International Political Economy

University of Cambridge (2011)

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Course Handbook

Core Texts

Blyth, Mark (2009) Routledge Handbook of International Political Economy: IPE as a global conversation (London: Routledge)

Frieden, Jeffry & David A. Lake (2000) International Political Economy: perspectives on global power and wealth (London & NY: Routledge)
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    Introduction

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    1. State Power and the Structure of International Trade

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    2. The Political Economy of the Smoot-Hawley Tariff

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    3. Institutions and Economic Growth: an historical introduction

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    4. States, Firms and Diplomacy

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    15. The Triad and the Unholy Trinity: problems of international monetary co-operation

Krugman, Paul, Maurice Obstfeld & Marc Melitz (2012) International Economics: theory and policy (Boston, MA: Pearson)

Spero, J.E. & J.A. Hart (1997) The Politics of International Economic Relations (London: Routledge)


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Lectures

1. Markets and National Borders

Introducing Economics, International Economics, IPE, GPE

As a co-ordination mechanism for delivering the highest possible standards of living, markets work better, the larger and more “crowded” they are: this is the powerful, if paradoxical, message of Adam Smith’s “invisible hand” (the liberal view). The implicit cosmopolitanism of this vision stands in intrinsic tension with views of international relations which place state interests in general, and power in particular, centre stage (the realist view); while a further analytical divide arises between these approaches, and the study of the world economy as a conflict between capital and labour (the marxist view). These introductory lectures highlight those elements within each perspective, which provide the main analytical themes for the rest of the course.

Reading

Required Reading

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Frieden, J.A. & Lake, D.A. (1995) ‘Introduction: International Politics and International Economics,’ in Frieden & Lake, International Political Economy: perspectives on global power and wealth (London: Routledge), Introduction

Hirschman, Albert Otto (1980) National Power and the Structure of Foreign Trade (Berkeley: University of California Press), Ch.1 ‘Economic Thought on the Relationship between Foreign Trade and National Power,’ p.3-29

Kitson, Michael & Jonathan Michie (1995) ‘Trade and Growth: an historical perspective,’ in Jonathan Michie & John Grieve-Smith (eds) Managing the Global Economy (Oxford: OUP)

Recommended Reading

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Di Tella, Rafael & Robert MacCulloch (2009) ‘Why Doesn’t Capitalism Flow to Poor Countries?’ Brookings Papers on Economic Activity, (Spring 2009), pp.285-321

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Mankiw, N. Gregory (2006) ‘The Macroeconomist as Scientist and Engineer,’ The Journal of Economic Perspectives, Vol.20, No.4, pp.29-46

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Olson, Mancur Jr (1996) ‘Big Bills Left on the Sidewalk: Why some nations are rich and others poor,’ The Journal of Economic Perspectives, Vol.10, No.2, pp.3-24

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Person, Torsten & Guido Tabellini (2004) ‘Constitutions and Economic Policy,’ The Journal of Economic Perspectives, Vol.18, No.1, pp.75-89

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Simmons, Beth, Frank Dobbin & Geoffrey Garrett (2006) ‘Introduction: The International Diffusion of Liberalism,’ International Organization, Vol.60, No.4, pp.781-810

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Simon, Herbert A. (1991) ‘Organizations and Markets,’ The Journal of Economic Perspectives, Vol.5, No.2, pp.25-44

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Stiglitz, Joseph (1998) ‘The Private Uses of Public Interests: incentives and institutions,’ The Journal of Economic Perspectives, Vol.12, No.2, pp.3-22

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2. Explaining International Trade and International Investment

Efficiency of production depends on the division of labour into specialised tasks; both the division of labour, and the range of consumer choice, are limited by the size of the market. Comparative advantage is the fundamental principle identifying “who gets to produce what” as previously segmented national markets become integrated – the international division of labour…The implications of market integration for the incomes of different social groups are explored both empirically and through the model of factor price equalisation; special attention is given to the emergence of a system of international production, largely organised within multinational enterprises (MNEs) through a mixture of internal quasi-markets and hierarchy.

Reading

Required Reading

Williamson, J. & C. Milner (1991) The World Economy: a textbook in international economics, Chapters 11 & 12

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Dunning, J.H. (2000) ‘The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity,’ International Business Review, Vol.9, No.2, pp.163-190

Krugman, Paul & Maurice Obstfeld (2003) International Economics: theory and policy (Boston, MA: Addison-Wesley), Part 1, ‘International Trade Theory,’ pp.12-154

Recommended Reading

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Edwards, Sebastian (2004) ‘Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops,’ IMF Staff papers, Vol.51, IMF Fourth Annual Research Conference, pp.1-49

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Feldstein, Martin S. (1988) ‘Thinking About International Economic Cooperation,’ The Journal of Economic Perspectives, Vol.2, No.2, pp.3-13

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Summers, Lawrence H. (1999) ‘Reflections on Managing Global Integration,’ The Journal of Economic Perspectives, Vol.13, No.2, pp.3-18


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3. The Nation as an Economic Unit

National Output (GDP), macroeconomic management and the Balance of Payments

The system of national accounts provides the conceptual and empirical foundations of all discussions of economic performance, and a first aim of this part of the course is to familiarize students with measures of economic activity and standard of living; specifically, we highlight the role of the balance of payments within the national accounting framework and its increasing importance as a determinant of overall economic performance. Conflicting perspectives on the balance of payments – as an external constraint, as an insurance mechanism in the face of shocks, as a self- stabilizing system of transactions – are shown to be appropriate in specific historical circumstances.

Reading

Required Reading

Williamson, J. & C. Milner (1991) The World Economy: a Textbook in International Economics, Chapter 11

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Fieleke, Norman S. (1996) What is the Balance of Payments?, Federal Reserve of Boston, Special Report (November)

Kenen, Peter (2000) The International Economy, Chapters 1 & 2
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    1. Introduction

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    2. The Nation as an Economic Unit

SEE SIDEBAR

Krugman, Paul & Maurice Obstfeld (2012) International Economics: theory and policy (Boston, MA: Addison-Wesley), Part III, Chapter 1, ‘National Income Accounting and the Balance of Payments,’ pp.300-327

Recommended Reading

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Goldstein, Judith, Douglas Rivers & Michael Tomz (2007) ‘Institutions in International Relations: Understanding the effects of the GATT and the WTO on World Trade,’ International Organization, Vol.61, No.1 (Winter 2007), pp.37-67

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Krugman, Paul R. (1993) ‘What do Undergrads Need to Know About Trade?’ The American Economic Review, Vol.83, No.2 (May 1993), pp.23-26

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Prasad, Eswar, Raghuram Rajan & Arvind Subramanian (2007) ‘Foreign Capital and Economic Growth,’ Brookings Papers on Economic Activity, Vol.2007, No.1, pp.153-209

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Taylor, Alan & Mark Taylor (2004) ‘The Purchasing Power Parity Debate,’ The Journal of Economic Perspectives, Vol.18, No.4 (Autumn), pp.135-138

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Williamson, Jeffrey G. (1998) ‘Globalization, Labor Markets and Policy Backlash in the Past,’ The Journal of Economic Perspectives, Vol.12, No.4 (Autumn 1998), pp.51-72


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4. International Financial Architecture

Development and Prospects

It would be impossible to conceive of an advanced country operating satisfactorily without the nominal anchor of a sound monetary standard, and a complex and credible financial structure: historically, this has involved , at least since the 1930’s, a high degree of public regulation and supervision. At the international level, however, the core public functions of regulation, supervision, and lending of last resort are characterized by conflicts of competence which have in fact increased with the gradual transformation of the Bretton Woods institutions from multilateral guardians of a global order to specialised development agencies. How does the current constellation of deepening global private finance and national public regulation affect global growth and financial stability?

Reading

Required Reading

Bordo, Michael & lars Jonung (2000) ‘A Return to the Convertibility Principle? Monetary and Fiscal Regimes in Historical Perspective,’ European Commission: Economic and Financial Affairs Directorate, Brussels, Economic Paper 159, September

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Cohen, Benjamin (1995) ‘The Triad and the Unholy Trinity: problems of international monetary co-operation,’ in J.A. Frieden & D.A. Lake, International Political Economy: perspectives on global power and wealth (London: Routledge), pp.245-256

Krugman, Paul (1993) ‘What Do We Need to Know About the International Monetary System?’ (New Jersey: Princeton UP), Essays in International Finance, No.190, July, pp.1-25

Triffin, Robert (1991) ‘The IMS (International Monetary System – or Scandal?) and the EMS (European Monetary System – or Success?’ Banca Nazionale del Lavoro Quarterly Review, Vol.44, No.179 (December), pp.399-436

Recommended Reading

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Aliber, Robert Z. (2005) ‘The 35 Most Tumultuous Years in Monetary History: shocks, the transfer problem and financial trauma,’ IMF Staff papers, Vol.52, IMF Conference in honour of Michael Mussa (2005), pp.142-159

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Brune, Nancy, Geoffrey Garrett & Bruce Kogut (2004) ‘The International Monetary Fund and the Global Spread of Privatization,’ IMF Staff Papers, Vol.1, No.2, pp.195-219

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Chang, Ha-Joon & Ilene Grabel (2004) ‘Reclaiming Development from the Washington Consensus,’ Journal of Post-Keynesian Economics, Vol.27, No.2, (Winter 2004-2005), pp.273-291

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Easterly, William & Tobias Pfutze (2008) ‘Where does the Money Go? Best and worst practices in Foreign Aid,’ The Journal of Economic Perspectives, Vol.22, No.2 (Spring 2008), pp.29-52

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Cooper, Richard (2008) ‘Global Imbalances: globalisation, demography and sustainability,’ The Journal of Economic Perspectives, Vol.22, No.3 (Summer), pp.93-112

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Fischer, Stanley (2001) ‘Exchange Rate Regimes: Is the bipolar view correct?’ The Journal of Economic Perspectives, Vol.15, No.2 (Spring 2001), pp.3-24

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Prasad, Eswar & Raghuram Rajan (2008) ‘A Pragmatic Approach to Capital Account Liberalization,’ The Journal of Economic Perspectives, Vol.22, No.3 (Summer 2008), pp.149-172

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Williamson, John (1993) ‘Exchange Rate Management,’ The Economic Journal, Vol.103, No.416 (Jan 1993), pp.188-197

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Williamson, John (2004) ‘The Strange History of the Washington Consensus,’ Journal of Post-Keynesian Economics, Vol.27, No.2 (Winter 2004-05), pp.195-206


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Seminars

1. Economic Competitiveness

Competitiveness cannot be directly targeted by national governments. Where does that leave business and citizens?

The European Union’s “Lisbon Agenda” is the latest example of an economic strategy built around the concept of global competitiveness. This seminar discusses the danger of a “fallacy of composition” in which individual countries’ competitiveness objectives are defined in a way which is mutually incompatible (for example, in terms of a trade surplus) or economically inefficient (for example, trade balancing on a bilateral basis).

Reading

Best, Michael (1990) The New Competition: institutions of industrial restructuring (Cambridge: Polity Press), Chapter 9, ‘The New Competition: interpretations and challenges’

Kitson, Michael & Jonathan Michie (2000) The Political Economy of Competitiveness: Essays on employment, public policy and corporate performance (London: Routledge)

Krugman, Paul (1994) ‘Competitiveness: A dangerous obsession?’ in Pop Internationalism (Cambridge & London: MIT Press)


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2. Fewer Monies, Better Monies?

The importance of macroeconomic stabilisation policy by national governments has been a contentious issue; in recent times, its basic context has been that of a choice between nationally chosen, but “independent” central bankers, and the delegation of monetary policy (and, implicitly, of fiscal policy too) to an extra-national decision mechanism (dollarization, EMU). This seminar extends the discussion of Lectures 5- 6 by introducing explicitly the concept of an optimum currency area.

Reading

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Dornbusch, R. (2001) ‘Fewer Monies, Better Monies,’ Cambridge, MA., National Bureau of Economic Research, No.8324

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McNamara, Kathleen (1999) ‘Consensus and Constraint: Ideas and capital mobility in European Monetary Integration,’ Journal of Common Market Studies, Vol.37, No.3 (Sept), pp.455-476

McCombie, J. & A.P. Thirlwall (1993) Economic Growth and the Balance of Payments Constraint (MacMillan)


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3. Development, Convergence and Aid

The strange case of the Washington Consensus

The conventional economic analysis of growth implies a natural convergence in living standards, and eventually in growth rates, between countries. In practice, convergence is observed only rarely – a fact which has already generated important consequences for our understanding of the sources of economic growth, and is beginning to impact the policy advice given by international financial institutions, and the strings attached to development aid.

Reading

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Stiglitz, Joseph E. (2004) ‘Capital Market Liberalisation, Globalization and the IMF,’ Oxford Review of Economic Policy, Vol.20, No.1 (Spring), pp.57-71

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Williamson, J. (2000) ‘What Should the World Bank Think about the Washington Consensus?’ World Bank Research Observer, Vol.15, No.2 (Aug), pp.251-264

Easterly, W. (2001) The Elusive Quest for Growth: Economists’ adventures and misadventures in the tropics (Cambridge & London: MIT Press), pages xiii & 342

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