Chapter 5 The Political Economy of Global Production and Exchange
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Chapter 6 Concepts Asian Free Trade Agreement (AFTA) Association of Southeast Asian Nations (ASEAN) Commercial Services Common Currency Emerging Economies European Union Eurozone Foreign Direct Investment (FDI) Flow
Stock Fragmentation of the value chain Breaking up various elements of the value chain and offshore outsourcing them to an independent firm usually operating in another nation. Freer trade versus free trade GATT/WTO Global Imbalances Global Investment Flows Global Production The production of goods and services by TNC in nations outside the home territory and for sale in other nations. These products need not cross borders to count as global production. Global and Regional Production Networks A new system of production involving a partnership of TNCs, governments and local firms to reorganize the scale and geography of production based on the capabilities of information technology. This requires creating local infrastructure and labor resources to attract FDI and a globalized management system operated by TNCs. This process is organized around national specialization in different elements of a fragmented value chain. Global network flagship firm A TNC engaged in the design, marketing and distribution of its products, and organizing and coordinating the production and design of these products through a variety of globally distributed suppliers that often are themselves global firms. Greenfield Investment Merchandise Trade Merger and Acquisition (M&A) Non-Tariff Barriers Offshore Outsourcing Preferential Trade Agreements (PTAs) Regional Trade Agreements Regional Comprehensive Economic Partnership Agreement (RCEP). Sovereign Wealth Fund (SWF) Special Economic Zone (SEZ) State Owned Enterprises (SOEs) Tradeable and non-tradeable sectors Transatlantic Trade and Investment Partnership (TTIP) Transnational Firms (TNCs) Trans-Pacific Partnership (TPP) Triad of Global Production World Trade Organization (WTO) Discussion Questions 1) What are some of the structural features of global trade? Triad of trade Regionalization of trade Regional specialization Concentration of trade Global imbalances 2) What do we mean by the political economy of trade? Here are some statements that can be discussed to help understand this idea: Explain the statement: “free trade is a political choice about the rules for economic interaction with the rest of the world.” Explain the statement: “free trade requires a system of political relations within and among nations that will support and sustain free trade, by emphasizing the gains and minimizing the losses, combined with global institutions to interpret and enforce the rules.” Explain the various ways to predict how economic interests are affected by trade. 3) How should we describe the actions to reduce trade barriers in the 20 years after World War II? Was this based on a clear commit to free trade? 4) Explain how the emerging system of trade rules based on regional trade agreements (RTAs), Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) poses a threat to the system based on the WTO. 5) Explain the political economy of how nations respond to the gains and losses from trade by discussing the following statements: “Though there are almost always important costs associated with the gains from trade, whether these costs are recognized and actions taken to ameliorate them is the result of a political process and therefore inconsistent from one nation to the next. Systems of political economy will act to reap certain gains because of the political strength of those groups positioned to obtain these gains. Costs are recognized when those who are hurt have the political leverage to get them recognized.” “At the same time, international trade and finance serve to engage and even help to formulate domestic interests. The expansion of global trade can lead existing firms and interests to press harder for free trade and even bring other firms’ interests into the free trade camp. And the political institutions of a society may be able to link interests across sectors. Here firms focused on trade and other firms focused on finance may have their interests linked through political parties, ministries and political entrepreneurs.“ “It is much easier to organize politically around a policy of protectionism – especially in societies like the U.S. and Japan, which emphasizes local interests – than around a policy of free trade. This is because the benefits of protection flow to a very specific group, which maintains its incomes as a result of such policies. The gains from free trade are much more diffuse and more difficult to identify, flowing mostly to consumers in the form of lower prices and more plentiful products. The gains may be large but are less concentrated and therefore less politically relevant.” 6) How do we explain the very large gaps in the amount of FDI received by different nations? 7) How valid is the effort to compare nations and firms in terms of the size of economic resources? What conclusions can we reach about the power of TNCs? 8) What are the objectives of TNCs in engaging in FDI? 9) Explain the special features of a global/regional production network (GPN). How is a GPN different from production systems in the past? 10) What are some of the most important consequences of GPNs? 11) Discuss the partnership relationship between governments and firms in creating GPNs. 12) Explain the nature of a preferential trade agreement and the effects this can have on economic and political relations among nations. 13) Discuss the gains and losses from trade and some of the policy implications that flow from how we measure these quantities. For Further Reading: John Dunning (ed.) Regions, Globalization, and the Knowledge-Based Economy, Oxford: Oxford University Press, 2000. An important examination of the role of knowledge in the global economy. John Dunning and Sarianna Lundan, Multinational Enterprises and the Global Economy, 2nd Ed. Cheltenham: Edward Elgar, 2008 One of the most important recent studies of multinational firms. Deborah Elms and Patrick Low (eds.), Global Value Chains in a Changing World, Geneva: WTO, 2013. A series of excellent articles. Michael Hiscox, International Trade and Political Conflict, Princeton: Princeton University Press, 2002. A lucid and comprehensive examination of the domestic political economy of trade. Martin Kenney and Richard Florida, Locating Global Advantage, Stanford: Stanford Business Books, 2004. Analysis of the process by which TNCs seek to create global competitive advantage. Thomas Murtha, et al. Managing New Industry Creation, Stanford: Stanford Business Press, 2001. A very useful analysis of the complexities of developing and producing a rapidly changing high technology product. UNCTAD, World Investment Report, 2013: Global Value Chains, New York: United Nations, 2013. A comprehensive analysis of FDI and the relationship to global value chains. Shahid Yusuf, et al. (eds.) Global Production Networking and Technological Change in East Asia, Washington: World Bank, 2004. An excellent collection of readings on GPNs in Asia. 1 Data in this and the next paragraph are from: Angus Maddison, Chinese Economic Performance in the Long Run, 2nd Ed. Washington: OECD, 2007, 44; Giovanni Arrighi, “China’s Market Economy in the Long Run,” in Ho-fung Hung (ed.) China and the Transformation of Global Capitalism, Baltimore: Johns Hopkins University Press, 2009, 23. 2 James Miles, “China: Rising Power, Anxious State,” The Economist, June 23, 2011, http://www.economist.com/node/18829149 3 The Economist, “Emerging vs. Developed Economies,” August 4, 2011, http://www.economist.com/blogs/dailychart/2011/08/emerging-vs-developed-economies 4 The Economist, “All in the Same Boat,” September 10, 2011, 82. 5 Both exports and imports for developed nations declined more in 2009 and recovered less in 2010 than for developing nations. World Trade Organization, World Trade Report, 2011, Table 1, 7, 22. Available at http://www.wto.org/english/res_e/publications_e/wtr11_e.htm 6 This special ability is discussed in Barry Eichengreen, Exorbitant Privilege, Oxford: Oxford University Press, 2011. 7 These events will be discussed in much greater detail in Chapter 6. 8 Bank for International Settlements, Annual Report 2011, 35. 9 Data from author’s calculations based on Bureau of Economic Affairs, http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=10&area_id=35 10 Helen Milner, “The Political Economy of International Trade,” Annual Review of Political Science, 2 (1999) 91-114. 11 Kevin O’Rourke, “Politics and Trade: Lessons from Past Globalisations,” Bruegel Essays and Lecture Series, 2009, who traces the patterns of global trade to a “military or political equilibrium among contending powers.” 12 Judith Stein, Pivotal Decade, New Haven: Yale University Press, 2011, 215-376. 13 John Gerard Ruggie, “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order.” International Organization, 36.2 (1982) 379-415. 14 Layna Mosley, Global Capital and National Governments, Cambridge: Cambridge University Press, 2003. 15 Dani Rodrik. The Globalization Paradox, New York: Norton, 2011, 71. 16 Charles Maier, "The Politics of Productivity: Foundations of American International Economic Policy after World War II,” International Organization, 31.4 (Autumn 1977) 607-633. 17 Judith Goldstein, “Creating the GATT Rules: Politics, Institutions, and American Policy,” in John Ruggie, (ed.) Multilateralism Matters, New York: Columbia University Press, 1993, 201-232; Joanne Gowa and Soo Yeon Kim, “An Exclusive Country Club: The Effects of the GATT on Trade, 1950-94,” World Politics, 57 (July 2005) 453-478; Eric Reinhart, “Adjudication Without Enforcement in GATT Disputes,” Journal of Conflict Resolution, 45.2 (April 2001) 174-195. 18 Gowa and Kim, “An Exclusive Country Club…;” and Arvind Subramanian and Shang-Jin Wei, “The WTO Promotes Trade, Strongly but Unevenly,” Journal of International Economics, 72 (2007) 151-175. A contrary conclusion about the effects of GATT/WTO on global trade is Andrew Rose, “Do We Really Know That the WTO Increases Trade?” American Economic Review, 94.1 (2004) 98-114. Also see, Michael Tomz, et al. “Do We Really Know That the WTO Increases Trade? Comment,” American Economic Review, (2007) 2005-2018. For additional evidence of a larger WTO effect, see Judith Goldstein, et al. “Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade,” International Organization, 61 (Winter 2007) 37-67. 19 Gilbert R. Winham, The Evolution of International Trade Agreements, Toronto: University of Toronto Press, 1992. 20 Windham, The Evolution…. John H. Barton, et al. The Evolution of the Trade Regime, Princeton: Princeton University Press, 2006. 21 Alan Deardorff, “Who Makes the Rules of Globalization?” in Elias Dinopoulos, Pravin Krishna, Arvind Panagariya, and Kar-yiu Wong, (eds.) Trade Globalization and Poverty, New York: Routledge, 2008, 173-186. 22 Jeffry Frieden and Lisa Martin, "International Political Economy: Global and Domestic Interactions," in Political Science: State of the Discipline, Ira Katznelson and Helen V. Milner, (eds.) New York: Norton, 2002, 118-146. Robert Putnam, “Diplomacy and Domestic Politics: The Logic of Two-Level Games,” International Organization, 42.3 (Summer 1988) 427-460. 23 For a comprehensive discussion of the political economy of trade, see Michael Hiscox, International Trade and Political Conflict, Princeton: Princeton University Press, 2002. 24 Edward Mansfield, et al. “Free to Trade: Democracies, Autocracies, and International Trade,” American Political Science Review, 94.2 (June 2000, 305-321; Xinyuan Dai, “Political Regimes and International Trade: The Democratic Difference Revisited,” American Political Science Review, 96.1 (March 2002, 159-165. 25 Hiscox, International Trade…. 26 One estimate is that 25% of global GDP is composed of the activities of transnational corporations. See UNCTAD, World Investment Report, 2011, New York: United Nations, 2011, 25. 27 John Dunning and Sarianna Lundan, Multinational Enterprises and the Global Economy, 2nd Ed. Cheltenham: Edward Elgar, 2008, 3-12. 28 The discussion of transnational financial firms will be concentrated in Chapter 7 below. 29 Economists distinguish between stock and flow for FDI. The flow refers to the amount in any single year. The stock of FDI is an accumulation of FDI investments made over a period of time and attempt to measure the total foreign direct investment in a nation. 30 Source: UNCTAD Annex Tables, No 7, http://www.unctad.org/Templates/Page.asp?intItemID=5545&lang=1 31 The data for GDP are in terms of purchasing power parity (PPP), adjusted to prices in the United States. 32 The Economist, “Big Oil’s Bigger Brothers,” October 29, 2011, 75-76. 33 Ian Bremmer, “State Capitalism Comes of Age,” Foreign Affairs, 88.3 (May/June 2009); UNCTAD, World Investment Report, 2011, 28-38. Adrian Woolridge, “The Visible Hand,” The Economist, January 21, 2012. 34 SWF Institute, http://www.swfinstitute.org/; The Economist, Foreign Reserves, January 12, 2012, http://www.economist.com/node/21542831 ; Ian Bremmer, The End of the Free Market, New York: Porfolio, 2010, 69-77. 35 Daniel Drezner, “Sovereign Wealth Funds and the (In)security of Global Finance,” Journal of International Affairs, 62.1 (Fall 2008) 115-130. 36 Giselle Datz, “Governments as Market Players: State Innovation in the Global Economy,” Journal of International Affairs, 62.1 (Fall 2008) 35-49; Brad Setser, “A Neo-Westphalian International Financial System,” Journal of International Affairs, 62.1 (Fall 2008) 17-34. 37 Edward Tse, “The China Challenge,” Strategy + Business, 58 (Spring 2010) 3-4. 38 Steve Lohr, “Global Strategy Stabilized IBM During Downturn,” New York Times, April 19, 2010. 39 John Dunning (ed.) Regions, Globalization, and the Knowledge-Based Economy, Oxford: Oxford University Press, 2000; Thomas Murtha, et al. Managing New Industry Creation, Stanford: Stanford Business Press, 2001. 40 Personal computers improve at a rapid and somewhat predictable rate and have done so for more than fifty years. About every 18-24 months the processing power doubles at a constant cost. This is commonly known as “Moore’s Law,” named for Gordon Moore, a founder of the microprocessor firm Intel. Moore identified this pattern in the mid-1960s. 41 Marc Levinson, The Box, Princeton: Princeton University Press, 2006. Also see, Peter Dicken, Global Shift, 5th Ed. New York: Guilford, 2007, 73-105. 42 Nick Wingfield and Charles Duhigg, “Apple Lists Its Suppliers for First Time,” New Your Times, January 13, 2012: http://www.nytimes.com/2012/01/14/technology/apple-releases-list-of-its-suppliers-for-the-first-time.html?_r=1&scp=1&sq=apple%20suppliers&st=cse Charles Duhigg and Keith Bradsher, “How U.S. Lost Out on iPhone Work,” New York Times, January 21, 2012, http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?hp . Foxconn employs as many as one million workers in China. 43 Dieter Ernst and Linsu Kim, “Global Production Networks, Knowledge Diffusion, and Local Capability Formation,” Research Policy, 31 (2002) 1417-1429. 44 Wilfrid Ethier, “The New Regionalism,” Economic Journal, 108 (1998) 1149-1161; Peter Katzenstein and Takashi Shiraishi, (eds.) Beyond Japan: The Dynamics of East Asian Regionalism, Ithaca: Cornell University Press, 2006. Martin Kenney and Richard Florida, Locating Global Advantage, Stanford: Stanford Business Books, 2004. Importantly, some of these agreements have begun to include nations outside of a geographic region. 45 Steven Brooks, Producing Security, Princeton: Princeton University Press, 2005, 16-46. The largest part of “trade” is actually exchange between the various units of TNCs, the geography of which is defined by the investment actions of these TNCs and the production networks they organize. 46 Shahid Yusuf, et al. (eds.) Global Production Networking and Technological Change in East Asia, Washington: World Bank, 2004. 47 Xiaolan Fu and Yundan Gong, “Indigenous and Foreign Innovation Efforts and Drivers of Technological Upgrading: Evidence from China,” World Development, 39.7 (2011) 1213-1225; The Economist, “The Next Big Bet: Samsung,” October 1, 2011, http://www.economist.com/node/21530976 48 Amitav Acharya, “The Emerging Regional Architecture of World Politics,” World Politics, 59.4 (July 2007) 629-652. 49 WTO, World Trade Report, 2011, 40-197. 50 France, Germany, Italy, Belgium, Luxembourg, and the Netherlands. 51 Between 1973 and 1995, nine new members joined: Denmark, Ireland, United Kingdom, Greece, Spain, Portugal, Austria, Finland and Sweden. Then, from 2004-2013 thirteen new members joined: Bulgaria, Croatia, Czech Republic, Cyprus, Estonia, Latvia, Lithuania, Hungary, Malta, Poland, Romania, Slovakia, and Slovenia. 52 The membership of the Eurozone is not identical to the membership of the EU; some of the latter have chosen not to participate in the Eurozone. The nineteen members of the Eurozone in 2015 include: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain in 1999; Greece in 2001; and in the designated year, Slovenia (2007), Cyprus (2008), Malta (2008), Slovakia (2009), Estonia (2011),Latvia (2014) and Lithuania (2015). 53 See Chapter 8 for additional discussion of PTAs as a strategy of competitiveness. 54 Edward Mansfield and Eric Reinhardt, “Multilateral Determinants of Regionalism,” International Organization, 57 (Fall 2003) 829-862. 55 WTO, World Trade Report 2011, 66 and generally 52-71, http://www.wto.org/english/res_e/publications_e/wtr11_e.htm 56 WTO, World Trade Report, 2013, Geneva, 2013. A thorough review of the development and impact of PTAs can be found in WTO, World Trade Report, 2011, Geneva, 2011. Also important is Edward Mansfield and Jon Pevehouse, “The Expansion of Preferential Trade Arrangements,” International Studies Quarterly, 57 (2013) 592-604. 57 Mansfield and Pevehouse, “The Expansion of Preferential Trading Agreements ….” 58 Greg Ip, “The Gated Globe,” The Economist, October 12, 2013, http://www.economist.com/news/special-report/21587384-forward-march-globalisation-has-paused-financial-crisis-giving-way . The U.S. is negotiating with several Asian and Latin American nations in the Trans-Pacific Partnership (TPP) and with European Union in the Transatlantic Trade and Investment Partnership (TTIP). 59 The government of India had refused to ratify the agreement, but a subsequent negotiation with the United States may have cleared the way for a final agreement. 60 This is a long-standing issue for the United States, extending back at least thirty years to a similar problem with Japan and other Asian nations. We will consider these issues in more detail in Chapter 10. Steve Lohr, “Maybe Japan Was Just a Warm-up,” New York Times, January 21, 2011, http://www.nytimes.com/2011/01/23/business/23japan.html?_r=1&scp=1&sq=steve%20lohr%20Maybe%20Japan%20Was%20Just%20a%20Warm-Up&st=cse 61 David H. Autor, et al. “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” unpublished paper, http://econ-www.mit.edu/files/6613 ; Justin Lahart, “Tallying the Toll of US-China Trade,” Wall Street Journal, September 27, 2011. 62 Autor, et al. “The China Syndrome …,” 1. 63 Nicholas Bloom, et al., “Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity,” CEP Discussion Paper No 1000, January 2011. 64 Michael Spence and Sandile Hlatshwayo, “The Evolving Structure of the American Economy and the Employment Challenge,” Council on Foreign Relations Working Paper, March 2011; Michael Spence, “The Impact of Globalization on Income and Employment: The Downside of Integrating Markets,” Foreign Affairs, 90.4 (July/August) 2011, 28-41. 65 David Rotman, “Can We Build Tomorrow’s Breakthroughs?” Technology Review, February 2012, 36-45; Gary Pisano and Wally Shih,” Restoring American Competitiveness,” Harvard Business Review, July-August 2009, 2-13; Charles Duhigg and Keith Bradsher, “How the U.S. Lost out on iPhone Work,” New York Times, January 21, 2012, http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?hp ; Stephanie Overby, “IT Outsourcing: How Offshoring Can Kill Innovation,” CIO, July 22, 2011, http://www.cio.com/article/686597/IT_Outsourcing_How_Offshoring_Can_Kill_Innovation?source=rss_offshoring&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cio%2Ffeed%2Fdrilldowntopic%2F3197+%28CIO.com+-+Offshoring%29 Directory: tlairson -> ipe tlairson -> Nyt amid Tension, China Blocks Crucial Exports to Japan By keith bradsher published: September 22, 2010 tlairson -> China Alters Its Strategy in Diplomatic Crisis With Japan By jane perlez tlairson -> The Asia-Pacific Journal, Vol 11, Issue 21, No. 3, May 27, 2013. Much Ado over Small Islands: The Sino-Japanese Confrontation over Senkaku/Diaoyu ipe -> Chapter IX power, Wealth and Interdependence in an Era of Advanced Globalization tlairson -> Nyt india's Future Rests With the Markets By manu joseph published: March 27, 2013 tlairson -> Developmental State tlairson -> The Economist Singapore The Singapore exception To continue to flourish in its second half-century, South-East Asia’s miracle city-state will need to change its ways, argues Simon Long tlairson -> History of the Microprocessor and the Personal Computer, Part 2 ipe -> For richer, for poorer Growing inequality is one of the biggest social, economic and political challenges of our time. But it is not inevitable, says Zanny Minton Beddoes Download 225.82 Kb. Share with your friends:
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