORWARD GIVE RISE TO INTEREST RATE PARITIES............................................................................................21
IF3 - FINANCIAL CRISIS.......................................................................................................................24
TYPES OF FINANCIAL CRISIS.........................................................................................................................24
THE IMF FROM AN INTERNATIONAL CRISIS PREVENTION AND MANAGEMENT PERSPECTIVE......................................30
IF4 - INTERNATIONAL MONETARY SYSTEM..............................................................................................32
INTERNATIONAL FINANCIAL CRISES IN PRACTICE..............................................................................................32
LESSONS FOR THE INTERNATIONAL MONETARY SYSTEM..................................................................................37
INTERNATIONAL TRADE THEORY, PRACTICE, POLICY, AND INSTITUTIONS ......................................44
IT 1 – WTO....................................................................................................................................44
WHAT IS THE WTO?................................................................................................................................44
TWO COLLECTIVE ACTION PROBLEMS............................................................................................................47
PREFERENTIAL TRADE AGREEMENTS (PTAS)..................................................................................................48
POLITICAL ECONOMY OF TRADE AGREEMENTS................................................................................................49
IT 2 - TRADE, TRADE POLICY & THE GLOBALIZATION PROCESS......................................................................52
PART 1: GLOBALIZATION AND THE EVOLUTION OF TRADE..................................................................................53
PART 2: WHY DO COUNTRIES TRADE?...........................................................................................................60
IT 3 - THE POLITICAL ECONOMY OF TRADE POLICY....................................................................................66
1 - TRADE POLICIES FROM A HISTORICAL PERSPECTIVE.....................................................................................66
2 - THE TAKE-OFF OF ASIA & THE EAST ASIAN MIRACLE..................................................................................67
3 - INTERNATIONAL TRADE POLICY AND POLITICAL ECONOMY CONSIDERATIONS....................................................69
THE GLOBALIZATION TRILEMMA AND POLITICAL ECONOMY................................................................................75
IT 4 - THE TRADE-GROWTH NEXUS: RECENT IMPLICATIONS & COVID-19 EFFECTS............................................78
1- THE TRADE-GROWTH NEXUS...................................................................................................................78
2-SOME STYLIZED FACTS ABOUT POVERTY INCIDENCE (TRENDS).........................................................................79
3-TRADE, GROWTH AND POVERTY: THE LINKAGES...........................................................................................81
4-TRADE AND POVERTY EMPIRICAL EVIDENCE AND EMERGING POLICY ISSUES.......................................................83
,5-TRADE AND THE COVID19 PANDEMIC: STYLIZED FACTS, TRENDS AND POLICY CHALLENGES: THE IMPACT OF THE
UKRAINE WAR.........................................................................................................................................85
EXAM QUESTIONS..........................................................................................................................91
INTERNATIONAL FINANCE....................................................................................................................91
INTERNATIONAL TRADE.......................................................................................................................92
SAMENVATTING IEO 2023 – 2024
, INTERNATIONAL FINANCE AND THE ECONOMICS OF THE
IMF
GLOBAL PUBLIC GOODS/THE BALANCE OF PAYMENTS
INTERNATIONAL ECONOMICS: A GLOBAL PUBLIC GOODS APPROACH
BASIC CHARACTERISTICS OF A (PURE) PUBLIC GOOD
o Non-exclusion even if people don’t want to pay for it ( exclusive =
you have to pay)
o Non-rivalry in consumption consumption of one person doesn’t exclude
the consumption of the other
o Examples: infrastructure, made by public sector, clean air, streetlight,
lighthouse, transportation, security (opposite = private good produced by
the market)
Pure public goods are non-exclusive and non-rivalry but there is a problem:
Market agents can’t force people to pay for it once produced.
In practice, pure public goods don’t exist.
- Quasi-public goods: goods that have one characteristic, but not the other
one. (ex. security in the NATO, easy to exclude states).
- Joint products: things that are both public and private (infrastructure,
education, transport)
Free riding because of under-provision
- There is no relying on the market system to produce the supply of these
desirable products because it would result in under provision due to the
characteristics of a public good.
Solution: intervention by a public actor (government intervention through
taxes, rules, institutions, agreements to be able to provide these public goods
and solve the market failure (under provision).
- Stepping in instead of the private sector and supplying the good instead
(direct)
- Through less costly ways by trying to influence and regulate private sector
behavior and subsidize actions so that the private sector is incentivized to
produce these particular goods/services (indirect)
GLOBAL CONTEXT global public goods
Some problems are global by nature (ex. pollution) because it exceeds
international borders = transnational.
- Free riding also exists on the international level.
- Ex. Why should I pay for clean air if someone else does it?
, Global/supranational institutions, solutions, interventions, institutions,
agreements to solve this problem on the global level.
National institutions are taken to an international level because free-riding and
under-provision by states will happen, and that’s why rules are also needed on
international level.
Global public good (environmental stability) bad = problematized GPG
(climate change)
DIFFERENT TECHNOLOGIES OF PROVISION
1) Summation = total aggregate supply = sum individual contributions
For example – pollution: every action matters and will have effect, when
every state reduces waste. We have to motivate that each state
contributes because each state has a stake in this Policy message
(together)
2) Weakest link = the individual with the lowest contribution affects the
aggregate of the total result
For example – island: surrounded by sea and evenly divided. We need
protection for rising sea levels & flooding, so we need to build dikes. If
each part takes different measures, the level of protection equals the level
of the lowest wall.
Global financial crisis starts in a particular country, but spills over in other
countries because of transnational relationships. Each country can have
their own mechanisms, but the total level of protection = level of
protection of the weakest link (USA during the 2008 crisis).
policy message: target the weakest link, to not waste resources.
3) Best shot = aggregate result is decided by the one with the highest
contributions.
For example – vaccines/drugs: focus the money on those who have the
highest chance of solving the problem policy message.
each technology has a different impact on the result or policy of the
production of GPGS.
APPLICATION TO INTERNATIONAL ECONOMICS
because of global transnational transactions, risks occur global mechanism
is needed to cure problems
o Rules on trade
o International financial stability (=GPG GPB = global financial crisis)
IMF = institution for the provision of global financial stability which is a global
public good (did they realize thir mission statement?)
o Optimal capital provision
= some states have more/less resources than others for development.
There’s a desire for a mechanism for poorer states to have access to
INTERNATIONAL FINANCE AND THE ECONOMICS OF THE IMF..........................................................2
GLOBAL PUBLIC GOODS/THE BALANCE OF PAYMENTS.................................................................................2
INTERNATIONAL ECONOMICS: A GLOBAL PUBLIC GOODS APPROACH......................................................................2
THE CONCEPT OF THE BALANCE OF PAYMENTS.................................................................................................4
IF1 - TRADITIONAL CASE FOR FREE CAPITAL MOBILITY..................................................................................8
DEFINING AND MEASURING CAPITAL ACCOUNT OPENNESS..................................................................................9
GLOBAL CAPITAL FLOWS.............................................................................................................................10
EXPLANATORY FRAMEWORK.......................................................................................................................15
POLICY IMPLICATIONS................................................................................................................................17
IF 2 - EXCHANGE RATE ECONOMICS.......................................................................................................18
EXCHANGE RATES.....................................................................................................................................18
EXCHANGE RATE REGIMES/POLICIES: FLEXIBLE................................................................................................18
OTHER EXCHANGE RATE REGIMES................................................................................................................19
EFFECTIVE EXCHANGE RATE........................................................................................................................20
SPOT VERSUS FORWARD EXCHANGE RATES....................................................................................................20
FORWARD GIVE RISE TO INTEREST RATE PARITIES............................................................................................21
IF3 - FINANCIAL CRISIS.......................................................................................................................24
TYPES OF FINANCIAL CRISIS.........................................................................................................................24
THE IMF FROM AN INTERNATIONAL CRISIS PREVENTION AND MANAGEMENT PERSPECTIVE......................................30
IF4 - INTERNATIONAL MONETARY SYSTEM..............................................................................................32
INTERNATIONAL FINANCIAL CRISES IN PRACTICE..............................................................................................32
LESSONS FOR THE INTERNATIONAL MONETARY SYSTEM..................................................................................37
INTERNATIONAL TRADE THEORY, PRACTICE, POLICY, AND INSTITUTIONS ......................................44
IT 1 – WTO....................................................................................................................................44
WHAT IS THE WTO?................................................................................................................................44
TWO COLLECTIVE ACTION PROBLEMS............................................................................................................47
PREFERENTIAL TRADE AGREEMENTS (PTAS)..................................................................................................48
POLITICAL ECONOMY OF TRADE AGREEMENTS................................................................................................49
IT 2 - TRADE, TRADE POLICY & THE GLOBALIZATION PROCESS......................................................................52
PART 1: GLOBALIZATION AND THE EVOLUTION OF TRADE..................................................................................53
PART 2: WHY DO COUNTRIES TRADE?...........................................................................................................60
IT 3 - THE POLITICAL ECONOMY OF TRADE POLICY....................................................................................66
1 - TRADE POLICIES FROM A HISTORICAL PERSPECTIVE.....................................................................................66
2 - THE TAKE-OFF OF ASIA & THE EAST ASIAN MIRACLE..................................................................................67
3 - INTERNATIONAL TRADE POLICY AND POLITICAL ECONOMY CONSIDERATIONS....................................................69
THE GLOBALIZATION TRILEMMA AND POLITICAL ECONOMY................................................................................75
IT 4 - THE TRADE-GROWTH NEXUS: RECENT IMPLICATIONS & COVID-19 EFFECTS............................................78
1- THE TRADE-GROWTH NEXUS...................................................................................................................78
2-SOME STYLIZED FACTS ABOUT POVERTY INCIDENCE (TRENDS).........................................................................79
3-TRADE, GROWTH AND POVERTY: THE LINKAGES...........................................................................................81
4-TRADE AND POVERTY EMPIRICAL EVIDENCE AND EMERGING POLICY ISSUES.......................................................83
,5-TRADE AND THE COVID19 PANDEMIC: STYLIZED FACTS, TRENDS AND POLICY CHALLENGES: THE IMPACT OF THE
UKRAINE WAR.........................................................................................................................................85
EXAM QUESTIONS..........................................................................................................................91
INTERNATIONAL FINANCE....................................................................................................................91
INTERNATIONAL TRADE.......................................................................................................................92
SAMENVATTING IEO 2023 – 2024
, INTERNATIONAL FINANCE AND THE ECONOMICS OF THE
IMF
GLOBAL PUBLIC GOODS/THE BALANCE OF PAYMENTS
INTERNATIONAL ECONOMICS: A GLOBAL PUBLIC GOODS APPROACH
BASIC CHARACTERISTICS OF A (PURE) PUBLIC GOOD
o Non-exclusion even if people don’t want to pay for it ( exclusive =
you have to pay)
o Non-rivalry in consumption consumption of one person doesn’t exclude
the consumption of the other
o Examples: infrastructure, made by public sector, clean air, streetlight,
lighthouse, transportation, security (opposite = private good produced by
the market)
Pure public goods are non-exclusive and non-rivalry but there is a problem:
Market agents can’t force people to pay for it once produced.
In practice, pure public goods don’t exist.
- Quasi-public goods: goods that have one characteristic, but not the other
one. (ex. security in the NATO, easy to exclude states).
- Joint products: things that are both public and private (infrastructure,
education, transport)
Free riding because of under-provision
- There is no relying on the market system to produce the supply of these
desirable products because it would result in under provision due to the
characteristics of a public good.
Solution: intervention by a public actor (government intervention through
taxes, rules, institutions, agreements to be able to provide these public goods
and solve the market failure (under provision).
- Stepping in instead of the private sector and supplying the good instead
(direct)
- Through less costly ways by trying to influence and regulate private sector
behavior and subsidize actions so that the private sector is incentivized to
produce these particular goods/services (indirect)
GLOBAL CONTEXT global public goods
Some problems are global by nature (ex. pollution) because it exceeds
international borders = transnational.
- Free riding also exists on the international level.
- Ex. Why should I pay for clean air if someone else does it?
, Global/supranational institutions, solutions, interventions, institutions,
agreements to solve this problem on the global level.
National institutions are taken to an international level because free-riding and
under-provision by states will happen, and that’s why rules are also needed on
international level.
Global public good (environmental stability) bad = problematized GPG
(climate change)
DIFFERENT TECHNOLOGIES OF PROVISION
1) Summation = total aggregate supply = sum individual contributions
For example – pollution: every action matters and will have effect, when
every state reduces waste. We have to motivate that each state
contributes because each state has a stake in this Policy message
(together)
2) Weakest link = the individual with the lowest contribution affects the
aggregate of the total result
For example – island: surrounded by sea and evenly divided. We need
protection for rising sea levels & flooding, so we need to build dikes. If
each part takes different measures, the level of protection equals the level
of the lowest wall.
Global financial crisis starts in a particular country, but spills over in other
countries because of transnational relationships. Each country can have
their own mechanisms, but the total level of protection = level of
protection of the weakest link (USA during the 2008 crisis).
policy message: target the weakest link, to not waste resources.
3) Best shot = aggregate result is decided by the one with the highest
contributions.
For example – vaccines/drugs: focus the money on those who have the
highest chance of solving the problem policy message.
each technology has a different impact on the result or policy of the
production of GPGS.
APPLICATION TO INTERNATIONAL ECONOMICS
because of global transnational transactions, risks occur global mechanism
is needed to cure problems
o Rules on trade
o International financial stability (=GPG GPB = global financial crisis)
IMF = institution for the provision of global financial stability which is a global
public good (did they realize thir mission statement?)
o Optimal capital provision
= some states have more/less resources than others for development.
There’s a desire for a mechanism for poorer states to have access to
