Chapter 2: International Institutions
Class Notes: these count for 1% of your total grade
1. List the primary international institutions and their main goals
International institutions refer to the rules and organizations that govern and constrain behavior.
International Monetary Fund (IMF): Ensure global economic stability through policy
advice, financial assistance, and crisis management.
World Bank: Support economic development and poverty reduction in non-industrial
economies through funding and technical aid.
World Trade Organization (WTO): Promote free and fair trade globally by establishing
trade rules and resolving disputes.
2. List the different rounds of GATT/WTO and identify one major goal of each round
Geneva Round (1947): Established the foundation of GATT and reduced tariffs on goods.
Kennedy Round (1960s): Focused on cutting tariffs and introduced anti-dumping measures.
Tokyo Round (1970s): Addressed non-tariff barriers and implemented rules on subsidies and
regulations.
Uruguay Round (1986-1994): Created the WTO and expanded trade agreements to include
services, intellectual property, and agriculture.
Doha Round (2001-2006): Prioritized the concerns of developing countries, particularly in
reducing agricultural subsidies but ultimately stalled due to disagreements.
3. What does it mean to confer most favored nation status?
To confer Most Favored Nation (MFN) status means that a country agrees to treat another
country’s goods and services no less favorably than those from any other nation. Under this
principle, if a WTO member grants a trade benefit (such as lower tariffs) to one member, it must
extend the same benefit to all other WTO members, ensuring equal trading conditions.
4. Why are international capital flows greater today than a century ago?
International capital flows have increased significantly due to several key factors. Technological
advancements, such as improved global communication and financial technologies, have
facilitated faster and more efficient capital transfers. Financial innovation, including the creation
of new financial instruments like derivatives and foreign exchange markets, allows for more
complex and diverse cross-border investments. Global economic integration, driven by reduced
trade barriers and closer interconnection of economies, further encourages international capital
flows. Policy changes, including the liberalization of financial systems in many countries, have
made it easier for capital to move across borders. Additionally, institutional support from
organizations like the IMF and World Bank provides regulatory frameworks and ensures the
secure flow of capital globally.
5. Definitions
IMF conditionality: Economic reforms required by the IMF in exchange for financial assistance.
National treatment: Foreign goods must be treated the same as domestic goods.
Nondiscrimination: Equal trade treatment for all WTO members (MFN status).
Nonexcludable: Public goods that cannot exclude anyone from their benefits.
Nonrival: Public goods where one person's use does not reduce availability for others.
6. What are the five types of regional trade agreements?
1. Partial Trade Agreement: Reduces trade barriers for specific goods (e.g., steel, autos).
2. Free Trade Area (FTA): Eliminates tariffs and quotas among member countries (e.g.,
NAFTA).
3. Customs Union (CU): An FTA with a common external tariff for non-members (e.g.,
MERCOSUR).
4. Common Market: A CU with free movement of labor and capital (e.g., European Union
in the 1990s).
5. Economic Union: A common market with coordinated economic policies (e.g.,
Eurozone).
7. List the criticisms of international institutions
1. Sovereignty and Transparency: IMF and World Bank conditions may undermine
national sovereignty, and decision-making processes lack transparency.
2. Ideology: Policies often reflect the interests and biases of developed nations, sometimes
neglecting the needs of developing countries.
3. Implementation and Adjustment Costs: Developing countries struggle to meet the
financial and structural requirements of international agreements.