IPE Structures: Production, Finance, Security, Knowledge

IPE Structures: Production,
Finance, Security, Knowledge

Production and Trade
• Trade is always political – Robert Kuttner

• Globalization of production - shift from
concentration to diffusion
• Production moves from developed (e.g. US,
EU, Japan) to developing states (e.g. China,
India)
• Internet – a game changer?
FDI trends
• Global FDI flows jumped 36% in 2015 to an

estimated US$1.7 trillion, their highest level
since the global economic and financial crisis
of 2008-2009
• A surge in FDI targeting developed economies
(+90%) was the principal factor behind the
global rebound (in US, FDI increased 4x)
• Growth was largely due to cross-border
merger and acquisitions (M&As)
FDI trends
• Developing economies saw their FDI reaching

a new high of US$741 billion, 5% higher than
in 2014
• Developing Asia, with its FDI flows surpassing
$0.5T, remained the largest FDI recipient
region in the world, accounting for 1/3 of
global FDI flows
FDI trends
• Flows to transition economies continued to
fall (-54%) as tumbling international
commodities prices & regional conflicts
undercut FDI. Investment in the region’s 2
largest host economies, Russia and
Kazakhstan, fell sharply
• Poorest developing economies are less
dependent on natural resources in terms of
FDI attraction
• Private equity firms less involved in FDI flows
Other notable trends
• FDI by Sovereign Wealth Funds remains small;

SOE TNCs are heavily involved in FDI
• Intl production continues its steady growth;
• TNCs from developing and transition
economies expanded their overseas
operations faster than their developed
country counterparts
China outbound M&A
• Geely bought Swedish carmaker Volvo (2010
for $1.5B) and London Taxi Company (2012)
• Dongfeng Motors bought 13% of French
carmaker PSA Peugeot-Citroen (2014)
• Lenovo acquired IBM (2004 for $1.75B)
• China Investment Corp bought 9.9% of
Morgan Stanley ($5.579B)
• China National Chemical bought Swiss
agrochemical company Syngenta (2016 for
China automobile sector
• JV with foreign companies to produce cars in

China
• China benefit from employment and get
access to technology so their cos can produce
their own
• Why cant foreign car cos say no? China is the
biggest auto market in the world !
JVs
• Guangzhou Automobile Industry Group (GAIC) -

w/Peugeot to produce Peugeot 504 (later
defunct); in 1990s, w/ Honda to produce Accord
and Fit; in 2006, with Toyota to make
Camry; Guangdong is now the center for
manufacturing Japanese car makes in China
• Tianjin Automotive Industry - w/ Daihatsu to
produce Charade (merged with FAW/Toyota JV
later)
JVs
• Shanghai Automotive Industry

Corporation(SAIC) - Volkswagen: Volkswagen
Santana mid-size/compact car
• First Automobile Works -
Volkswagen: Volkswagen Jetta compact car
• Dongfeng Motor Corporation - Citroën: Citroën
Fukang compact car
• Beijing Automotive Industry - Hyundai Motor -
DaimlerChrysler: Jeep Cherokee (XJ)
3 Perspectives on
International trade
• Liberalism – trade is good guided by “invisible
hands”; each state can benefit from law of
comparative advantage; states should limit trade
protection and let market (efficiency) forces run
global economy
• Mercantilism – trade may have harmful effects
that has to be mitigated; hence, protectionism is
needed for infant industries and to achieve
national econ independence and security; state
has a duty to protect its society and businesses
from adverse effects of intl trade
3 Perspectives on
International trade
• Structuralism – trade is a tool of imperialism
(e.g. colonies provide resources and serve as
markets); intl division of labor between core,
periphery and semiperiphery with highest
value given to core states
Evolution in intl trade
• Postwar GATT emphasizing reciprocity and

nondiscrimination
• Mercantilism on the rebound (1960s-70s);
under pressure, states reduced trade barriers
but find ways to support their exports and
limit imports thru strategic trade policies,
NTBs, protectionism
• Uruguay Round and establishment of WTO
(1990s to present) – curb protectionism and
resolve trade disputes
Some important intl trade terms
• Import quotas – limit on goods that can be

imported (there is also an export quota!)
• Export subsidies – measure to effectively
reduce price of export product to make them
more attractive/competitive
• Currency devaluation – attempt to decrease
price of exports and increase price of imports
• NTBs – covers a wide range of measures from
govt health & safety standards, local content,
licensing and labelling requirements
Some important intl trade terms
• Strategic trade practice – efforts to create

comparative advantage by providing subsidies
e.g. R&D to reduce learning curve; often
associated with industrial policies which are
active state intervention to promote certain
patterns of industrial devt
• Dumping – unfair trade practice of selling
products abroad at less cost than at home
• Countervailing trade practice – defensive
measure vs protectionism e.g. anti-dumping law,
countervailing tariffs or quotas
North-South trade issues
• In 1973, G77, a coalition of developing nations in UN,
demanded greater access for their primary goods to
protected N markets
• In 1980s, S incurred huge debt from N & intl lending
institutions; “Washington Consensus” required that
they grow their way out of debt by instituting reforms
– liberalize their trade policies and open doors for FDI;
want to loan? Then follow SAP conditionalities
• Instead of reforming intl econ, financial system, N
prescribed/imposed their notion of devt & devt path to
S
• BRICS NDB and AIIB as win-win alternatives to N-
dominated intl economic order

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IPE Structures: Production,

Finance, Security, Knowledge

• Trade is always political – Robert Kuttner

• Global FDI flows jumped 36% in 2015 to an

• Developing economies saw their FDI reaching

• FDI by Sovereign Wealth Funds remains small;

• JV with foreign companies to produce cars in

• Guangzhou Automobile Industry Group (GAIC) -

• Shanghai Automotive Industry

• Postwar GATT emphasizing reciprocity and

• Import quotas – limit on goods that can be

• Strategic trade practice – efforts to create

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