 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

 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

“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 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)

 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

 “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.

 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 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

 Realist view: no influence of institutions Power and Interests International Institutions Behavior and Outcomes

 Realist view: no influence of institutions  Institutionalist view: institutions may influence Power and Interests International Institutions Behavior and Outcomes Power and Interests International Institutions Behavior and Outcomes

 Coordination games ◦ Humorous version / non-humorous version Humorous versionnon-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

COLUMN Decrease Tariffs Increase Tariffs ROW Decrease Tariffs C gets SOLID growth R gets SOLID growth C gets HIGH growth R gets LOW growth Increase Tariffs C gets LOW growth R gets HIGH growth C gets SLOW growth R gets SLOW growth

FRANCE Pilots and ATC Speak English Pilots and ATC Speak French US Pilots and ATC Speak English No Crashes BUT High Training Costs No Crashes AND No Training Costs Crashes AND High Training Costs Crashes AND No Training Costs Pilots and ATC Speak French Crashes AND No Training Costs Crashes AND High Training Costs No Crashes AND No Training Costs No Crashes BUT High Training Costs

 Manage complexity  Reduce transaction costs  Create rules  Increase reciprocity  Improve information  Create/strengthen norms

 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

Treaty In Force

COUNTERFACTUAL: Predicted Emissions if Treaty Wasn’t Signed

Treaty In Force Success of Treaty Relative to COUNTERFACTUAL COUNTERFACTUAL: Predicted Emissions if Treaty Wasn’t Signed

Treaty In Force GOAL: Emissions Level Treaty Sought to Achieve

Treaty In Force GOAL: Emissions Level Treaty Sought to Achieve Failure of Treaty Relative 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

“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

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

 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