Wrap-up of IPE and free trade review◦ Gains from trade◦ Trade balances, in brief
“International institutions” readings takehomes
International Institutions/Regimes◦ What they are◦ Two competing views of their influence◦ Types of problems they resolve◦ Evaluating their effectiveness◦ Strategies for influencing state behavior
Outline
States, as a whole, GAIN from free trade◦ Because they specialize in what they do better
(i.e.,, cheaper) than other countries States must COOPERATE in international
institutions to achieve these gains from trade – it’s a PD, so won’t happen unilaterally
States create institutions only if focused on absolute gains *not* relative gains
Free trade helps consumers and exporters but harms import-competing sector
States get“gains from free trade”
But import-competing sectors are powerful
“For decades, Japan has defended its 778% tariffs on rice with a kind of religious zeal. Rice is a sacred crop, the government has argued, not open to trade negotiations. Its farmers are not just defenders of a proud agrarian heritage, but form the nation’s spiritual center as well.”
NYT, 9 January 2014
Trade deficits and surpluses Trade BALANCE = Exports - imports
◦ Country with more exports than imports has a trade SURPLUS
◦ Country with more imports than exports has a trade DEFICIT Country-by-country variation:
◦ China surplus with US/EU but deficit with Korea/Saudi Arabia◦ US deficit with China/EU; surplus with S. & C. America
Benefits of trade surplus: high employment because producing for own AND other countries
Benefits of strong currency: lower priced imports which makes trade deficit more likely
People as employees like trade surplus (more secure jobs) but as consumers like trade deficits (lower prices)
Trade balancesWhere do they come from Individual choices and free market: consumer
preferences and savings rate General economic status and demand for one’s
exports Government policies try to increase exports
while creating barriers to imports◦ Trade barriers on imports and subsidies on exports◦ Exchange rates: devaluing currency makes imports
less attractive locally and exports more attractive to foreigners
◦ Fiscal (taxes/expenditures) and monetary policies ◦ Industrial policy – help certain industries
Problems of trade deficits “Current account” deficits must be balanced
by “capital account” surpluses, i.e., country must borrow from other countries to finance purchases of imports that exceed income from exports.
Running a current account deficit makes a country vulnerable to foreign investors who may stop providing loans to finance current account deficit
Vulnerability to other countries
US Trade Deficit – We buy more from foreigners than we sell to them
But much of our trade deficit comes from buying foreign oil
Young & Osherenko, “Theories of regime formation”◦ Example of research in social sciences◦ Three types of hypotheses: power-based; interest-based;
knowledge-based Mearsheimer, “False promise of int’l institutions”
◦ States always concerned about relative gains; evidence doesn’t support institutional claims
◦ Rejecting BoP makes war more likely◦ Compare Mearsheimer today to Grieco on Thursday – both
are realists but responses to institutions are quite different Grieco article (for Thursday, on EU)
◦ First point -- intellectual honesty and willingness to examine own preferred theory carefully -- being an analyst rather than an advocate.
◦ Second point -- EU does not fit well with realist theory and yet still not throwing out the baby with the bathwater.
Readings: Takehome Messages
Institutions and Regimes (synonyms)◦ "Norms, procedures, rules agreed to … to regulate
an issue area" (Haas 1980, 397).◦ Cooperative effort by states to overcome
collective action problems International example: human rights
International Institutions
International institutions are more than just the rules (just like democracy is more than just the Constitution)◦ Written rules are PART of it, but only part◦ General norms◦ Actors involved◦ Processes◦ Expectations
International Institutions
Realist view: no influence of institutions
Theoretical Views of the Importance of Institutions
Power and Interests
International Institutions
Behavior and Outcomes
Realist view: no influence of institutions
Institutionalist view: institutions may influence
Theoretical Views of the Importance of Institutions
Power and Interests
International Institutions
Behavior and Outcomes
Power and Interests
International Institutions
Behavior and Outcomes
Coordination games◦ Humorous version / non-humorous version◦ Once rules agreed to, no reason to cheat◦ E.g., air traffic control, sea lanes
Collaboration games◦ Ongoing incentives to cheat◦ E.g., trade, arms control, environment
Upstream-downstream problems◦ Upstream state has no incentive to act
Normative “problems”◦ One/more state wants others to adopt their view
Four Types of ProblemsInstitutions Arise to Address
Collaboration (PD) GameInternational Trade
COLUMN
DecreaseTariffs
IncreaseTariffs
ROW
DecreaseTariffs
C gets SOLIDgrowth
R gets SOLIDgrowth
C gets HIGHgrowth
R gets LOWgrowth
IncreaseTariffs
C gets LOWgrowth
R gets HIGHgrowth
C gets SLOWgrowth
R gets SLOWgrowth
Coordination GameAir traffic control, Sea Lanes
FRANCE
Pilots and ATCSpeak English
Pilots and ATCSpeak French
US
Pilots and ATCSpeak English
No Crashes BUTHigh Training Costs
No Crashes ANDNo Training Costs
Crashes ANDHigh Training Costs
Crashes ANDNo Training Costs
Pilots and ATCSpeak French
Crashes ANDNo Training Costs
Crashes ANDHigh Training Costs
No Crashes ANDNo Training Costs
No Crashes BUT High Training Costs
Manage complexity Reduce transaction costs Create rules Increase reciprocity Improve information Create/strengthen norms
Functions of Institutions
Institutions can always be evaluated against TWO definitions of success◦ Goal achievement: Compare actual behavior (or
outcomes) to stated goal◦ Counterfactual: Compare actual behavior (or
outcomes) to what would have occurred otherwise
Evaluating Institutional Effectiveness
Archetypal Pollution Case
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Observed Estimated Counterfactual
Pollution Agreements:Evaluating Effectiveness
Treaty In Force
Archetypal Pollution Case
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Pollution Agreements:Evaluating Effectiveness
Treaty In Force
Archetypal Pollution Case
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Observed Estimated Counterfactual
Pollution Agreements:Evaluating Effectiveness
Treaty In Force
COUNTERFACTUAL:Predicted Emissions if Treaty Wasn’t Signed
Archetypal Pollution Case
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Observed Estimated Counterfactual
Pollution Agreements:Evaluating Effectiveness
Treaty In Force
Success of Treaty Relative to COUNTERFACTUAL
COUNTERFACTUAL:Predicted Emissions if Treaty Wasn’t Signed
Archetypal Pollution Case
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Observed Estimated Counterfactual
Pollution Agreements:Evaluating Effectiveness
Treaty In Force
GOAL:Emissions Level Treaty Sought to Achieve
Archetypal Pollution Case
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Observed Estimated Counterfactual
Pollution Agreements:Evaluating Effectiveness
Treaty In Force
GOAL:Emissions Level Treaty Sought to Achieve
Failure of TreatyRelative to GOAL
Was the Whaling Treaty a success?
“Having decided to conclude a convention to provide for the proper conservation of whale stocks and thus make possible the orderly development of the whaling industry” (ICRW, 1946)
Goal
Goal
“Having decided to conclude a convention to provide for the proper conservation of whale stocks and thus make possible the orderly development of the whaling industry” (ICRW, 1946)
Goal
Failure Relative To Goal
“Having decided to conclude a convention to provide for the proper conservation of whale stocks and thus make possible the orderly development of the whaling industry” (ICRW, 1946)
Counterfactual
Counterfactual
Success Relative To Counterfactual
Catch LOWER than would have been otherwise, allowing population to recover
But higher population allows MORE catch for longer than would have been possible otherwise
Counterfactual
Success Relative To Counterfactual
Goal
Failure Relative To Goal
Both a success and a failure
Institutions can always be evaluated against TWO definitions of success◦ Goal achievement: Compare actual behavior (or
outcomes) to stated goal◦ Counterfactual: Compare actual behavior (or
outcomes) to what would have occurred otherwise
Evaluating Institutional Effectiveness