International

Political Economy
Interests and Institutions
in the Global Economy
Fourth Edition

Thomas Oatley
University of North Carolina Chapel Hill

B 363372

Longman
New York San Francisco Boston
London Toronto Sydney Tokyo Singapore Madrid
Mexico City Munich Paris Cape Town Hong Kong Montreal

Detailed Contents
Preface ix

CHAPTER 1

International Political Economy

What Is International Political Economy? 2

Studying International Political Economy 7
Traditional Schools of International Political Economy
Interests and Institutions in International Political
Economy 12
The Global Economy in Historical Context 14
The Organization of the Book 19
CHAPTER 2

The World Trade Organization and the World Trade System

21

What Is the World Trade Organization? 22

A Closer Look: The Doha Round 26
Power and Interests in the World Trade System 28
Hegemonic Power and the Creation of the Postwar
Trade System 28
Hegemonic Decline and the World Trade System 31
The Evolving World Trade Organization: New Directions, New
Challenges 33
The Greatest Challenge? Regional Trade Arrangements and the World
Trade Organization 38
Policy Analysis and Debate: The United States and Free-Trade
Agreements 41
CHAPTER 3

The Political Economy of International Trade Cooperation

The Economic Case for Trade 47
The Gains from Trade in Partial Equilibrium 48
The Gains from Trade in General Equilibrium 53

Note: Each chapter ends with a conclusion, key terms, web links, and
suggestions for further reading.

46

Detailed Contents
The Politics of Trade Cooperation 59
A Closer Look: Distributive Bargaining and the Geneva
Mini-Ministerial
63
The World Trade Organization and Trade Cooperation 65

CHAPTER 4

A Society-Centered Approach to Trade Politics

71

Trade Policy Preferences 72

Factor Incomes and Class Conflict 72
Policy Analysis and Debate: Trade Adjustment 75
Sector Incomes and Industry Conflict 76
Organizing Interests: The Collective Action Problem and Trade Policy
Demands 80
Political Institutions and Interests in American Trade Politics 82
A Closer Look: The Politics of American Agricultural Policy 85

CHAPTER 5

A State-Centered Approach to Trade Politics

94

States and Industrial Policy 95

The Infant-Industry Case for Protection 96
A Closer Look: Criticism of the Infant-Industry Case for
Protection 98
State Strength: The Political Foundation of Industrial Policy 100
Industrial Policy in High-Technology Industries 102
Strategic-Trade Theory 102
Strategic Rivalry in Semiconductors and Commercial Aircraft 106
Policy Analysis and Debate: Government Support of High-Technology
Industries 107

CHAPTER 6

Trade and Development I: Import Substitution

Industrialization 114
Domestic Interests, International Pressures, and Protectionist
Coalitions 115
The Structuralist Critique: Markets, Trade, and Economic
Development 121
Market Imperfections in Developing Countries 121
Market Imperfections in the International Economy 123
Domestic and International Elements of Trade and Development
Strategies 124
Import Substitution Industrialization 125
A Closer Look: Import Substitution Industrialization in Brazil 129
Reforming the International Trade System 131
Policy Analysis and Debate: The Millennium
Development Goals 134

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CHAPTER 7

Trade and Development II: Economic Reform

137

Emerging Problems with Import Substitution Industrialization 138

The East Asian Model 141
Structural Adjustment and the Politics of Reform 149
A Closer Look: Economic Reform in China 155
Developing Countries and the World Trade Organization 157
Policy Analysis and Debate: The Global Food Crisis and
the Doha Round 160

CHAPTER

Multinational Corporations in the Global Economy

164

Multinational Corporations in the Global Economy 165

Economic Explanations for Multinational Corporations 174
Locational Advantages 174
Market Imperfections 177
Locational Advantages, Market Imperfections, and Multinational
Corporations 180
Multinational Corporations and Host Countries 182
A Closer Look: Redistributing Venezuelan Oil Profits 185

CHAPTER 9

The Politics of Multinational Corporations

189

Regulating Multinational Corporations 190

Regulating Multinational Corporations in the Developing
World 190
Regulating Multinational Corporations in the Advanced
Industrialized Countries 194
A Closer Look: Sovereign Wealth Funds 195
Bargaining with Multinational Corporations 198
A Closer Look: Luring the German Luxury Car Producers to
the U.S. South 202
The International Regulation of Multinational Corporations 205
Policy Analysis and Debate: The Race to the Bottom 210

CHAPTER 10

The International Monetary System

214

The Economics of the International Monetary System

Exchange-Rate Systems 215
Balance of Payments 217
Balance-of-Payments Adjustment 219
A Closer Look: The Classical Gold Standard 220
The Rise and Fall of the Bretton Woods System 224
Creating the Bretton Woods System 225

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vii

Implementing Bretton Woods: From Dollar Shortage

to Dollar Glut 228
The End of Bretton Woods: Crises and Collapse 231
Policy Analysis and Debate: Who Should Adjust? 233

CHAPTER 11

Contemporary International Monetary Arrangements

237

International Financial Integration 238

A Closer Look: The Unholy Trinity 241
Life under Floating Exchange Rates 242
Managing Exchange Rates in a World of Mobile Capital 247
Exchange-Rate Cooperation in the European Union 247
Exchange-Rate Cooperation in the Group of 5 250
Policy Analysis and Debate: A Cooperative Solution to the
U.S. Financial Crisis? 253
Speculative Attacks and the Prospect for Exchange-Rate
Reform 255

CHAPTER 12

A Society-Centered Approach to Monetary and ExchangeRate Policies 260

Electoral Politics, the Keynesian Revolution, and the Trade-Off
between Domestic Autonomy and Exchange-Rate Stability 261
Society-Based Models of Monetary and Exchange-Rate
Politics 266
A Closer Look: Exchange-Rate Arrangements in the Organisation for
Economic Co7operation and Development 267
The Electoral Model of Monetary and Exchange-Rate Politics 268
The Partisan Model of Monetary and Exchange-Rate Politics 271
The Sectoral Model of Monetary and Exchange-Rate Politics 274
Policy Analysis and Debate: A Strong Dollar or a Weak Dollar? 278

CHAPTER 13

A State-Centered Approach to Monetary and Exchange-Rate

Policies 283
Monetary Policy and Unemployment 284
A Closer Look: The Natural Rate of Unemployment in the United States
and the European Union 285
The Time-Consistency Problem 293
Commitment Mechanisms 294
Policy Analysis and Debate: Central-Bank Independence
and Democracy 297
Independent Central Banks and Exchange Rates 301

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CHAPTER 14

Developing Countries and International Finance I: The Latin

American Debt Crisis 306
Foreign Capital and Economic Development 307
Capital Flows in the Early Postwar Period 311

A Closer Look: The World Bank 3 1 3 '

Commercial Bank Lending and the Origins of the Latin American
Debt Crisis 315
Managing the Debt Crisis 320
The Debt Regime 320
A Closer Look: The International Monetary Fund 321
The Sources of Bargaining Power 324
Policy Analysis and Debate: International Monetary Fund
Conditionality 325
The Domestic Politics of Economic Reform 327

CHAPTER 15

Developing Countries and International Finance II: A Decade

of Crises 332
The Asian Financial Crisis 333
Reforming the Crisis Management Regime 342
A Closer Look: Crisis in Argentina 343
Policy Analysis and Debate: Is the International Monetary Fund Still
Relevant? 346
The Heavily Indebted Poor Countries 348

CHAPTER 16

Globalization: Consequences and Controversies

356

The Globalizing World Economy 357

Globalization and Income: Rising Poverty, Widening Inequality? 361
Globalization and "Sweatshops" 365
Policy Analysis and Debate: Labor Standards in the World Trade
Organization 371
Trade and the Environment 372
A Closer Look: Environmental Disputes in the World Trade
Organization 375

Glossary 381
References
Index

406

393