The Four Most Important Things to Know about IPE

 

IMPORTANT THING #1

The three main components of the international economic system are the IMS, ITS, and IF & II.

 

(1) The International Monetary System

·        The means for exchanging currency or money between countries
 

(2) The International Trade System

·        The system of exchange of goods and services between countries

·      2 types of trade: merchandise and service

 

(1) International Finance and Investment

·        Foreign Direct Investment (FDI)

·        Foreign Portfolio Investment (FPI)

 

 

 

 

 

 

 

 

 

IMPORTANT THING #2

The system is highly interdependent.
 

For currency:

·        Daily-$1.5 Trillion flows through the system

·        As much as $548 Trillion/year flows through the system

·        2/3 of that goes through banking centers in just 4 countries:  US, UK, Germany, and Japan

·        For bigger economies, or those with lots of debt, that can potentially devastate the entire system

         -For example-the Asian Flu Crisis 1997-1998

For trade:

·        1913-world trade totaled $20 B

·        2002-world trade totaled $7.9 T

 

For investment:

·        FDI and FPI have increased considerably since WWII

·        FDI-$10T+ globally

·        Investment is not evenly distributed

 

 

 

 

 

 

 

IMPORTANT THING #3

The Global North largely dominates what happens in international economy. 

 

Domination is reinforced in primarily three ways:

 

1)  Through the organizations it created

A) International Monetary Fund (IMF)

• Created at the Bretton Woods with the Bretton Woods Agreement in 1944

B) International Bank for Reconstruction and Development (IBRD) aka World Bank (WB)

• Created at the Bretton Woods with the Bretton Woods Agreement in 1944

C) General Agreement on Tariffs & Trade (GATT) established in 1947-->World Trade Organization 1994

(2) Multinational Corporations (MNCs) are significant international actors that are primarily based in the Global North

        Characteristics of MNCs:

1)  Lots of money, power, and mobility

2)  Transnationality gives them unbounded mobility

3)  They influence jobs, growth, and prospects for development

4)  They challenge tradition—they are the transmitters of culture and values

5)  They strongly impact other actors in the world

 

3)  By using trade as a political tool through economic sanctions

• Economic sanctions are used as a way to try to push countries into changing their policies

 

 

 

 

 

 

 

 

 

IMPORTANT THING #4

There are huge disparities in the system between the Global North and the Global South

 

For currency:

·        There are huge disparities between the EDCs and LDCs in terms of the amount of money they have, that goes through their banks, monetary stability, need for assistance, and debt restructuring

 

For trade:

·        Trade has not occurred evenly throughout the world

o       EDCs-76% of all trade

o       LDCs-24% of all trade (most of this from NICs)

 

For investment:

·        N benefits, S few investors

·        MNCs are measured in GCP-gross corporate product (total revenue a company makes in a year)

        ·        2002-Wal-Mart moved into top position earning

o       In 2003, Wal-Mart earned $246.3 B in GCP

     ---It ranks just slightly higher than Belgium's GDP

     ---In 2003, if Wal-Mart was a country, it would have ranked as the 16th wealthiest in the world
---Wal-Mart doesn’t manufacture, it’s a retailer

·        MNCs are overwhelmingly based in the North

o       Of the top 500, 95% are owned by N, ½ are American or Japanese with all but 5% of the rest held by EDCs