GOVT-262: International Organizations

Lecture 2 Notes

Reading: Why States Act Through Formal International Organizations (Abbott and
Snidal)  centralization and independence

- States use IOs for everyday and dramatic situations

- Contemporary IR theory does not explain existence or form of IOs
- Functions and properties that enable performance of functions
- Rational-institutionalist: enable states to achieve ends, creates norms and
understanding
- Key properties: centralization and independence
- As community representatives  implement/create community values and
enforce commitments
- Examples:
o When the United States decided to reverse the Iraqi invasion of
Kuwait, it did not act unilaterally (although it often does). It turned
to the United Nations (UN) Security Council.
o When the Security Council sought to learn the extent of chemical,
biological, and nuclear arms in Iraq, it did not rely on U.S. forces. It
dispatched inspectors from the International Atomic Energy Agency
(IAEA). *
o When the international community sought to maintain the
suspension of combat in Bosnia, it did not rely only on national
efforts. It sent in peacekeeping units under the aegis of the UN and
North Atlantic Treaty Organization (NATO).
o When states liberalized trade in services and strengthened
intellectual property protection in the Uruguay Round, they were
not content to draft rules. They created the World Trade
Organization (WTO) and a highly institutionalized dispute settlement
mech.
- WHO, OSCE, NATO, IMF
- Reduces likelihood of violent conflict
- Huge range of scope, funds, etc.
- Contemporary international theory has no clear theoretical answers to why
states use IOs and offers limited practical advice
- Functional attributes of IOs help answer the question; also, complex
phenomena that implicate several lines of IR theory
o CENTRALIZATION
IOs allow for centralization of collective activities with concrete and
stable organizational structure and supportive administrative
 apparatus. These increase efficiency of collective activities and
enhance IO ability and influence.
o INDEPENDENCE
This is the ability to act with a degree of autonomy within defined
spheres. Entails capacity to act as neutral when managing disputes.
IO independence is highly constrained since member states can
limit autonomy of the IO.

I. PUTTING IOs INTO THEORY AND THEORY INTO IOs

- Rationalist and institutionalist
- States are principle actors and use IOs to create social order and pursue
shared goals
- Regime Theory
o theory deals with institutions at such a general level that it has little
to say about the particular institutional arrangements that organize
international politics
o has been rightly criticized for paying insufficient attention to issues of
power and distribution in international politics
o We draw on realist considerations to supplement our institutionalist
approach
o Role of ideas and norms  supplement with constructivist theory
- Decentralized Cooperation Theory
o the existence of coordination and collaboration problems requiring
collective action
o assumes anarchy
o assumes need for high-quality information
- Regime Theory
o Deals with institutional factors affecting cooperation
o Downplay distinctive roles of IOs
o IOs are treated as passive embody norms or clarify expectations
- Legal Scholarship
o Descriptive accounts of history and structure, doctrinal analysis 
normative output, constitutional law, comparative among various
IOs
o Help differentiate institutional forms and emphasizes details
- Realist Theory
o Finds legal and regime theories naïve for treating IOs as serious
political entities
o Realists believe states would never cede to supranational institutions
 o IOs and similar institutions are of little interest; they merely reflect
national interests and power and do not constrain powerful states
o Yet, realists underestimate utility of IOs
- Constructivist Theory
o Only norms, beliefs, knowledge, and understandings-can
satisfactorily explain formal organizations
o “But the role of IOs is best understood through a synthesis of
rationalist (including realist) and constructivist approaches. States
consciously use IOs both to reduce transaction costs in the narrow
sense and, more broadly, to create information, ideas, norms, and
expectations; to carry out and encourage specific activities; to
legitimate or delegitimate particular ideas and practices; and to
enhance their capacities and power.” (page 7)
o IOs have influence beyond their material power/unintended
consequences
II. THE FUNCTIONS OF IOs: CENTRALIZATION AND INDEPENDENCE
- centralization (a concrete and stable organizational structure and an
administrative apparatus managing collective activities)
- and independence (the authority to act with a degree of autonomy, and
often with neutrality, in defined spheres)
- enhance efficiency, lower transaction costs
- political effects beyond efficiency shape understandings, terms, norms,
perceptions, and context of interactions
a. Centralization: support for direct state interaction (the principal
focus of regime theory) and operational activities (the traditional
focus of IO studies).
i. Support for state interactions: IOs provide neutral,
depoliticized, or specialized forums more effectively than
almost any informal or decentralized arrangement.
 This enables a broader range of behavior
 Representation and voting rules "constitutionalize"
balances among states having different levels of
power, interest, or knowledge.
 Organizational structure influences the evolution of
interstate cooperation as conditions change.
 Most IOs include a secretariat or similar administrative
apparatus. In simple consultative organizations, the
secretariat need only assist with the mechanics of
decentralized interactions.
  Even such modest activities can strengthen
international cooperation.
 Most IOs perform more extensive supportive functions.
Law-making conferences like UNCLOS III or the Rio
conference on the environment and development rely
heavily on their secretariats.
 Experience under the international trade regime
testifies to the importance of organizational structure
and administrative support.
ii. Managing substantive operations: do more than support
intergovernmental negotiations; they manage a variety of
operational activities.
 organizations normally have sizable budgets and
bureaucracies, complex organizational structures, and
substantial operational autonomy.
 Large business corporation analogy
 Pooling: vehicles for pooling activities, assets, or risks.
Some pooling can be accomplished on a
decentralized basis, as in a business partnership, but a
separate entity with a stable organizational structure
and specialized staff can greatly reduce transaction
costs while providing additional advantages.
 Horizontal advantage like economies of scope
 The WHO smallpox campaign illustrates the horizontal
benefits of centralization: a single global campaign
against a contagious disease is more effective than
decentralized efforts because global scope avoids
gaps in coverage.
 Joint Production: centralized organization is particularly
important when workers, managers, and other "inputs"
must work in teams, producing a joint output. In these
situations, the hierarchical organization of the firm
makes it easier for managers to handle employees.
(NATO military)
 Norm elaboration and collaboration The longer and
more complex the relationship, the more significant the
contingencies; the greater the investment in specific
assets, the greater the uncertainty and risk of
opportunism
  Other alternative: to create procedures for the
elaboration of norms within an IO.
b. Independence: participation of an IO as an independent, neutral
actor can transform relations among states, enhancing the
efficiency and legitimacy of collective and individual actions.
i. Support for direct state interaction
 IOs are initiating as well as supporting organizations
 The UN secretary-general may put before the Security
Council any matter that, in his opinion, threatens
international peace and security.
 al reports. IO officials further monitor state conduct, in
more or less intrusive ways, although enforcement
remains decentralized. For example, the WTO regularly
reviews the general effects of national trade policies.
ii. Managing Substantive Operations
 Independent IO may be more acceptable because it
is neutral. For many substantive IO operations, however,
it is the existence of a truly independent third party, not
the absence of bias per se, that enables states to
achieve their ends.
 Laundering: States may prefer development assistance
from an independent financial institution over direct aid
from another state, especially a former colonial power
or one seeking political influence.
 The autonomy needed for successful laundering gives
IOs influence over the substance of their activities. For
example, IFI staff have significant input into lending
criteria and adjustment policies and, increasingly, into
social, environmental, and other related policies.
 Neutrality: adds impartiality to independence
 It enables IOs to mediate among states in contested
interactions, including disputes and allocation
decisions. UN neutrality underlies most of the functions
discussed in the secretary-general's Agenda for Peace.
 Neutral information provider  reliability
 As a trustee  in dealings, neutral parties often hold
assets belonging to persons who cannot be trusted with
possession until a transaction is complete. (Iraq oil after
Kuwait)
  Traditional UN peacekeeping also illustrates the trustee
function: UN forces patrol or even control territory to
separate combatants, prevent conflict, and supervise
negotiated cease-fires.
 As an allocator: neutral party often allocates scarce
resources among claimants to avoid paralyzing
negotiating standoffs and lingering resentment: the
parent, not the children, slices the birthday cake.
 As an arbitrator: “a legal system might still be capable
of holding in check the power aspirations of its subjects
if there existed judicial agencies that could speak with
authority whenever a dissension occurred with regard
to the existence or the import of a legal rule”
 In facilitative intervention, an IO operates as "honest
broker" to reduce transaction costs, improve
information about preferences, transmit private offers,
and overcome bargaining deadlocks.
 In binding intervention, international institutions issue
legally binding decisions with the consent of all parties.
(i.e. arbitration)
 Many international agreements, from bilateral
commercial treaties to the law of the sea convention,
rely on arbitration through ad hoc panels or more
permanent institutions. (ICJ)
c. IO as Community Representative and Enforcer
- consider broader and more controversial functions of formal IOs
i. IO as community representative: States establish IOs to act as
a representative or embodiment of a community of states.
This was a central aspiration in the postwar organizational
boom and remains an important, if only partially fulfilled,
aspect of IO operations today.
 se incorporate the major actors (as realism would
predict) as well as states representing other interests
 Finally, community institutions such as the ICJ are
structured to promote independence and neutrality,
their actions constrained by a charge to act in the
common interest
 the most important function of community
organizations is to develop and express community
norms and aspirations.
  Courts as independent institutions also formulate and
express community policy. By enunciating, elaborating,
and applying rules publicly, they educate the
community and strengthen underlying norms.
 An IO with these powers could overcome free-rider
problems hampering decentralized efforts to maintain
peace.
 creation and development of IOs often represent
deliberate decisions by states to change their mutually
constituted environment and, thus, themselves.
ii. IO as Manager of Enforcement
 Ensuring compliance with international commitments
can best be understood by integrating managerial and
enforcement views
 managerial school concludes that IR has focused too
heavily on coercive enforcement.
 Noncompliance usually stems from ambiguity
 on-incentives to defect are relatively small compared
with the benefits of cooperation; here, the managerial
approach is sufficient. In other cases, some
enforcement may be necessary, at least potentially.
 Ambiguity can be resolved through dispute resolution
and other third-party procedures.
 When enforcement is needed, IOs can facilitate
decentralized action
USES AND LIMITS OF DIRECT ENFORCEMENT
- “Thus, realist, constructivist, and rational-regime arguments come together
in consideration of the role of IOs in the Gulf crisis. Although some might
prefer to find a singular "winner" among the three explanations, we believe
each explains a significant part of the episode and that any
unidimensional explanation would be incomplete. In any event, IOs
provide an important laboratory in which to observe the operation of
these different aspects of international politics.”
CONCLUSIONS

- “Although we have presented the case for the importance of formal

institutions in international cooperation, the shortcomings of many actual
organizations go without saying. In addition, in emphasizing the possibilities
for formal organizations, we should not ignore the difficulty and even
 impossibility of some of the tasks that are presented to them. Despite these
severe limitations, the fact that IOs have not been abandoned by states is
testimony to both their actual value and their perhaps greater potential. A
better theoretical and empirical understanding of formal organizations
should help improve their performance.”

Lecture 2 Notes In-Class

What is the role of international organizations and do they really matter?

- Institutions matter (main take-away); not epiphenomenal

- The ways countries interact in the international arena partly depend on
their institutional context
- Both international and domestic institutions matter
- What is an institution?
o A set of rules (structure/constraint) that govern behavior of a given
set of actors in a given context (economics equilibrium)
- What do international institutions do?
o Informational role
o Lock-in
o Obfuscation
o Collective action
o Coordination
- Preferred perspective is self-interest
- Dramatic action
o Sanctions and military action (UNSC) Iran, Iraq, Libya
o International atomic energy agency  inspectors in North Korea
o United Nations peacekeepers in the Middle East
o NATO; https://www.washingtonpost.com/news/monkey-
cage/wp/2017/02/22/is-the-white-house-ready-for-these-nightmare-
scenarios-in-u-s-foreign-policy/?utm_term=.da91b6c11a76
o World Trade Organization and Uganda
- Ongoing Action
o Global Health Policy (WHO)
o Development (World Bank)
o Monetary policy (IMF)
o Externalities (Implicit Action)
 Participation reduces chance of war
 Increases chances of democracy
- Various Sizes
 o Small: APEC
o Big: EU, World Bank, IMF
- Reading: centralization and independence
o Centralization: organizational structure and admin apparatus
managing collective activities immediate action or specialization;
governance may have flexible (IMF voting) design or rigid (UNSC)
o Independence: ability or authority to act with autonomy to a
degree within defined spheres;
- Rational choice perspective
o Leaders create and use IOs when benefits of cooperation outweigh
costs
o IOs
 Produce collective goods in PD setting
 Solve coordination problems (“battle of the sexes”)
- Prisoner’s Dilemma
o Individual rationality brings about collective irrationality
- Football and Ballet socialite
- IOs LOWER TRANSACTION COSTS OF COORDINATION
- Realist Theory  implication of anarchy and necessitates self-help/interest
- Constructivist: anarchy is what you make of it!
o Where do ideas come from; focus on norms, beliefs, etc
- What do IOs do for their members?
- Laundering?
o IOs can allows states to act without direct responsibility
o Use IO to take the heat
o “does the dirty work”
- Why do we blame IOs and use them to launder our dirty politics?
Lecture 3 Notes

Reading: Vreeland, James Raymond. 2007. The International Monetary Fund:

Politics of Conditional Lending. CHAPTER 1, CHAPTER 6, & Conclusion

- The IMF structure, history, and criticisms

- Conditionality as a failsafe for unlimited liability
I. BACKGROUND OF IMF
- Why did we ever want to create the IMF? Context of global issues at the
time
- Quest for the elusive ideal balance among the tenets of the trilemma
- IMF was a solution, but it did not work
- Why did we develop the Euro?
 - Trade imbalances
- One side makes the opposite incompatible
- Why might one want one of these?
o Fixed exchange rate lowers uncertainty around transaction
international price stability
o Capital mobility if you are from a capital rich country, you can
take advantage of investment opportunities worldwide, and if you
are capital poor, you can welcome in savings of other countries
(both benefit)
o Monetary autonomy able to establish your own interest rates;
address inflation or unemployment
- Side C: Bretton Woods system (monetary autonomy and exchange rate)
- ***identity countries for each one
- A: No country in the eurozone has monetary autonomy (El Salvador,
Ecuador)
- B: United State
- C: China
- Spread of democracy
- Floating exchange rate under Nixon
Lecture 4 Notes

Reading: Vreeland, James Raymond. 2007. The International Monetary Fund:

Politics of Conditional Lending. CHAPTER 2

- Are international agreements credible? (commitment)

- Assume open capital flows, assume you are a dictator, rely on export
sector (wealthy) current account deficit you would give up sovereign
MP to maintain fixed ER; maximize likelihood of survival in power
- International collective action problem
 o How can we allow a free flow of goods without imbalances leading
to beggar-thy-neighbor policies?
o United Nations at Bretton Woods 1944 and 44 countries
o United Nations Monetary and Financial Conference
o One solution: IMF would soften the blow of adjustment
 Form of insurance
 Lends money in the form of loans during a recession so that
they can raise interest rates and avoid externalities on other
countries
 Insurance against risk: Moral Hazard
 IMF uses conditionality to avoid moral hazard when loaning
countries money  impose conditionality by only giving some
of the loan up front (tranche)
 Is the IMF credible?
 Letter of intent
 Loans in disbursements
 Policy conditions traditionally entail
 Fiscal austerity: cut services and raise taxes
 Tight monetary policy: raise IR and reduce credit
creation
 Currency devaluation
o Goal of IMF programs?
 Economic stability
 Economic growth
- Why did the West stop using the IMF?
o B Woods fixed XR system constraining
 IMF loans: soften blows
 Conditionality: still enforces adjustment
 Impinges on National Sovereignty
- Nixon ends Bretton Woods
o 1971 facing election in 1972
o France heavily speculating against US currency; buying gold
o Stabilizing the dollar domestically
o “Are you better off?”
o The trade-off: stability of international prices vs stability of domestic
prices
 For large economies, DOMESTIC price more important
- Late 19th: mobile capital
- Interwar: beggar thy neighbor
- 1944-73: Bretton Woods capital controls and democracy
Lecture 5 Notes

- Reading: Vreeland, James Raymond. 2007. The International Monetary

Fund: Politics of Conditional Lending. CHAPTER 4
The Greek Crisis represents a return to the IMF’s roots, because Greece could have
solved its problems easily if it had sovereign monetary policy, but they could not do it
because of the fixed exchange rate. But the very process for Greece in getting rid of
the Euro and returning to the drachma could cause Bank runs.

 Who is the IMF? Almost everyone, 189 countries

 Who’s not a member? North Korea, Cuba, Andorra, Liechtenstein; Special Case:
Taiwan
 Members have “votes” according to the size of their subscription to the IMF
 Super majority in the IMF is 85% which means the U.S. has veto power, with
16/17% of the votes
 Where do the resources for the loans come from?
o From the members, called the member’s quota (held on reserve)
o The more money they provide, the more say they have over the pool of
money
o The size of the quota is supposed to be a function of the country’s
economy:
 GDP
 Current account transactions
 Official reserves
 But really this formula is bullshit. They do not follow the formula they
claim to use. Really the process goes backwards, where the U.S.
walks around and figures out what place they have to put
everyone, and then make a formula that produces the desired
order
 Who controls the IMF? (until 2016)
o USA: 16.75%
o Japan: 6.23%
o Germany: 5.81%
o France: 4.29%
o UK: 4.29% (the fact that France and UK are equal shows it’s BS. Both
countries sensitive)
o China: 3.81%
o Saudi Arabia: 2.8% (overrepresented. Had petro dollars in the 1970s; on
executive board Saudi Arabia is very well respected. Executive board is
private, so they participate)
o Russia: 2.39% (about where they should; helps to join with nuclear
weapons)
o Belgium: 1.93%
o Canada: 2.67%
 o Brazil: 1.79%
o India: 2.44%
 China does not care about the IMF. Even if they became second place at the
IMF, the institution is still dominated by the United States. What the situation did
give them, is the leverage with other countries to start their own institutions, ex.
the Asian Development Bank (the World Bank for Asia). Even though the
institution is for Asia, and they opened membership to the entire world, so the UK
and France joined. Obama was against France and UK’s membership, but they
responded that the World Bank and IMF had lost legitimacy in Asia.
 After world financial crisis in 2008, the G20 called for a re-allocation of vote
shares
o IMF has a quarter of a trillion dollars, which is not enough money.
 Technically the IMF does not lend to countries, countries purchase currency
 189 countries have to elect a 24 member board

What is the IMF?

 Like an international ‘credit union’

 Almost all countries in the world are members
 All hold currency on reserve
 The IMF can use these reserves to loan to countries in ‘crisis’
 Moral Hazard?  conditionality
o Once countries know the lending is available, they may make riskier
choices
 IMF Programs = Loans + conditions
 Decisions at the IMF are by majority rule
 Influence over decisions pegged to ‘economic size’
o Major shareholders
o To share distribution of votes, need 85% majority
o Most other decisions are made by simply majority

Which countries have entered IMF programs?

 Countries that had used IMF programs never want to have to rely on the IMF
programs again

Letter of Intent

 Will be written as though they came from the government. Signed by finance
minister, central bank president, and/or chief executive

Recidivism was the norm

Countries that were under IMF program for a long time:

 South Korea was under IMF programs in 1960s and 1970s, 13 years
 Zaire
 Liberia
  Peru
 Panana from 1968 to
 Haiti

How does bringing in the IMF help push through economic reform? (Slide 30)

Game theory.

 Some countries are so important that the loans are going to keep flowing and
the rejection cost will be 0.
 Ghana will be stuck with a huge r, negative r will be prohibitive, and so they will
accept.
 Some countries see the IMF as taking over a country, even though the IMF does
not come in unless they are invited in.
 The IMF comes in, changes the pay offs to push an unpopular policy through

Lending to 4 Types of Countries:

1. Government uses the IMF as leverage to push through certain reforms, though
maybe only partially. This is called partial adjustment.
a. Often poor outcome and government’s fault for not implementing entire
program, but they can still blame the IMF
2. Government has international leverage, and conditionality is not binding
(relatively common – Pakistan, Russia)
3. IMF imposes the wrong conditions (1997 East Asian Crisis)
4. IMF imposes the right conditions on a government with the political will to see
them through (uncommon – 1995 Mexico)

- Right: contractionary policies necessary to fix balance of payment issues;

loans act as subsidies to the bad policies and bad government
o Conditionality is ignored
o IMF lending goes to strategically important countries
o IMF doesn’t enforce due to the bureaucratic story
- Lending to 4 Types
o Govt uses IMF to push through policies that protect elites
o Govt has int’l leverage and conditionality is not binding
o IMF imposes wrong conditions
o IMF imposes right conditions and can see them through

Lecture 6 Notes: January 30, 2018

- Lipscy, Phillip Y. 2003. Japan's Asian Monetary Fund Proposal. Stanford

Journal of East Asian Affairs 3 (1):93-104.
“ALTHOUGH THE US AND JAPAN ACCOUNT FOR ABOUT THE SAME SHARE OF TRADE WITH
THAILAND, JAPAN CONSISTENTLY RUNS A TRADE SURPLUS WHILE THE US RUNS A LARGE
TRADE DEFICIT, MAKING JAPAN MORE VULNERABLE TO AN ECONOMIC SLOWDOWN. IN
TERMS OF BANK EXPOSURE, FDI, AND TRADE, THE SAME GENERAL PATTERN APPLIED TO
BROADER EAST ASIA ON THE VERGE OF CRISIS, MAKING JAPAN MORE SUSCEPTIBLE TO
THE EFFECTS OF REGIONAL CONTAGION”

“. . . JAPANESE AND ASIAN INTERESTS ARE SEVERELY UNDERREPRESENTED IN THE IMF AT

THE OFFICIAL LEVEL. PARTLY AS A SIDE EFFECT OF THE AMF DEBACLE, IMF QUOTAS WERE
INCREASED IN 1998 AND REDISTRIBUTED TO BETTER REFLECT ECONOMIC REALITIES. PRIOR
TO THIS REDISTRIBUTION AT THE ONSET OF THE ASIAN CRISIS, JAPAN AND GERMANY HAD
THE SAME SHARE OF QUOTAS AT 5.6% AND SOUTH KOREA'S SHARE STOOD DIRECTLY
BELOW THAT OF LIBYA.”

“The distributive nature of the liquidity provision vs. moral hazard tradeoff at the
international level necessarily biases the US and the EU against the creation of an AMF.”

- Tequila Crisis, banking crisis in Mexico

o Larry Summers under Clinton, Under Secretary for the Treasury
o 1995 Clinton thinking about reelection
o Sudden devaluation of the peso against the dollar in late 1994
o Bailout of Mexico, massive liquidity, Japan against the moral hazard
o Ernesto Zedillo president of Mexico, 1994-2000
- East Asian Financial Crisis: begins July 1997
o Japan wants to bail out to Thailand and Indonesia with liquidity
o US against this and wants to impose massive austerity
o Thailand was forced to float the baht due to lack of foreign currency
o Japan against major structural reforms
- Neither situation was really about ideology
o Instead, it was about national interest

- The Debate
o Moral hazard / conditionality and markets vs liquidity and states
o Donor states prefer rapid liquidity provision if political interests are at stake,
and economic ties are dense
o Concerned about moral hazard if ties are weak, and crisis becomes an
opportunity to extract concessions from the state
 o Camdessus and Suharto symbol of Western imperialism
- Japan’s proposal of AMF: $100 billion
o IMF not really needed in Asia in terms of resources we could make own
o Tries to get 10 to join in, not including the US
o Treasury Secretary Summers calls Sakakibara “I thought you were my
friend”
o US lobbies China not to join the AMF
o Japan largest Asian economy in 1997 and China decides not to join
o 2010 Asian CMIM: Countries have equal economies: 30% and 30% equal
 Could not agree on what to do about moral hazard

Lecture 7 Notes: February 1, 2018

- The International Bank for Reconstruction and Development (IBRD)

- International Development Association (IDA)
- Multilateral Investment Guarantee Agency (MIGA)
- International Finance Corporation (IFC)
Chang Mai: equal shares between Japan and China, so no real leadership and not any
real competition for the IMF

Asian Infrastructure Investment Bank (AIIB): rivals World Bank, US not invited, China-led
initiative

(IMF was supposed to help ER stability and monetary policy; has experienced mission
creep  development; large loans for macro targets $100millions to billions; around
2000 people, primarily in DC)

The World Bank: development, have less money, provides lower loans $10-$100 million
for specific projects, multiple projects in one country; staff around 10,000, over 100
global offices

- Various scopes, both emerging markets and developing countries

- 2006: $23.6 billion in loans and grants on over 279 projects
- The primary development international institution
- Critics
o World Bank has fallen short of its goals of improving living standards and
reducing poverty
o Washington consensus: get government out of market, lower barriers to
trade, ideological view of both IMF and WB (Easterly 2005)
o Misguided policy conditions through the development projects
(intervening in the market?  not enough market?) (austerity conditions
 not enough state?)
- Some reasons the IMF and WB are confused
o Both use conditionality
o World Banks had been known to require an IMF program in good standing
to pass the buck (no longer a requirement)
 o Both founded at Bretton Woods in 1944
o Both in DC
o Annual meetings are done simultaneously
o Head of IMF is Managing Director (European) and head of WB is President
(American)
o Similar governance structure
o WB appointed and elected directors: US Japan China Germany France
UK
o WB euphemism for democracy for good governance
o 6 TYPES OF COUNTRIES FROM SLIDESHOW
o Zoellick at Georgetown

Lecture 9 Notes: February 6, 2018: Development organizations Part 2 – Regional

Development Organizations

Reading: Kilby, Christopher. 2006. Donor Influence in Multilateral Development

Banks: The Case of the Asian Development Bank. Review of International
Organizations 1 (2):173-95.
Some Review: World Bank and World Bank Group are not the same thing

- World Bank is the IBRD

o Gets most of its funds from private markets
- The IDA is the International Development Association
o Gets funding from IBRD loans
- International Finance Corporation (IFC) lends to private companies for private sector
projects
- Multilateral Investment Guarantee Agency (MIGA)

Six country types

1. Countries that borrow from IBRD

2. From IDA
3. Blend of both
4. Problem countries
5. Special cases
6. Too rich to borrow

_____________________________________________________________________________

The Actual Lecture

The Asian Development Bank (1966)

- Shadow of the cold war with competing ideologies

- We want a developmental model counter to communism
- Vietnam is a growing issue every day

Other development banks:

 - World Bank (1944); post WWII
- Inter-American Development Bank Group (1959); Castro’s rise
o Cold war in play
o “Main source of multilateral financing in the region”
o Countries that receive IDB financing also hold a majority of the shares
o But US has 30% of the votes
o Latin American elite
- African Development Bank (1966); African nation independence
o Started independent: closed to non-Africa countries until ‘82
o Independent of Euro influence independent of Euro money
o Poor countries without many resources to lend
o Decide to open to West in 1982 for more resources
o No member or group have veto power
o Lend about $3 billion per year to African countries
- European Bank for Reconstruction and Development (1991)
- Asian Infrastructure Investment Bank (few years ago); led by China

Take-aways on RBDs

- Foundational context is important to remember

o Cold War (IDB), independence (AfDB)
- Representation based on:
o 1 dollar 1 vote (like World Bank)
o Augmented by regional status
 AfDB: Nigeria
 AsDB: Japan
 IDB: Brazil/Argentina

There are some graphs on the powerpoint

Vreeland is now discussing how to read well (e.g. reading abstract, absorbing information, using
graphical information)

Five steps to understanding tables and turning them into substance

1. What is the analysis explaining?

a. Dependent variable usually in the Title (e.g. ADB loans)
2. What is the unit of analysis? How many observations… of what (e.g. “country-years”)
3. What are the independent variables of interest?
a. Main independent variables, a.k.a. control variables
4. What is the effect of each independent/explanatory variable? (coefficient/beta-
coefficient) positive or negative correlation
5. Are the effects statistically significant?
a. Asterisks= statistically significant: *,**,***
b. Is the standard error <1/2 of the coefficient?
c. Or is the t-state/z-stat >1.96?
d. OR is the p-value <0.05?

Vreeland is now applying these steps to Table 2 of the Kilby article very slowly

Shares correlate with loans

Robust: findings apply across models

Lecture 10, Feb 13: The United Nations General Assembly

READING: Voeten, Erik. 2000. Clashes in the Assembly. International Organization 54

(2):185-215.
- How do you get governments to sacrifice sovereignty?
- Hegemons might be reluctant
- Rest of world still needs to get along
- Types of IOs
o Financial (IMF, WB, Reg. Banks): great powers? Rest of world? More money 
more votes, malleable
o Security (UNSC): great powers are winners of WWII and permanent, rest of world
gets regional representation at two-year terms
o G7 or G20: great powers=members, rest of world gets zero
o UN General Assembly: one country=one vote (e.g. China and Nauru get the
same), are resolutions taken seriously? Both equal in having sovereignty and
nothing more  LEGITIMIZE EXISTANCE OF STATES
- The United Nations
o October 24, 1945: 51 countries
o South Sudan most recent in 2011
o Koreas became members at the end to the Cold War
o 193 member states (Taiwan? PLO?)
o Becoming a member LEGITIMIZES existence
o Taiwan, Kosovo, South Ossetia?
o UNESCO: Made PLO a member in 2011,
o UN Operations staffing at about 40,000s, 4.2 billion USD
o Official languages: Arabic, Chinese, English, French, Russian, Spanish
o 15 current UN peacekeeping operations
o UN includes a number of important successful storiesautonomy on the ground,
fails with higher-level political disputes
- General Assembly: consider and approve the budget, elect the non-permanent
members of the UNSC and other councils and organs and appoint the Sec Gen with
recommendation of the UNSC
- Do UNGA votes matter?  maybe yes
- Evidence from the IMF lending
o Voting in UNGA correlates
o Moving toward the US (+), G5, voting with France in Africa
o Using UNGA voting, what does world look like?
 East versus West
 Height of US unipolarity  showed the East still was a player in 2000
 How to test
 Record voting, look for pairing (not sure on how to treat
abstentions),
 East-West stability
- What does the G20 world look like?
Lecture 11: 15 Feb, The Political Economy and UNSC, Money and Influence
- Trading money for political influence
- Violence can travel intergenerationally
- Red and yellow cards in FIFA civil war background
- Cooperation and change can involve distasteful stuff
- UNSC P5 P3 US, UK, FR, get Russia and China to abstain
o Ten elected members, total of 9 to pass
o Pressure to get unanimous vote
- IMF and world bank get money with a seat on UNSC
- Get elected means more likely to get financial perks (chicken or the egg?)
- US and other powerful countries seek additional power over the UNSC
- Nominated by regional caucus and elected by the General Assemby
o Africa: 2, Asia: 2, LA: 2, EE: 1, WEOG: 2
o P5 always have voting power
- High/ low threshold for war
- How do you convince voters that the threat is high enough to go to war?  approval
higher with UNSC support
- Japan exists under peace constitution
o No force but self defense illegal to intervene
o Article 9: forever denounce war
o Augment voice on UNSC

& Lecture 12, Feb 15 & Feb 20: On Paper

- Counter examples (you can’t buy all the votes)
- Cuba UNSC 1990-91, opposed Iraq resolution
- Left IMF in 1964 (tool of the US)
- Yemen 1990-91 domestic scene, could not let US into area
- Vote against Desert Storm; US cut hundreds of millions in aid

Lecture 13, Feb 22: The United Nations General Assembly

READING: Weiss, Jessica. 2008. Autocratic Audiences, International Bargaining, and

Nationalist Protest in China. Manuscript, Yale University.
- Will China play the foreign aid game?
o How chine might use its powerful position in international politics to try to obtain its
foreign policy goals
 Dalai Lama?
 PRC vs ROC?
 Chiang Mai alternative conditionality?
 ODA politically motivated, non-concessional lending
- Today… a new permanent UNSC seat for Japan?
o Today is really about an analytical tool:
 Commitment problem
 One version: Schelling Conjecture—in a negotiation, the party that is the
most constrained is the one with the most power
 Tying your hands increasing your bargaining leverage
 Another version: time inconsistent
 - The Weiss Story: China is not an authoritarian state since they have protests, which they
use as leverage in future organizations to say that they were constrained by civil unrest
o Anti-Japanese protests in China: sometimes allowed, sometimes prevented
o Autocracies can generate credible commitments cam be threatened buy civil
unrest
o Typical Schelling Conjecture: 2 actors negotiating at the international level
 One constrained by domestic legislature
 One not constrained because he is a dictator
 Favors democracies
 Have credible constraint
 Audience costs
- Weiss flips the Schelling Conjecture around
o US announces support for Japan
o Audience costs are in place for backing down
o China, at first, does not object
o Then “releases” the protests
o Now China has a credible constraint
o US backs down
o Dictatorship works against democracy
- Credible commitment?
o International constraints?
o Look back at Class 5 notes
o How does being in the IMF help push through economic reform?

Lecture 14, Feb 27: Human Rights Part 1 – The United Nations Human Rights Conventions

READING: Hollyer, James R. and B. Peter Rosendorff. 2011. Why Do Authoritarian

Regimes Sign the Convention Against Torture? Signaling, Domestic Politics, and Non-
Compliance. Quarterly Journal of Political Science 6: 275-327.
- “A first set of explanations suggested that dictators signed the treaty to gain reputation or
win aid concessions from Western Liberal democracies. Beth Simmons and others pointed
out, however, that it wouldn’t make much sense for Western states to reward such
obviously insincere behavior and that there is no evidence that authoritarian states
actually get goodies for signing human rights treaties.”
o more pluralistic autocracies are more likely to exhibit pressures for signing treaties
but also have more dissent, which provides incentives for torture
- the authors argue that dictatorships use signing the CAT as a costly signal to domestic
opposition groups that they will continue to employ repressive tactics to stay in power
o these regimes sign precisely because they have no intention to comply and
because everyone knows this
o “In the trade and transparency work, democracies use international
arrangements to credibly signal the fact that they are following policy that is
good for voters. In the human rights story, the dictator uses the treaty to signal
that they are willing to do anything, including torture, to stay in office – and
they’re so sure of themselves, they commit to going to jail (through the
enforcement of universal jurisdiction) if they do ever fall from power.”
- Class notes
- How do we build global cooperation? A tale of two human rights treaties.
o Leader-Resolve Story (Badass)
o Lock-In Story (Wimpy)
- Importance of domestic policy  majority perpetrated by own government
- Domestic reasons to sacrifice sovereignty
- Domestic political regime can determine reasons to enter treaty
- How should we design institutions to best generate cooperation? (broad/profound)
o Start with broad participation and shallow commitment that can gradually
deepen (UN) normative approach
o Alternative is narrow participation with deep commitment and then broaden (EU)
o IMF tried to address problem of financial flows at the global level (failed)
 Europe turns to regional solution: fixed exchange rate to one exchange 
deepest monetary sacrifice possible
- United Nations Approach to International Cooperation
o Broad
o Universal Declaration of Human Rights: 1948
o International Covenant on Economic Social and Cultural Rights ‘66
o Civil and Political Rights ’76 (ICCPR)
o All Forms of Discrimination Against Women ‘81
 These measures are domestically enforced
 Can make a report with invitation
o Convention against torture and other cruel, inhuman, or degrading treatment
(CAT)  universal jurisdiction 1984, 1987
o Torture committed against citizens of country A by officials of country B while in
country C can be prosecuted by country D!!!!!!!
 Defines torture as any act inflicted under public authority by which severe
pain or suffering, physical or mental, is intentionally inflicted on a person
for the purposes of obtaining information or a confession.
 The CAT might have teeth?  Pinochet case
- Why sacrifice sovereignty?
o Political Regime: Dictatorship vs Democracy
o What’s going on with dictatorships?
 Political cover story: democracies easy to explain  treaties binding with
domestic law, gain int’l reputation and lose nothing
 Dictatorships’ treaties do not affect domestic law  dictatorships
who torture the most need the most cover
 Torture is more likely when power is shared than if it is absolute
o How do I measure power-sharing?  some have
independent political parties
o Under no-party and on-party, limitations are obvious, no
ambiguity
o Torture may ironically be higher in political parties with
slightly more liberty
o Low levels of torture = fear of torture
o No pressure from multi parties to sign CAT
o Entering CAT is a form of policy concession
 Leader-Resolve Story: signing own arrest warrant?
Lecture 15, March 1: Human Rights Part 2 – The UNHRC
- Time inconsistent problem with credible commitment
- Enter into CAT to send signal to citizens that they are strong-resolve most sure of survival
- Rosendorff’s broader view: international institutions are signals to domestic constituents
- Trade agreements are used by democracies to signal low-protectionism
- World Bank: disseminating information to third parties signals transparency
- The CAT: dictatorships signal leader resolve
- Why would a democracy enter human rights agreement
- Why sacrifice sovereignty?
o Depends on the political regime
- The wimpy story (Andrew Moravesik)
- European Commission on Human Rights (ECHR): compulsory jurisdiction, individual
petition; new democracies supported it, while established democracies did not
- Not ‘locked-in’ to democracy yet
- Why do it if democracy already is doing well?
- Semi-democracies and dictatorships did not want to sacrifice sovereignty

AUTOCRACIES DEMOCRACIES
STRONG WEAK STRONG WEAK
SIGN (BADASS) DON’T (WEAK DON’T SING (LOCK-
RESOLVE) IN/WIMPS)

POST MIDTERM Lecture #19, March 22: The WTO

WTO has no independent capacity to impose an agenda  considered a member

driven organization.

1. Legislation: WTO law that can ultimately be adjudicated.

2. Litigación:

Timeline:

 WTO not really a Bretton Woods institution.

 GATT started off in 1947 with a mere 23 countries
o Continue to meet almost once a year with more members and issues
o Begin with tariffs, as many new members are young nations where
governments use tariff revenue to fund the government
 Tokyo Rounds 1973-1979
o Begin to deal with non-tariff measures
 Uruguay Round 1986-1994  produces the WTO
o For the first time, also do services and intellectual property
 Tariffs have already been dealt with.
3 bundles of commerce of the WTO:

Goods Services Intellectual Property

Widget, Car, Hair Cuts and Restaurants
Corn
 Involve Ideas and someone  Patents
doing something somewhere  Copy Rights
 80 percent of Americans earn a  Trademarks
paycheck in the service sector.
(Single largest export is Disney
World, as every visitor
considered an export)
 Finance, consulting, R&D

 U.S. is going to argue that China is ripping off intellectual property.

 If you ever need a document for research or your job, read the trade policy
review by the WTO on that country 

The (UN)Doings of Doha

 The rich countries demanded that the poor countries give them intellectual
property and later on the rich country would give them agriculture later
 9/11 happened, the next round came
o Bush said that the way to stop terrorism is to make everyone rich, so they
began the “Doha Development Agenda”
 Political problem: farmers are geographically dispersed. Because
every democracy map written in the olden days favors farmers.
Means democracies “can’t” fulfill their side of the promise, the rich
countries do not give the poor countries agriculture.
 Japan has a ___ percent on tariff, but every rice farmer is
about 68 and does it part time

Current Agreements:

TiSA (Trade in Services Agreement)

 Plurilatera  new negotiating strategy at the WTO

o not everyone has to sign, literally join only if you want to aka “voluntary
club”
 Everything at the WTO is done by consensus; hard to negotiate with 164 Vetoes
 Rich countries sell ideas and thus interested in TiSA
 Market access all over the world

Environmental Goods Agreement (EGA)

 Those countries that see fit will impose zero tariffs on any clean tech

Information Technology Agreement

  No tariffs on computer hardware and peripherals

WTO law comes from WTO trade rounds.

Dispute Settlement

 Trump Tariffs: Europe, Mexico, Canada, Brazil . . . all countries got exempted over
the tariffs on steel and aluminum. China will retaliate.

WTO litigation will remain the court of choice

 Plus provisions  not WTO law

 Beauty of the WTO victory is that you scared the defendant and scared 163
other countries
o “But you as better be as pure as the driven snow” -- Prof. Busch
Every country will be interested in using your case against you. It’s called a
defensive liabilities.
 As a USTR technical representatives to trade committee, they often
discuss issues they’d like to litigate but can’t, because the USA does
it too
 Goal of litigation because we need to clarify the rule of law. Litigation make the
global economy “more secure and predictable”
o Issue is that there is no such thing as binding precedent in international
law, but at the WTO there is precedent is binding.

 Scholar Robert E. Hudec.

o Point was that the WTO is great because it allows politicians to go
somewhere and look like they are doing something
o “Demonstrating Competence”  how to get re-elected so go to Geneva
and make it look like you are working hard

Q&A in Trade Policy Review

When a Trade Policy Review occurs at the WTO, countries can ask each other
questions. These questions are dangerous because they can lead to litigation.

 Trade Policy Review 2011: Nigeria on the hot seat

o Brazil: Why is it that you continue to have numerous import bans in place,
although it is illegal??
 Nigeria: We used to have 45 bans, now we are down to 26 bans.
 Is that a good answer? It has to be incentive compatible. There has
to be a big payoff for Brazil to sue.
o Brazil: Can you explain the scientific justification for harassing Brazilian
eggs, pork, and beef, taking into Account 2.2 and 2.3 of the SPS
Agreement?
 Nigeria: Point out that they do not have the institutional or
technical capacity to answer this question.

Specific Trade Concern

  United States loves these.
 Ex. Indonesia have a specific trade concern on cigarettes
o One day the United States decided to ban “flavored tobacco.” 2/3 of
Middle School children learn to smoke by smoking flavored tobacco.
o Indonesia asks why they are not banning menthol (Which is the same
thing as flavored tobacco)
 U.S. says their scientists will look into it
 Indonesia sued because the real reason was Philip Morris U.S.
 US loses

Litigation

o Consultations (60 days)

 China will write a letter to the permanent mission of the WTO
 It will ask to meet
 Word for cheating is nullification or impairment
 You cheat by nullifying or impairing rights
 These consultations are in secret; Financial Times, Economist does
not know yet
 1/3 of all cases end in bilateral consultations
o Panel (1 year)
 Usually point where media pick up on the case
 The 3 people are chosen by the U.S. and China and both sides
have to agree from the panel. The 3 people have to be from third
parties. They will be Europeans.
 Serve on an ad-hoc basis and will only listen to that case
 Both sides will make fun each other and get very saucy
 The average WTO case is over eight claimants
 The complaining party wins 90 percent of the time
 Big question is what they win out of the complaints
 Ex. U.S. beats Europe on Boeing versus Airbus, but do not win the
one claim they wanted
o AB (Appellate Review is 18 months)
 Joke on Boeing versus Airbus is that the U.S. appealed its own win
because they wanted even more victory
 Appellate body is 7 fulltime jurists
 70 percent of cases are appealed, so the appellate body is
very busy
 Only listens to errors in law rather than error in fact
 Last week Europe said they would go after Harley Davidson,
Bourbon, and Levis jeans. But it would have taken over 18 months.
They actually can’t act on that threat to retaliate. No one is guilty is
until the WTO says your guilty. But Europe can’t wait 18 months.
 When appellate body rules, get precedent
 Elected officials will invoke rules that they know will get shot down
because 18 months is forever in politics
o DSU 21.5 (Dispute Settlement Understanding 21.5; the compliance panel)
 Required to figure out whether the defendant has done anything
to correct its ways
o DSU 22.6
 China will go in after non-compliance after its victory and will say
that the U.S. error is costing China an insane amount of money.
 Once that number comes in, this is how retaliation works.
Europe will drop a hit list. They will go after every politically
significant U.S. sector and get 100 percent of the tariffs.
 Beauty of California, it has 53 districts, so punish the firms that
have many districts.
 But Europe and China will always go after Harley Davidson.
Harley Davidson does not appreciate it. It has to be non-
discriminatory, so will go after Indian motorcycles too.
 Only 6 cases of retaliation in the history.
 That’s why Trump could not pay off the 2 3 2 steel tariffs.
 Even when Trump goes against China, he is offering 15 cases
to get an exemption
 Most famous retaliation case is U.S. retaliates against Europe over
bananas
 Louis Vitton: What do you mean our bags cost 100% more
today in the United States?
 That’s why Europe names Harley. It’s an icon, like the Vitton
handbag.
 Some cases take 3 to 5 years
 Member as Complaints
o The redder the country, the more it complains: EU and US most red
o Big markets sue and big markets also get sued

WTO is fundamentally about non-discrimination and trade. Means can get in

compliance with the WTO if there are multiple equilibria, where the guilty defendant
can also bring themselves into compliance by banning additional measures.

So you have to have a high expectation of future trade to make the effort worthwhile.

 No one sues Nigeria. There is no expected payoff to make that litigation

worthwhile
 India is getting very good at this. India a bit more diverse
 US about a million times more: 100%, percentage of all WTO litigation cases in
which the U.S. is involved. In every case the U.S. is a complainant, defendant, or
observant.
 WTO can only handle 20 cases per year.
  2 3 2 steel tariffs are proof that the WTO works. EU can’t easily retaliate. It’s
creating a situation where countries have no clue.
 “Thank god for Trump. This guy has turned the entire world into Trump.” In
Canada, Trump has united the three parties that they have become pro-NAFTA.
 Blames Hillary Clinton because she recesitated section 301. U.S. has not used
section 301. When we use section 301 tomorrow, we will see how the world
reacts. Trumps reaction should be, yup, totally illegal. And see you in 18 months.
o Section 301 of 1974 trade act

Questions and Answer Session for 15 min:

 A country can be a third party in a complaint by registering as an observant and

simply having substantial interest in the outcome
 Countries often want to be third parties to hear what the terms of an early
settlement are
 Most third parties are cheering for the complaining party and testify pro-
complainant.
o Few countries testify pro-defendant if they are scared of getting targeted
 Some countries will do it both pro-defendant and pro-claimant
o Mexico Telecom. Australia is a third party. Australia says be careful this is
careful, new territory, WTO does not cover anti-trust. Australia is not pro
either side but pleading for the WTO to restrict its analysis.
 Why even use the WTO if it takes 18 months?
o Iterated interaction means you will trade with these countries for a long
time.
o Thus, play the rules as you want them to be played.
o Never be too loud when you lose and never too loud when you win
 Mexico has proposed that the WTO do retroactive reciprocity
o Single worst proposition right now is that we could invent a permit scheme
and then sell those retaliatory permits and sells them to another.
o Would be the worst because the U.S. and EU would be the main buyers
and end trans-atlantic trade
 U.S.-UK Post-Brexit will be one of the first deals
o Already negotiated TTIP and have it ready
 US-Japan (TPP) will happen fast too
 May also offer Philippines trade deal
 US-UK working group is very important
 Britain is in panic mode because there is no capacity to renegotiate. IF you can
even spell trade right now, there are jobs in London. London has not negotiated
its own trade deal since the 1950s.
 Enter “International Trade” in LinkedIn.
Lecture 20, March 27: Regional Trade Organizations
- Comparative advantage, winners. Losers
- Why regional trade arrangements vs world trade
- Richardson’s hypothesis boldly predicts that trade diversion and trade creation may
actually cause tariffs to decline. This is attributable to the presence of a political
component in the governments’ objective functions  lower political capital of the losers
in the trade arrangement
- Key observation on the WTO: small international organization smallest of three Bretton
Woods orgs
o Legitimizes retaliation by bringing a case to the WTO
o Most favored nation and nondiscrimination
 There are some exceptions, FTAs and Customs Unions, {own external
policies}
 Tension: any FTA can create more favorable situation than rest of the
world, violation and contradictory to MFN principle
- Logic of comparative advantage, factor incomes and class conflict
- Labor vs capital (workers vs owners of capital)
o In closed economy (autarky) capital is in high demand and has a lot of cheap
labor
o WTO and RTOs allow you to lose by giving govt alibis, tying hands
- Preference for RTOs vs WTOs
- Trade diversion actually causes tariffs to decline according to Richardson (1993)
- RTAs can weaken the political strength of the losers from trade
- Threatened more by world market than by the regional market
- Argentina enters Mercosur and raises tariffs with respect to rest of the world AT FIRST, but
then lower tariffs within the RTO and then the rest of the world
- Two step process enter the RTO, free trade within the region, losers lose economically
and politically, then enter into global trade without the satisfactory resources, move into
different industries where you have an advantage
- Example: why would one enter NAFTA
o _________________________________________________________________
o | | | |
o -2 -1 0 1
o # SQd/NAFTA C/WTO  FT
-
- Setting precedent for the free trade level for the rest of the world
 - Choose option that is closest to your ideal point

- As losers from FT lose, willingness to enter WTO increases as point moves northeast
- Without NAFTA
o Perhaps one does not enter the WTO at all
o With NAFTAA: losers from trade weakened
- Take homes
o Gains from trade with winners and losers
o Trade agreements can facilitate trade
o Cause credible commitment and lock-in
o Can signal trade policy
o RTA tension between trade creation and trade diversion (violation of MFN idea)
o Trade diversion can lead to trade creation in long run according to Richardson
due to the weakened political power of losers from FT

Lecture 21, April 3: European Monetary Union—McNamara

- McNamara, Kathleen R. 2008. A rivalry in the making? The Euro and international
monetary power. Review of International Political Economy 15 (3):439-459.
- On balance, the essay concludes that the Euro has many of the underlying economic
factors that would make it a peer competitor to the dollar, but that the necessary political
power and social requirements are missing to make it the focal point of the global
economy.
- Euro is not a true rival of the dollar
- Dollar bonds**
- Global bond markets are the one area that Euro is now dominating the dollar, but only by
some measures. These bonds are notes issued by both public bodies (national and
subnational governments), private companies, and financial institutions for the purpose of
borrowing money on international financial markets.
- This Euro dominance marked the second year in a row that the European currency was
the most frequently used denomination for international market bond instruments
- Noon at the information booth at Grand Central Terminal
- Shared interpersonal understanding of the dollar means we will remain on the dollar
- Swiss franc
- Reminder: why would a country want
o Free capital flow
o Sovereign monetary policy
o Fixed exchange rate
- International cooperation
o Little substantial sacrifice of sovereignty
o IOs not really fulfilling goals
o Dirty work and resolve
o Is real cooperation possible?  YES
 THE EURO!
- Membership
o There are countries that they do not want
o Two-year European exchange rate mechanism
 Some opt out  Denmark, UK, Sweden (de facto)
 Why? A real commitment would prefer looser monetary policy
 Germans will push for tighter monetary policy
- Why were countries able to maintain fixed exchange rates with high capital mobility in the
late 19th century?  go to slide
- International collective action problem: how can we allow for the free flow of goods,
services, and capital without imbalances that lead to beggar-thy-neighbor policies?
o IMF softens the blow of adjustments moral hazard conditionality Bretton
woods falls apart IMF never works as intended
o 1979: European Monetary System  struggled through floating exchange rates
throughout the 70s
 Fixed but adjustable
 The Bundesbank (Germany) used monetary policy to keep inflation low
and the rest of EMS adjusted to that
- Mitterrand 1981 declares sovereign monetary policy to lower interest rates
- 1988-2002: Monetary Union planning begins for a monetary union, move toward fixing
currency (1999 permanently fixed)
- January 2002 The Euro
- High degree of economic openness across Europe  sacrificed monetary autonomy for
exchange rate stability
- Dollar is ~60% of reserve currency, euro is ~25%
- Main points from reading in the power point in yellow
 -
- Renminbi?
- Special Drawing Rights?
- Status quo: US shock absorber, some other stuff, review PP

Lecture 22, April 5: Democracies and Trade Cooperation

- Regional Trade agreements, Domestic politics, Democracy v. dictatorship
- Free trade area vs customs union (customs union gives up more sovereignty, no individual
external policies like FTAs)
- Logic of Collective Action: Olsen
- Trade benefits economies  but must institutionalize free trade because there are going
to be losers from trade, which are more effective in organizing
- Rationally ignorant about trade on items
- Fire-alarm story: enter TA, violate, attention called, voters become aware
- Regional Trade Agreements
o Free trade area (NAFTA)  no tariffs, independent ex policies
o Customs Union (EU)  no tariffs, common ex. Tariff policy
o Discriminatory?  GATT Art XXIV, tariffs not higher than any member prior
 MERCOCUR example
o Currently 279 RTAs in operation
o More than half are bilateral (KORUS), 86% are Free trade agreements
- Narrow and deep agreements, e.g. bilateral agreements
- Will bilateral cooperation hurt global cooperation?
o Why would you go to NAFTA?  Spatial model
- Without trade agreements, however, which group will most effectively lobby the
government?  Protectionists/losers
- Why do some groups organize more effectively than others?  smaller easier
- What can a democratically elected government do?
 o Small group lobbies, large group rationally ignorant
o Trade agreement signal solves the rational ignorance/collective action problem
of consumers
- Why a trade agreement?  signal of good policy; signal resolve of being a good trader
- Requires that outsider government better informed than domestic voters, outsider must
announce violations, requires more scrutiny to exist with participation in the international
agreement than without it, requires uninformed voters to pay attention to signals from
outside government
- A key prediction: democratic governments have an interest to resist protectionist lobbies,
dictatorships do not have incentive and simply succumb to protectionist lobby
- Democracies more likely to enter PTAs than dictatorships

Lecture 23, April 10: Role of International Organizations in Promoting Democracies

- Democracy from the Outside-In
- The effect of IOs on democracy
- The Democratic Peace
o Democracy, International Organizations, International Trade
o Kant Bruce Russet
- Purchasing power parity (PPP)
- Democracy and per capita income
o Develop does not cause democracy to emerge or vice versa
o But there is a connection
o Economic development sustains democracies
- Consider dynamic correlations
o Onset vs continuation
o Article considers the onset of democracy
o Basic Stata commands
 Regress y x
 Regress y x if ylag==0, regress y x if ylag==1
 Democracy may predict the latter but not the former
- Diplomatic and economic pressure
- Acquiescence of anti-democracy elites
o Hands-tying
o Socialization (norms)
- How do IOs provide diplomatic and economic pressure?
o Highly visible
o Multi-lateral legitimacy (not unilateralism)
 Example: OAS and Guatemala: auto-golpe of Jorge Serrano 
OAS protested and proposed sanctions, military ousted Serrano
and installed civilian rule
- Acquiescence of anti-democracy elites
o Credible threat and income distribution (Boix)
- CREDIBLE COMMITMENT: what is to prevent the poor from expropriating the rich?
o When will the rich acquiesce?  when are the costs of redistribution
smaller than costs of repression?
 o How mobile are the productive assets of the rich? (brain drain vs
landownership)
 Rich might have credible exit threat, and poor need assets of rich
 Cost of redistribution higher for immobile productive assets, since
rich do not have credible exit threat  rich will pay high repression
costs to maintain power
 Economic IOs may make credible the commitment to preserve
property rights (though credible exit threat may be stronger)

******WHAT IS THE IO SCORE?

Lecture 24, April 12: Who Wins the Olympics?

- Culture vs institutions
o Institutions?
o Hammers and nails
- Does culture explain?  “they are different because…”
- Why is business in china so distinct?
o Cultural story: they have different values, they value the future
(investment, sacrifice for children)
o Institutional: maximize time in office
- Why did the US give up the fixed exchange rate in 1971?
o Culture? Or wanted to maintain interest rates before an election
- Germany, the US, and bankruptcy
o Medical bills #1 reason for bankruptcy
- Does culture determine who wins which sports at the Olympics? Who wins the
most gold medals?
o GDP/real GDP (population)
o Referee/crowd influence
o Home field advantage
o Invest when hosting, lagged effect still produces success
o Latitude
o Communist variable  invest heavily in sports
- But specific sports?
o Futbol?
o Women’s soccer  Title IX

Lecture 25, April 17: Global Cooperation on the Environment: Culture and Institutions

- From the reading

o We argue that malapportionment of the electoral system affects both the
rate at which governments tax gasoline and the extent to which
governments participate in global efforts to ameliorate climate change.
Malapportionment results in a “rural bias” such that the political system
disproportionately represents rural voters
 o malapportioned political systems will have lower gasoline taxes, and less
commitment to climate change amelioration, than systems with equitable
representation of constituents.
o malapportionment is negatively related to both gasoline taxes and
support for the Kyoto Protocol to the United Nations Framework
Convention on Climate Change
- Culture as variable  hyperinflation averse culture
o Often culture is used as an independent variable
o But can also be dependent  something to be explained
- Do institutions shape culture? (reading)
- A defining feature of the USA: our car culture
- UK vs US
o Similar culture, FP, legal traditions, car culture?
o Opposites with gasoline tax policy
o Pre-tax price similar, but taxes vary widely
- Who needs the most gasoline per capita?
o Rural: distances are longer
o Does “need” translate into policy preferences?
- Policy Outcomes
o Interact interests and incentives with a domestic political institution 
malapportionment tends to weigh rural preferences more than urban
(Senate vs House)
o Does malapportionment affect gasoline prices and the Kyoto protocol?
o Kyoto Protocol
 Stabilize greenhouse gas
 187 states ratified by 2009
 US only unratified
 How long did it take to ratify for a certain country  then can run
regression on malapportionment
 UK and US on opposite sides of the spectrum again
- Which came first? Car culture or malapportionment?  the institution
o Car culture might reinforce malapportionment
o Could have other effects: exacerbate racial and ethnic tensions

Lecture 26, April 19: Whither Global Governance?

- No required reading
- Religion and Science
o In spite of all doubts, we have faith
o In spite of all evidence, we have doubt
- Applying our International Organizations lessons to your lives
- In science, luxury of doubt; in religion, luxury of faith
o But in policy-making, there are no luxuries
 Need evidence, skepticism, and faith
- Is this a “Bretton Woods” moment?
 - Remember what the trilemma is
- EU sacrifice of sovereignty  deep and narrow deepened slowly with inertia
o Lots of veto power
o Original agreements had just six members
o Brexit illustrates difficulty of getting out (vs immediacy of Nixon floating
exchange rate)
o Narrow & deep can later broaden
o European Coal and Steel community one of the first collective
communities and is significant because they are major materials for war,
illustrating that the EU was a major commitment and regulated who went
to war (1951)
o 1957: the six countries enter into the Treaties of Rome
o 1967: merger treaty
o 1973: first enlargement  three countries enter
o 1979: the first direct, democratic elections to the European Parliament
o 1981: Greece joins
o 1985: adopt the same flag as the Council of Europe
o 1993: Maastricht Treaty
o 2002: Euro  19 current countries
o Currently 28 members of EU
- Need a threat to get our act together / cooperate?
- East Asian Financial Crisis example
- Institutions of the European Union
o Legislative Branch (upper and lower house  Council and Parliament)
o Executive Branch (President of European Commission and President of
European Council)
o Judicial Branch (Court of Justice)
- Cooperation at regional level might be the baby steps necessary for progress
o Asia
 Asian development bank
 ASEAN +3
 Chiang Mai Initiative (have not figured out how to deal with moral
hazard yet)
 Asian Infrastructure Investment Back (AIIB)
o North America
 NAFTA
- START narrow and deep and THEN broaden
- Faith …Distributions

Lecture 27, April 24: Exam Information

- Time inconsistent preference problem / credibility problem

- Institutions matter  international arena depends on both domestic and int’l
institutions
- Institution is a set of rules and an equilibrium
- What do international institutions do?
o Cooperation (coordination in prisoner-dilemma-esque situations)
o Commitment
 Hands-tying of present government (2 level game) change payoffs
 Hands-tying of future government (LOCK-IN)*****
 Of present governments—signaling resolve to foreign or domestic
audiences
 3rd party source information
o Laundering / Dirty Work

- Goal: replace proper nouns and - International institution

dates with the names of variables - ECHR membership
- Political x exchange rate regime - Slow, steady success of EU
- Age of democracy - International reserve currency
- # of checks and balances - Choosing NAFTA or WTO
- Focal point - China’s international negotiation
- Precedent on trade policy posture
- Domestic political constraints - IMF/WB loans
- Political importance - ADB loans
- Alliance - Conditionality
- Economic ties - Democracy
- Regional organization membership - Global governance
- Distribution of global economic - Olympic medals
power
- Population, GDP/capita, host-
country, Soviet/planned

- Peace triangle: democracy, international trade, international organizations

- Trilemma
- Narrow and deep  broad and deep
-