New Economic Realities
Chapter 2 – International Economic Institutions Since World War II
Learning Goals
1. Classify and give examples of the main types of international economic
organizations
2. Compare and give examples of the different levels of integration found in
regional trade agreements
3. Analyze the roles of international economic organizations
4. Discuss common criticisms of international economic organizations
1.1 Introduction: International Institutions and Issues since World War II
International Institutions = rules and organizations that govern and constrain behavior
Formal institutions : Written sets of rules that explicitly state what is and is not
allowed
Informal institutions : Customs or traditions that define appropriate behavior,
but without legal enforcement
The IMF, the World Bank, and the WFO
three global organizations that play a major role in international economic relations
The International Monetary Fund (IMF)
The World Bank
The World Trade Organizations (WTO)
1. International Monetary Fund (IMF)
Founded by 29 countries (1945) at the Bretton Woods conference in July 1944
The 188 member (2012) IMF is the central monetary institution in today’s
international economy
, Funding for the IMF comes from its membership fee, or quota (the price of
membership)
Depends on size of the economy
Importance of its currency in world trade
most visible role for the IMF is to intercede, by invitation, whenever a nation
experiences a crisis in its international payments
e.g. if a country imports more than it exports, then it may run out of foreign
exchange reserves
Foreign exchange reserves = dollars, yen, pounds, euros, or another currency (or
gold) that is accepted internationally
In the event of a financial crisis,
Members borrow against IMF quotas
IMF conditionality : Requirement for the borrowing member to carry out
economic reforms in exchange for a loan
– IMF has its own currency, called an SDR, or special drawing right
– SDRs are based on a country’s quota and are a part of its international
reserves
2. World Bank
– Has same membership and similar structure to IMF
– Member’s voting rights are proportional to numbers of shares owned
– Original purpose: to provide financing mechanisms to rebuild Europe after
World War II
– Main function today: Assisting development in non-industrial economies
3. The GATT, the Uruguay Round, and the WTO
Began with 23 nations in 1946 when the International Trade Organization
(ITO) was established
The General Agreement on Trade and Tariffs (GATT) followed in 1950
The GATT functioned through trade rounds: Times when countries periodically
negotiate a set of incremental tariff reductions
During the Kennedy Round in the mid-1960s, and the Tokyo Round in the
1970s, other issues included:
Problems with dumping
Subsidies to industry
Nontariff barriers to trade
The Uruguay round established the WTO (1995)
The Doha Round / Doha Development Agenda (2001-2006)
focused on trade issues of importance to developing countries
The General Agreement on Trade and Tariffs (GATT) followed the following principles
National treatment: Imports must be given similar treatment on the domestic
market as domestically produced goods
Nondiscrimination: Enshrined in the concept of most favored nation (MFN); a
, prohibition against discrimination
2.2 Regional Trade Agreements
Regional trade agreements (RTAs) between two (bilateral) or several countries
(plurilateral) are another important institution in the world economy
called multilateral agreement because it includes, potentially, all the countries of
the world
5 Types of Regional Trade Agreements
1. Partial trade agreement: Two or more countries agree to drop trade barriers in
a selected group of product categories such as steel or autos
2. Free-trade area: Nations trade goods and services across international
boundaries without paying a tariff and without the limitations imposed by
quotas
3. Customs Union (CU): An FTA plus a common external tariff (CET)
- European Union in the 1970s and 1980s
- MERCOSUR in South America
4. Common market: A CU plus an agreement to allow the free mobility of inputs,
such as labor and capital
- the European Union in the 1990s
5. Economic Union: A common market with coordination of macroeconomic
policies (including common currency, harmonization of standards and
regulations)
- United States
- Canada
- European Union members participating in the Euro currency zone
Chapter 2 – International Economic Institutions Since World War II
Learning Goals
1. Classify and give examples of the main types of international economic
organizations
2. Compare and give examples of the different levels of integration found in
regional trade agreements
3. Analyze the roles of international economic organizations
4. Discuss common criticisms of international economic organizations
1.1 Introduction: International Institutions and Issues since World War II
International Institutions = rules and organizations that govern and constrain behavior
Formal institutions : Written sets of rules that explicitly state what is and is not
allowed
Informal institutions : Customs or traditions that define appropriate behavior,
but without legal enforcement
The IMF, the World Bank, and the WFO
three global organizations that play a major role in international economic relations
The International Monetary Fund (IMF)
The World Bank
The World Trade Organizations (WTO)
1. International Monetary Fund (IMF)
Founded by 29 countries (1945) at the Bretton Woods conference in July 1944
The 188 member (2012) IMF is the central monetary institution in today’s
international economy
, Funding for the IMF comes from its membership fee, or quota (the price of
membership)
Depends on size of the economy
Importance of its currency in world trade
most visible role for the IMF is to intercede, by invitation, whenever a nation
experiences a crisis in its international payments
e.g. if a country imports more than it exports, then it may run out of foreign
exchange reserves
Foreign exchange reserves = dollars, yen, pounds, euros, or another currency (or
gold) that is accepted internationally
In the event of a financial crisis,
Members borrow against IMF quotas
IMF conditionality : Requirement for the borrowing member to carry out
economic reforms in exchange for a loan
– IMF has its own currency, called an SDR, or special drawing right
– SDRs are based on a country’s quota and are a part of its international
reserves
2. World Bank
– Has same membership and similar structure to IMF
– Member’s voting rights are proportional to numbers of shares owned
– Original purpose: to provide financing mechanisms to rebuild Europe after
World War II
– Main function today: Assisting development in non-industrial economies
3. The GATT, the Uruguay Round, and the WTO
Began with 23 nations in 1946 when the International Trade Organization
(ITO) was established
The General Agreement on Trade and Tariffs (GATT) followed in 1950
The GATT functioned through trade rounds: Times when countries periodically
negotiate a set of incremental tariff reductions
During the Kennedy Round in the mid-1960s, and the Tokyo Round in the
1970s, other issues included:
Problems with dumping
Subsidies to industry
Nontariff barriers to trade
The Uruguay round established the WTO (1995)
The Doha Round / Doha Development Agenda (2001-2006)
focused on trade issues of importance to developing countries
The General Agreement on Trade and Tariffs (GATT) followed the following principles
National treatment: Imports must be given similar treatment on the domestic
market as domestically produced goods
Nondiscrimination: Enshrined in the concept of most favored nation (MFN); a
, prohibition against discrimination
2.2 Regional Trade Agreements
Regional trade agreements (RTAs) between two (bilateral) or several countries
(plurilateral) are another important institution in the world economy
called multilateral agreement because it includes, potentially, all the countries of
the world
5 Types of Regional Trade Agreements
1. Partial trade agreement: Two or more countries agree to drop trade barriers in
a selected group of product categories such as steel or autos
2. Free-trade area: Nations trade goods and services across international
boundaries without paying a tariff and without the limitations imposed by
quotas
3. Customs Union (CU): An FTA plus a common external tariff (CET)
- European Union in the 1970s and 1980s
- MERCOSUR in South America
4. Common market: A CU plus an agreement to allow the free mobility of inputs,
such as labor and capital
- the European Union in the 1990s
5. Economic Union: A common market with coordination of macroeconomic
policies (including common currency, harmonization of standards and
regulations)
- United States
- Canada
- European Union members participating in the Euro currency zone
