Global economic integration Trade and investment

Today News Your research paper: Reform the UNReform the UN Trade and Investment (Henry Nau, chapter 10) Key terms Theory of Comparative Advantage What does trade actually do?  More peaceful relations?  Contribute to domestic development? 4/4/2008

Global Economic Issues Global Trade Globalization World Trade Organization (WTO) Organization for Economic Co- operation and Development (OECD) Regional trade regimes Global Development North-South Gap World Bank and other development agencies Non-governmental organizations (e.g. CARE, Oxfam, etc.) 4/4/2008

Some key terms I Henry Nau, chapters 8-10 Marshall Plan: U.S. aid to Europe after WW II, Newly industrializing countries (‘Asian Tigers’)  Taiwan, Singapore, Hong Kong, South Korea Import substitution: a policy designed to produce imported products at home Protectionism: policy designed to limit imports Strategic trade: state policies to maximize trade Mercantilism: realist trade policy (focused on national interests) 4/4/2008

Some key terms II Henry Nau, chapters 8-10 Tariffs: taxes on imports Non-tariff barriers: measures designed to discourage imports Most-Favored Nation Status (MFN): Lower tariffs have to be offered to all WTO members (WTO rule) Generalized System of Preferences (GPS): Tariff preferences for developing nations. TRIPs: trade related intellectual property issues (WTO) Washington Consensus: market-based restructuring of economies 4/4/2008

Division of Labor How does specialization create wealth?  streamlining production (Nau, p. 259)  Efficient use of labor force  ‘Invisible hand’ of the market Main conditions  Free trade and markets  Limited government: education and defense 4/4/2008

Does trade destroy jobs? Nau, p. 264/5  Claim: Trade destroys low-skilled labor, creates higher-skilled jobs. Trade increases productivity and efficiency.  Claim: There is no ‘race to the bottom.’ Only low-skilled labor looses out. Trade eventually levels the playing field on wages (Hecksher-Ohlin theory).  What do you think? 4/4/2008

Next week Development  Why are some countries richer than others?  What explains development?  What are the sources of underdevelopment? Domestic: corruption, infrastructure International: terms of trade, legacy of colonial rule  How/when does trade contribute to development? 4/4/2008