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POLSC411: International Political Economy

Unit 3: Global Trade, Foreign Direct Investment and Sovereign Debt   In this unit, you will learn about foreign direct investment and sovereign debt, two distinct concepts in international political economy.  Foreign direct investment refers to the investment of (usually private) capital resources in the industries of another country.  Both governments and industries in developing countries actively seek foreign direct investment in order to substitute private capital investment for public investment.  In poorer countries, however, public funds may be unavailable due to the financial situation of the government.

Sovereign debt refers to the debt taken out or guaranteed by the government of a country.  Governments may have to pay lower or higher interest rates on their debt depending on their presumed credit-worthiness.  Regime stability is also an important factor in sovereign debt funding.

Unit 3 Time Advisory
This unit should take you 13.5 hours to complete.

☐    Subunit 3.1 3 hours

☐    Subunit 3.2: 2.5 hours

☐    Subunit 3.3: 1 hour

☐    Subunit 3.4: 3 hours

☐    Subunit 3.5: 3 hours

☐    Assessment: 1.5 hours

Unit3 Learning Outcomes
Upon successful completion of this unit, the student will be able to:
- Synthesize knowledge of international trade regimes into a cohesive ability to understand their contribution to 21st century globalization. - Evaluate the costs and benefits of foreign direct investment and sovereign debt. - Explain and analyze ethical dilemmas for sovereign debt repayment. - Explain the mechanics of sovereign debt issuance and foreign direct investment initiatives.

3.1 International and Global Trade Regimes: Regional Trade Agreements   - Reading: WTO: Jo-Ann Crawford and Roberto V. Fiorentino’s “The Changing Landscape of Regional Trade Agreements” Link: WTO: Jo-Ann Crawford and Roberto V. Fiorentino’s “The Changing Landscape of Regional Trade Agreements” (PDF)

 Instructions: Follow the above link, and then choose the "Download
pdf" option to read Crawford and Fiorentino’s piece, which was
written for the World Trade Organization.  Consider the impact of
regional trade agreements on the nature of 21<sup>st</sup> century
globalization.  

 Terms of Use: Please respect the copyright and terms of use
displayed on the webpage above.

3.2 Overview of Foreign Direct Investment (FDI)   - Reading: The State University of New York’s Levin Institute’s “Globalization 101: Introduction” Link: The State University of New York’s Levin Institute’s “Globalization 101: Introduction” (HTML)
 
Instructions:  Read each section of the Introductory materials:  “Introduction,” “What Are the Different Kinds of Foreign Investment,” “Differences Between Portfolio and Direct Investment,” “Why Do Companies Invest Overseas,” “Concerns about Shifting Production Due to Foreign Investment,” “Why Has Foreign Investment Increased so Dramatically in Recent Decades,” and “Where Does Foreign Investment Take Place.” To access each section, click on the hyperlink after “Next” at the bottom of each webpage, or click on the hyperlinks under “Introduction” in the table of contents on the left side of the webpage.  Foreign Direct Investment (FDI) is a complex topic at the intersection of business, politics, finance, and economics.  As the world has become globalized, firms can more easily invest in foreign markets.  Some companies may even be considered as transnational, owing little allegiance to any single country. Think about how foreign direct investment has changed the competitive landscape for nations over the past decade.
 
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  • Lecture: iTunes U: American University: Frank DuBois’ “Foreign Direct Investment” Link: iTunes U: American University: Frank DuBois’ “Foreign Direct Investment” (iTunes)
     
    Instructions: Please click on the link, and you will automatically be directed to iTunes U. Scroll down to item 4, a podcast titled “Foreign Direct Investment?”  Listen to the entire lecture (31 minutes) for a good overview of foreign direct investment and its effects on the international community.
     
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3.3 FDI and Development   - Lecture: iTunes U: The Pederson Institute for International Economics Events Series Video Podcast of Theodore Moran’s “Foreign Direct Investment and Development: Launching a Second Generation of Policy Research,” 1 June 2011. Links: iTunes U: The Pederson Institute Events Video Podcast of Theodore Moran’s “Foreign Direct Investment and Development: Launching a Second Generation of Policy Research” (iTunes U)
 
Instructions: Scroll down to Lecture #23 to watch Theodore Moran speak about the central theme of his book Foreign Direct Investment and Development: Launching a Second Generation of Policy Research (20 minutes). Listen for his comments on the ability of FDI to influence development worldwide.
 
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3.4 The FDI Debate   - Reading: The State University of New York’s Levin Institute’s “Positive Effects of Foreign Investment” and “Concerns about Foreign Investment” Links:  The State University of New York’s Levin Institute’s “Positive Effects of Foreign Investment” (HTML) and “Concerns about Foreign Investment” (HTML)
 
Instructions:  Read these sections:  “Positive Effects of Foreign Investment,” “Capital Inflows,” “Employment,” “Production Advantages,” “Concerns about Foreign Investment,” “Financial Volatility,” “Contagion,” “Problems with Capital Inflows,” “Investment and Labor,” “Export Processing Zones,” “Globalization May Increase Inequality,” and “Environmental Concerns.”  To access each text, click on the hyperlink after “Next” at the bottom of the webpage.  Or, you may choose each title under the “Positive Effects of Foreign Investment” and “Concerns about Foreign Investment” sections in the table of contents on the left side of the webpage.  FDI is somewhat controversial, because its effects are not uniform across a society.  For example, employment may be increased; however, gains from jobs may be distributed unequally. Think about how you might weigh the costs and benefits of FDI in your own country.
 
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  • Lecture: iTunes U: University of Michigan: Nina Brndelj’s “The Social Foundations of Foreign Direct Investment in Postsocialist Europe” Link: iTunes U: University of Michigan: Nina Brndelj’s “The Social Foundations of Foreign Direct Investment in Postsocialist Europe” (iTunes U)
     
    Instructions:  Please click on the link, and you will automatically be directed to iTunes U. Scroll down to item 27, a podcast titled “The Social Foundations of Foreign Direct Investment in Postsocialist Europe.”  Listen to the entire lecture (52 minutes).  Consider that the speaker is primarily a sociologist.  How do her views differ from the economists and political scientists?
     
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3.5 Sovereign Debt   - Reading: The World Bank’s “Roundtable on Odious Debt” Link: The World Bank’s “Roundtable on Odious Debt” (PDF)

 Also available in:  

[EPUB](http://www.saylor.org/site/wp-content/uploads/2011/08/Polsc411-3.4-OdiousDebtPaper-epub.epub)  
    
 Instructions:  Go to this webpage and download “Bank's Odious Debt
Paper” near the bottom of the page.  This is an Adobe Acrobat file
that requires Adobe Acrobat Reader, which can be downloaded free at
Adobe’s Site.  Read the entire paper, but consider the role of debt
in building a society.  Like individuals, countries borrow to
finance present consumption today at the expense of repayments
tomorrow.  This process can empower countries to build important
infrastructure or pursue economic stabilization programs.  The
significant risk is that countries may over-borrow, and this can
affect future economic growth.  Also, when a regime changes, ethical
questions emerge about who should ultimately be responsible for this
debt. Are stolen funds the responsibility of the general public?  
    
    
 Terms of Use: This material has been hosted with the kind
permission of The World Bank.
  • Lecture: iTunes U: PBS’s Nightly Business Report: Erica Miller’s “Sovereign Debt Worries” Link: iTunes U:  PBS’s Nightly Business Report:  Erica Miller’s “Sovereign Debt Worries” (iTunes U)
     
    Instructions: Scroll down to item 32, and click on the “View in iTunes” hyperlink to download the podcast.  Please listen to this entire report (3 minutes).  Consider how a debt crisis can quickly spread across national boundaries.
     
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Unit Three Quiz   - Assessment: The Saylor Foundation’s “Unit 3 Quiz” Link: The Saylor Foundation’s “Unit 3 Quiz (PDF)
 
Instructions: Please take the short quiz above.  When you are finished, compare your answers to The Saylor Foundation’s “Unit 3 Quiz Answers.” (PDF)