Economics 797
International Finance, Open Economy Macroeconomics and Globalization II
Professor Gerald Epstein
Department of Economics
University of Massachusetts, Amherst
Syllabus
Updates
Syllabus
The first several weeks will cover material on international financial
reform that we did not have time to cover last semester. The rest of the
semester we will turn to topics in globalization, imperialism, trade and
multinational corporations.
The first of these sections will assess the debate on the relationship
between globalization and inequality. Then we will turn to a discussion
of theories of imperialism and their applicability to the current world
conjuncture. After that, we will study some basic trade theories, including
neo-classical approaches (Ricardian, Heckscher-Ohlin), new trade theory
and its variations. We will use these to analyze the debate the causes
of the increase in wage inequality in the industrialized economies, focusing
on the role of international trade and globalization. After that we will
study new approaches to international trade which emphasize the role of
outsourcing and fragmentation, organized by multinational corporations.
This will serve as a transition to our discussion of foreign direct investment
and multinational corporations and their roles in the world economy.
Then we will return to some of the debates about neo-liberalism, trade
and development. Is free trade, good for growth and development. This
section will include an analysis of free trade agreements and the WTO.
Finally, we will finish with a discussion of alternatives to neo-liberalism
and imperialism.
Course Requirements:
The requirements for the course will be as follows:
1. There will be three short, take home exams as we go along, distributed
roughly equally during the semester. Each exam will be worth 20%.
2. There will be a 25 - 40 page research paper due at the end of the term
worth 40% of the grade. It will be important to start talking to me early
in the semester about the paper.
Readings:
*Starred readings are the most important.
Readings will be available in one of several
ways:
Some readings have been/will be available for purchase.
Most readings will be posted on the web site.
Some will be available on electronic reserve (ER).
Some will be available on reserve in the library (LR).
Books from Last Semester:
The following books ordered last semester will
be used this semester:
Dean Baker, Gerald Epstein and Robert Pollin, eds. Globalization and Progressive
Economic Policy. Cambridge: Cambridge University Press, 1998.
(GPEP)
Robert Blecker, Taming Global Finance: Architecture for Growth and Equity.
(Blecker)
Anthony Brewer, Marxist Theories of Imperialism. 2nd edition. (Brewer)
Robin Broad, ed. Global Backlash; Citizen Initiatives for a Just World
Economy. Lanham, Maryland: Rowman & Littlefield Publishers, Inc. 2002.
(Broad)
Richard E. Caves, Jeffrey A. Frankel, and Ronald W. Jones), World Trade
and Payments: An Introduction. 9th Edition. Addison Wesley. (Caves,
Frankel, Jones)
Email and class discussions:
Before each class I will post a series of questions on the readings to
guide your readings. I will also ask one member of the class to take responsibility
for leading discussion during a portion of each class, partly based on
the questions; that discussion leader can also post questions and comments
before the class.
Topics and Readings:
Weeks I & II: Restructuring the International
Financial System
*Robert Blecker, 1999. Taming Global Finance: A Better Architecture for
Growth and Equity.
*Barry Eichengreen, 2002. Financial Crises and What to Do about Them.
*Randall Dodd, 2002. "A Primer on Tobin Taxes". Download
*Randall Dodd, 2002. "New Rules Discussions of IMF Debt Write-Off
Mechanisms". Download
*Yilmaz Akyuz, 2001. "International Financial Reform: Reforming the
Reformers". Download
James Crotty and Gerald Epstein 1996. "In Defense of Capital Controls"
Socialist Register, 1991. (ER)
Gerald Epstein, Ilene Grabel, and Jomo, K.S. 2003. "Capital Management
Techniques" Download
Robert Pollin, Dean Baker and Marc Schaberg, 2001. "Securities Taxes
for U.S. Financial Markets", PERI Working Paper, Download
Robert Pollin, "Can Domestic Expansionary Policy Succeed in a Globally
Integrated Environment", GPEP, Ch. 19.
David Felix, 2002. "Why International Capital Mobility Should be
Curbed and How it Could be Done." Download
Week III: Globalization and Inequality: What are
the Connections?
*Ute Peiper and Lance Taylor, "The Revival of the Liberal Creed:
the IMF, the World Bank, and Inequality in a Globalized Economy",
GPEP, Ch. 2.
*Branko Milanovic, 2002. "The Two Faces of Globalization: Against
Globalization as We Know It". Download
*Jeffrey G. Williamson. 2002. "Winners and Losers Over Two Centuries
of Globalization", NBER Working Paper, No. 9161. Download
*Ann E. Harrison, 2002. "Has Globalization Eroded Labor's Share?
Some Cross-Country Evidence".
Download
*Bob Sutcliffe, 2002. "A More or Less Unequal World? World Income
Distribution in the 20th Century". Download
*Sanjay G. Reddy Thomas W. Pogge, 2002. "How NOT To Count the Poor".
Download
Ishac Diwan, 2001. "Debt As Sweat: Labor Financial Crisis and The
Globalization of Capital". Download
Week IV: Imperialism
*Anthony Brewer, Marxist Theories of Imperialism: A Critical Survey, New
York: Routledge and Kegan Paul, 2nd Edition.
*Prabhat Patnaik, 1995. Whatever Happened to Imperialism and Other Essays,
selected chapters. (ER)
*Prabhat Patnaik, 2002. The Retreat to Unfreedom; Essays on the Emerging
World Order. Selected chapters (ER)
Week V: International Trade Theory and the Impact
of Globalization on Wages and Inequality
Caves, Frankel and Jones, World Trade and Payments, 9th edition, chs.
2-7, plus all relevant appendices.
Alan V. Deardorff, "Overview of The Stolper Samuelson Theorem",
Ch 2. The Stolper-Samuelson Theorem, University of Michigan Press. (ER,
LR)
David Howell, "On Skill-Biased Technological Change" (ER,
LR)
Richard B. Freeman, "Are Your Wages Set In Beijing"? Journal
Of Economic Perspectives, Vol. 9, Number 3. Summer 1995. pp. 15-32. (ER,
LR)
Adrian Wood, 1995. "How Trade Hurt Unskilled Workers", Journal
of Economic Perspectives, Vol. 9, No. 3, Summer 1995, pp. 57-80. (ER,
LR)
William R. Cline, 1997. Trade and Income Distribution, Institute for International
Economics.
David Kucera and William Milberg. 2002. "Trade and the Loss of Manufacturing
Jobs in the OECD: New Factor Content Calculations, 1978-1995.
Download
Week VI: Trade and Development Debate
Dani Rodrik and Francesco Rodriguez, 1999. "Trade Policy and Economic
Growth: A Skeptics Guide to the Cross-National Evidence". NBER Paper,
7081. Download
Dani Rodrik, et. al. 2002. "Institutions Rule: The Primacy of Institutions
Over Geography and Integration in Economic Development", NBER Paper,
9305. Download
Peter Dorman, 2001. The Free Trade Magic Act. EPI Briefing Paper Download
Sanjay Reddy, et. al. "A Critique of Kraay and Dollar". mimeo.
Download
Dani Rodrik, Developing Countries Dangerous Obsession With Globalization.
Mimeo. Download
Week VII: Other Approaches To Trade: New Trade
Theory, Absolute Advantage
*Caves, Frankel and Jones, Chs. 8-9.
*Robert Blecker, 1997. "The New Economic Integration: Structuralist
Models of North-South Trade and Investment Liberalization", Structural
Change and Economic Dynamics 7 (3): 321-45. (ER)
*Robert C. Feenstra and Gordon Hanson, 2001. "Global Production Sharing
and Rising Inequality: A Survey of Trade and Wages". NBER Paper,
No. 8372. Download
*Robert Blecker, 2001. "Financial Globalization, Exchange Rates and
International Trade" PERI Working Paper. Download
Paul Krugman and A. Venebles, 1995. "Globalization and the Inequality
of Nations", Quarterly Journal of Economics, 110. pp. 857-880.
*Ralph E. Gomory and William J. Baumol, 2000. Global Trade and Conflicting
National Interests, MIT Press. (LR)
George E. Johnson and Frank P. Stafford, 1995. "The Hicks Hypothesis,
Globalization and the Distribution of Real Wages", mimeo. (ER,
LR)
George Johnson and Frank Stafford, 1992. "Models of Real Wages and
International Competition", mimeo, Department of Economics and University
of Michigan. (ER, LR)
Weeks VIII & IX: Multinational Corporations
and Threat Effects
*James Crotty, Gerald Epstein and Trish Kelly, "Multinational Corporations
in the Neo-Liberal Regime", GPEP, ch.
5.
Gerald Epstein, 2000. "Threat Effects: A Survey". PERI Working
Paper. Download
*Dani Rodrik, 1998. "Globalisation and Labour, or: if Globalization
is a bowl of Cherries Why are there so many glum faces around the Table?"
in Richard E. Baldwin, et al. ed. Market Integration, Regionalism and
the Global Economy. Cambridge University Press (ER)
*Minsik Choi, 2001. "Threat Effect of Foreign Direct Investment on
Labor Union Wage Premium", PERI Working Paper, No. 27. Download
Matthew Slaughter, 1999. "International Trade and Labor Demand Elasticities".
Download
Sanjay Reddy and Arindrajit Dube, 2000. "Liberalization, Income Distribution
and Political Economy: The Bargaining Channel and Its Implications".
Download
Kate Bronfenbrenner, 1997. "The Effects of Plant Closing or Threat
of Plant Closing on the Right of Workers to Organize", mimeo, Cornell
University. (LR)
*James Burke and Gerald Epstein, "Threat Effects and the Internationalization
of Production", in Work & Well-Being in the Age of Finance",
ed. J. Ghosh and C.P.Chandrasekhar. Download
Weeks X & XI: Multinational Corporations and
Development: Theories and Controversy
William Greider, 1999. One World Ready or Not. Simon and Schuster (LR)
Theodore Moran, 1998. Foreign Direct Investment and Development, Institute
for International Economics. (LR)
*Jayati Ghosh, 2003. "Exporting Jobs or Watching Them Disappear;
Relocation, Employment and Accumulation in the World Economy", in
Work and Well-Being in the Age of Finance, pp. 99-119. (ER)
*Gordon Hanson, 2001. Should Developing Countries Try to Attract FDI,
UNCTAD Paper. Download
*Elissa Braunstein and Gerald Epstein, 2002. "How Much Bargaining
Power Do 1.3 Billion Consumers Have? FDI In China". PERI Working
Paper.
*Elissa Braunstein, 2000."Engendering Foreign Direct Investment:
Family Structure, Labor Markets and International Capital Mobility".
World Development.
*James R. Markusen and Keith E. Maskus, 2001. "General Equilibrium
Approaches to the Multinational Firm: A Review of Theory and Evidence",
NBER Paper, No. 8334. Download
Week XII: Tax Competition, Public Finance and Capital
Mobility
Vito Tanzi, "Globalization, Tax Competition and the Future of Tax
Systems", IMF Working Paper, December 1996. (ER)
Mihir A. Desai, et al. 2002. Chains of Ownership, Regional Tax Competition
and Foreign Direct Investment", NBER Paper. Download
John D. Wilson, 1999. "Theories of Tax Competition". National
Tax Journal, June Vol. LII, No. 2. pp. 269-303 (ER)
James Hines, Jr. 1999. "Lessons from Behavioral Responses To International
Taxation". June. Vol LII. No. 2. pp. 305-323. (ER).
Roger Gordon and James Hines, Jr. 2002. "International Taxation",
NBER Paper. Download
Week XIII: Free Trade Agreements and The WTO
Readings to come
Weeks XIV: Alternatives
Robin Broad, Backlash, passim.
John Cavanagh, et al. Alternatives to Economic Globalization; A Better
World Is Possible. San Francisco: Barrett-Kohler Publishers
Elissa Braunstein and Gerald Epstein. An Alternative Multilateral Agreement
on Investment. Download
James Heintz, 2002. "Global Labor Standards: Their Impact and Implementation".
PERI WP no. 46. Download
Robert Pollin, et. al. 2001. "Global Apparel Production and Sweatshop
Labor: Can Raising Retail Prices Finance Living Wages?" Download
WEEKLY UPDATES
Week II
NEW, Feb 4, 2003: The Paper by Epstein, Grabel and Jomo on capital controls
is now available. Download
1. Here are some questions for Tuesday's class. Of course, we won't have
time to deal with all of these questions in depth. But they give you an
idea of some of the issues I believe we should take up.
2. I want to remind you that you can get the Eichengreen and Blecker readings
from Chris Evans. PLEASE BE SURE TO DO THE READING BEFORE CLASS.
See you Tuesday!
Thought/Discussion Questions for Week II: Restructuring
the International Financial System
1. A big problem in international financial arrangements is "moral
hazard": that if creditors or borrowers are bailed out, then these
groups will not demonstrate their own self-control, and financial crises
will simply continue.
a. What forms do you think this moral hazard problem has taken? Has there
been moral hazard for debtors, or only for creditors, or both?
b. Some have argued that the market should simply be allowed to discipline
borrows or lenders: there should be no bailouts. What do you think about
this?
c. What have been other suggestions for dealing with this problem? What
do you think of them?
d. What suggestions would you make the deal with the moral hazard (bail-out)
problem?
2. Many observers have suggested that in order to reform the international
financial system, the IMF should be abolished. Some of them argue that
there should be no replacement for it. Others argue that having an institution
that carries out some functions that an institution like the IMF should
carry out, are necessary to make the international financial system work
well. After all, the IMF was created after the breakdown of the 1920's
and 1930's in order to prevent such a catastrophe from happening again.
Many argue that the IMF should be replaced by one or more other institutions,
e.g. a world central bank, a world financial regulatory institution, etc.
Some of them argue that the IMF should be reformed, instead of being abolished.
For all those who believe that one or more international financial management
institutions are necessary, one of the many difficult questions that arises
is the decision making structure of the institution. Some argue for complete
democracy defined by one country one vote. Others argue that since this
institution will require financial resources, those countries giving more
resources should have more say, but that all countries should have some
say. Others argue that since many governments are non-democratic, then
there should be non-governmental representatives as well. Some argue this
is completely impractical.
a. Do you think some such institution of global macro/financial management
is necessary?
b. If so, to do what?
c. How should it be governed?
3. A specific example of the above is the Ann Kruger's Sovereign Debt
Restructuring Mechanism (SDRM). This raises many issues, including the
ones mentioned above. Assess the usefulness of such a mechanism as the
SDRM. If an institution like the one suggested there is implemented, how
should it be governed?
4. A broad coalition of activists has suggested the implementation of
a Tobin Tax and related securities transactions taxes.
a. How would a Tobin tax work?
b. What are some of the costs of it?
c. Benefits?
d. Limitations?
5. A Tobin tax is a kind of capital control.
a. What other kinds of capital controls, if any, should be implemented?
b. Some have argued that such controls would make it harder for developing
countries to attract and retain needed capital?
c. What is the evidence on this; how would you study this question?
6. Some progressive economists have argued that what is needed is more
controls on creditor institutions: private banks, hedge funds, etc. rather
than on borrowers.
a. What is the evidence that the problem lies to a large extent with the
lenders?
b. How could this be accomplished? Can you identify particular policies/schemes
that have been suggested?
c. What would be the costs to the debtor countries of such schemes?
7. Some argue that, rather than capital controls, or more control, what
is really needed is better prudential regulation. How would you study
whether this is correct? How would determine the relative roles of internal
regulation vs.
8. Some argue that these international schemes are politically infeasible.
The emphasis should be on insulating the country from the international
financial markets as much as necessary, and pursue more domestic paths
of development. Is this feasible? Is this desirable? How?
Week IV
Discussion Questions on Mainstream Trade Theory and The Growth of Income
Inequality
1. The Heckscher-Ohlin (H-O) model of international trade and its related
Stolper-Samuelson theorems have become the central mainstream framework
for studying the impact of international trade on income distribution.
a. What are the key assumptions underlying the standard H-O model? How
realistic are they?
b. What are the central predictions of the HO model?
c. What are the key assumptions underlying the Stolper-Samuelson theorem?
d. What are the key results of the theorem?
e. In what ways are these results relevant to the issue of the impact
of trade on income distribution?
f. In what ways, if any, are they relevant to the issue of the impact
on foreign direct investment on income distribution?
2. What does the empirical evidence say about the validity of the HO and
Stolper-Samuelson Model?
3. What stylized facts would a useful theory of trade, capital mobility
and income distribution have to capture to be relevant to today's world?
4. What are the stylized facts about changes in income distribution in
the U.S. and other rich industrialized countries in the North in recent
years? What is the mainstream explanation for this evolution? Critique
the mainstream explanation.
5. What, overall, is the empirical evidence on the determinants of changes
in income distribution in the developed world over the last several decades?
What new research needs to be undertaken to improve on this research?
Week V
Readings for International Trade Theory and the Impact of Globalization
on Wages and Inequality
*Caves, Frankel and Jones, World Trade and Payments, 9th edition, chs.
2-7, plus all relevant appendices.
*Alan V. Deardorff, "Overview of The Stolper Samuelson Theorem",
Ch 2. The Stolper-Samuelson Theorem, University of Michigan Press. (ER,
LR)
David Howell, "On Skill-Biased Technological Change" (ER,
LR)
*Richard B. Freeman, "Are Your Wages Set In Beijing"? Journal
Of Economic Perspectives, Vol. 9, Number 3. Summer 1995. pp. 15-32. (ER,
LR)
Adrian Wood, 1995. "How Trade Hurt Unskilled Workers", Journal
of Economic Perspectives, Vol. 9, No. 3, Summer 1995, pp. 57-80.
(ER, LR)
William R. Cline, 1997. Trade and Income Distribution, Institute for International
Economics.
David Kucera and William Milberg. 2002. "Trade and the Loss of Manufacturing
Jobs in the OECD: New Factor Content Calculations, 1978-1995.
Week VII
Gender, International Trade, Finance and Development
1. I mentioned last week that there is a great deal of research being
done on commodity chains. A good website for some of this research is:
http://www.ids.ac.uk/ids/global/
You can search this site and see that they have many papers and documents
on commodity chain analysis.
Readings for Gender
*Stephanie Seguino and Caren Grown, 2002. "Feminist-Kaleckian Macroeconomic
Policy For Developing Countries", mimeo. Download Here
Diane Elson, "Gender Awareness in Modeling Structural Adjustment",
World Development, 1995, pp. 1851-1868 (ER)
Nilufer Cagatay, Diane Elson, and Caren Grown, "Introduction",
special issue of World Development on "Gender and Macroeconomics",
Vol 23, No. 11, pp. 1827-1836. (ER)
*Caren Grown, Diane Elson and Nilufer Cagatay, 2000. "Introduction"
special issue of World Development, on "Gender and Trade", Vol.
28, No. 7, pp. 1145-1156. Download
*Ajit Singh and Ann Zammit, 2000. "International Capital Flows: Identifying
the Gender Dimension" World Development, vol 28, No. 7, pp. 1249-1268.
Download
*Marzia Fontana, "Modeling The Effects Of Trade On Women, At Work
And At Home: A Comparative Perspective", International Food Policy
Research Institute, TMD Discussion Paper No. 110, March, 2003. (skim)
Download
*Braunstein, Elissa, "Engendering Foreign Direct Investment: Family
Structure, Labor Markets, and International Capital Mobility." World
Development. 2000. (See syllabus under MNC's)
Maria Floro and Gary Dymski, 2000. "Financial Crisis, Gender and
Power: An Analytical Framework", World Development. 2000. Download
Helena Hofbauer Balmori, "Gender and Budgets: Overview Report",
BRIDGE, IDS, (skim) http://www.ids.ac.uk/bridge/
Download
Shenggen Fan and Neetha Rao, "Public Spending in Developing Countries:
Trends, Determination and Impact", International Food Policy Research
Institute, EPTD Discussion Paper, No. 99, February, 2003. Download
Nilufer Cagatay, "Trade, Gender and Poverty" , UNDP, October,
2001. (ER)
ILO, 2002. "Women and Men in the Informal Economy: A Statistical
Picture", Download
Marilyn Carr and Martha Alter Chen, 2002. "Globalization and the
Informal Economy: How Global Trade and Investment Impact on the Working
Poor", ILO, employment
sector 2002/1. Download
Women's Edge, 2002. "Framework for a Trade Impact Review" www.womensedge.org
Week XI
NAFTA, FTAA and WTO
1. Here are the Readings for this week. Some of the readings are book
length; of course, you are not expected to read a whole book. In this
case, I have tried to indicate the parts of the book that are most useful
2. There are two three sets of readings:
1) One set has to do with the WTO
2) One set has to do with NAFTA and FTAA (Free Trade Association of the
Americas)
3) There is a third reading on "aid" and development policy
by the rich countries.
WTO
Third World Network, "The Multilateral Trading System: A Development
Perspective", UNDP, 2001.Executive Summary; Parts II, III and IV.
Skim as much of the rest as you can. Download
NAFTA
Economic Policy Institute, 2001. "NAFTA at Seven; Its impact on Workers
in All Three Nations", Download
FTAA
Alanza Social Continental, "The FTAA Unveiled: A Citizens' Critique
of the November 2002 Draft of the Free Trade Area of the Americas",
January 2003. Overview, FTAA Chapter on Agriculture, Investor Rights,
skim the rest. Download
Aliiance Sociale Continetale, "Competing Visions for the Hemisphere",
January 2002. Download
Rich Country Behavior
Nancy Birdsall and David Roodman, Center for Global Development. "The
Commitment to Development Index: A Scorecard of Rich Country Policies".
Download