Fundamentals of International Political Economy

International Political Economy (IPE) studies the interaction of politics and economics on a global level. How do states shape the world economy? How do global economic forces influence politics? IPE acts as a bridge between economics and international relations.

Formation of IPE as a Discipline
IPE emerged as a separate field of knowledge in the 1970s:

Context. The collapse of the Bretton Woods system (1971), the oil crisis (1973), and stagflation showed that the economy cannot be studied separately from politics, nor international relations separately from the economy.

Founders:

Susan Strange — critique of the “strange non-encounter” between economics and political science
Robert Gilpin — political economy of international relations
Robert Keohane — regime theory, liberal institutionalism

Two approaches:

American IPE: positivist, quantitative, employs formal models
British IPE: more critical, historical, normative

Main Theoretical Perspectives

Liberalism (pluralism):

Trade and interdependence promote peace
International institutions assist in cooperation
The market is an efficient mechanism for resource allocation
States are not the only actors (TNCs, NGOs, international organizations)

Realism (mercantilism, economic nationalism):

States are the main actors, pursuing national interests
The economy is an instrument of power politics
Relative, not absolute, gains matter
The international system is anarchic — self-help is inevitable

Marxism / Structuralism:

The world economy is a system of center-periphery exploitation
Class interests are transnational
Capitalism generates inequality and crises
Focus on power and distribution

Constructivism:

Ideas, norms, and identities shape interests
Economic institutions are social constructs
What matters is how actors interpret their interests

Key Issues in IPE

IPE examines several central problems:

International trade. Who wins and loses from trade? Why do countries protect certain industries? How has the trading system evolved from GATT to the WTO?

International finance. How does the global monetary system function? Why do financial crises occur? How are global finances regulated?

Transnational corporations. How do TNCs influence states and development? Who controls global value chains?

Development. Why are some countries rich and others poor? Does development aid work? What are alternative development paths?

Global governance. How are decisions made at the global level? Who sets the rules? How legitimate are international organizations?

Hegemony and the International Order

A central theme in IPE is the role of the hegemon in the world economy:

Theory of hegemonic stability. An open and stable world economy requires a leader — a hegemon. The hegemon provides public goods: free trade, stable currency, security.

Historical cases:

British hegemony (19th century) — gold standard, free trade, Pax Britannica
American hegemony (after 1945) — Bretton Woods, GATT, the dollar as the world currency

The hegemon’s dilemma. Providing public goods is costly. The hegemon is tempted to use its position for private gain. This undermines the legitimacy of the system.

Decline of hegemony. Does the relative weakening of the hegemon lead to instability? Or can regimes and institutions sustain cooperation after hegemony (after hegemony — Keohane)?

Globalization and Its Political Consequences

Globalization is the main phenomenon of modern IPE:

Definition. Globalization is the intensification of economic, political, and cultural ties across borders. The compression of space and time.

Dimensions of globalization:

Trade globalization — the growing share of trade in GDP
Financial globalization — free movement of capital
Production globalization — global value chains
Migration — movement of people

Political consequences:

Restriction of state autonomy?
Rising inequality within countries
Backlash — protectionism, populism, nationalism
New forms of governance — multilevel, networked

The future of globalization. After 2008, and especially following COVID-19, there is discussion of “deglobalization”, reshoring, and geo-economic rivalry between the US and China.