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    optimal foreign economic policy

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    Using both offer curves and a two by two payoff matrix, determine the optimal foreign economic policy of a hegemon.

    Explain why other non-economic foregin policy goals may cause a hegemon to shift its policy away from its optimal foreign economic policy to a policy closer to free trade. Either in a partial or a general equilibrium setting explain how domestic economic interests may further shift a country's foreign economic policy either toward free trade or toward protectionism.

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    International trade- answers:

    According to classical and neoclassical economics, if trading (the market mechanism) is allowed to operate in complete freedom, if all individuals and nations pursued their own interests, there would be optimum allocation of production resources, and all nations would benefit in accordance with the natural law of comparative advantage.
    However, as nations advanced technologically and politically, some more than others, with significant differences observed in factor endowments, electoral systems, and efficiency in the exploitation of productive resources, maintaining sovereignty and security of nation states became the driving factor in international relations. Hence, trading became the "handmaid" of the politics of security, as it became necessary for State intervention to oversee the general economic, political and social welfare of the whole. Basically, this meant tinkering with the market system.
    US commercial policy, from the adoption of the Constitution has been one evolved from traditional mercantilism, to a quasi-liberal emphasis on free trade, then after the Civil War, to protectionism, and presently to a hybrid of liberalism and protectionism. These changes, however, are all in general response to economic and security interests.
    The central concept of Neo-realist or Structural realist international political economy is hegemony. Neo-realists have found the concept of hegemony useful in explaining how the international economy, based on fundamentally liberal principles and liberal economic practices, could be carried out effectively in a world in which political authority was vested in nation-states. In the absence of an international sovereign government to maintain order among states, the concept of hegemony is used to explain how a degree of regulation or governance is possible.

    Optimum Foreign economic policy:
    Offer ...

    Solution Summary

    Ideas are embedded to determine the optimal foreign economic policy of a hegemon.