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6.0. International Political Economy

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					6.0. International Political Economy


Learning Objectives:
  – Familiar with the subject matter of IPE
  – Understand the principle relationships
    between the economic realm and the
    political realm in an international context
  – Understand the theory of Comparative
    Advantage
6.0. International Political Economy


What is IPE?
The Growth of IPE
  6.1. The Beginning of Globalization:
        Liberal Economic Theory

Guiding Principles: the building of the Liberal
 International Economic Order
  6.1. The Beginning of Globalization:
        Liberal Economic Theory

Guiding Principles: the building of the Liberal
 International Economic Order
  – Trade!
  6.1. The Beginning of Globalization:
        Liberal Economic Theory

Guiding Principles: the building of the Liberal
 International Economic Order
  – The theory of absolute advantage
                 Absolute Advantage
   (two countries, two products, one production input (labour)

                   1 roll of cloth            1 Bushel of wheat

   Canada          9 hours                    7 hours (more efficient)

   India           3 hours (more efficient)   12 hours




• If Canada and India trade, both countries can divert
  labour to the good they produce most efficiently. For
  example:
   – Canada diverts 100 hours of labour from cloth production to
     wheat
   – India diverts 100 hours of labour from wheat production to
     cloth
                 Absolute Advantage
(two countries, two products, one production input (labour)

                       Rolls of cloth          Bushels of wheat

Canada (100 hours     -11 rolls (-100 hours    +14 bushels (+100 hours
from cloth production divided by 9)            divided by 7)
to wheat)

India (100 hours       +33 rolls (+100 hours   -8 bushels (-100 hours
from wheat             divided by 3)           divided by 12)
production to cloth)



• Net gain from trade for Canada and India: 22 rolls of
  cloth and 6 bushels of wheat
  6.1. The Beginning of Globalization:
        Liberal Economic Theory

Guiding Principles: the building of the Liberal
 International Economic Order
  – The theory of comparative advantage: the
    cornerstone of liberal economic theory and
    the basis of the world trading system!
             Comparative Advantage
   (two countries, two products, one production input (labour)

                   1 roll of cloth            1 Bushel of wheat

   Canada          9 hours                    7 hours

   Mexico          3 hours (more efficient)   6 hours (more efficient)



• Mexico has absolute advantage in cloth and wheat
• Canada has comparative advantage in wheat
• If Canada and Mexico trade, both countries can divert
  labour to the good they produce comparatively
  efficiently. For example:
   – Canada diverts 100 hours of labour from cloth production to
     wheat
   – India diverts 50 hours of labour from wheat production to
     cloth
            Comparative Advantage
(two countries, two products, one production input (labour)

                       Rolls of cloth         Bushels of wheat

Canada (100 hours     -11 rolls (-100 hours   +14 bushels (+100 hours
from cloth production divided by 9)           divided by 7)
to wheat)

Mexico (50 hours       +17 rolls (+50 hours   -8 bushels (-50 hours
from wheat             divided by 3)          divided by 6)
production to cloth)



• Net gain from trade for Canada and Mexico: 6 rolls of
  cloth and 6 bushels of wheat
    6.1. The Beginning of Globalization:
          Liberal Economic Theory


Guiding Principles: the building of the
 Liberal International Economic Order
  – System wide gains from trade
    6.1. The Beginning of Globalization:
          Liberal Economic Theory


Guiding Principles: the building of the
 Liberal International Economic Order
  – Problems and challenges arising from
    trade
  6.1. The Beginning of Globalization:
        Liberal Economic Theory

Guiding Principles: the Liberal Economic
 Framework from Bretton Woods to the
 Washington Consensus
     Trade (mutually beneficial exchange)
     Comparative Advantage
     Rules and Institutions
                  Summary
•   At the end of this class, you should be able to
    describe the subject matter of IPE.
•   You should be familiar with the relationship
    between the economic realm and the political
    realm in an international context.
•   You should understand and be able to
    describe the theory of absolute advantage and
    the theory of comparative advantage.
•   You should be familiar with the central
    concepts of the Liberal economic framework.

				
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