Chapter 11

The International Economy: A Global Road Map

Theories of International Political Economy

Economic Nationalism: Economic Statecraft or Mercantilism

Realist approachIPE as zero-sum game Emphasis on political goals

PracticesImperialism/neoimperialismEconomic incentives and disincentivesProtectionism and domestic economic support

Economic Internationalism

Capitalism, laissez-faire, liberalism, or free trade

Idealist approach

IPE as nonzero-sum game

Practices

Separate politics from economics Adam Smith's exposition of capital theory: The Wealth of Nations (1776)

Keynesian economicsUse IGOs and national governments to regulate international economic interchangeIMF, GATT and other organizations to promote trade

Two main goals of IGOs:Ensure spread of capitalism and free tradeEase worst inequities

Economic Structuralism: Focus on Economic Structure

Haves (EDCs) exploit have-nots (LDCs)

Marxism

Economic order determines political and social relationshipsDialectical materialism: history, current situation, and future are determined by economic struggle

Dependencia theory (neo-Marxist theory or economic radical theory)

LDCs kept economically and politically dependent on EDCs

Hierarchical structure of international politics

South produces primary productsEDCs produce high-profit manufactured goodsNeocolonialism

Two Economic Worlds: North and South

Two Economic Worlds: Analyzing the Data

Economic strength of NorthEconomic weakness of South

Greater focus on agriculture, raw materials

Problems with classifications

Not a clear dichotomyNewly industrializing countries (NICs)Countries in transition (CITs)Inaccurate statisticsQuestionable relevance of data (GNP), GNP-PPP

Economic vulnerability

Common political experiences among LDCs

History of domination

Two Economic Worlds: Human Conditions

Disparities LLDCs

• Lower life expectancy• Lower literacy rate• Poor health• Less access to food, water, and sanitation

services

Declining conditions in some LLDCs

Two Economic Worlds: Approaches to North-South Relations

Circumstances

Industrialization first in NorthNationalism led to colonialism

Economic nationalism: Current rules adequate

National self-interestPolitical economy viewed as a zero-sum gameSelf-helpLifeboat analogy

Economic internationalism: Prosperity for all through economic exchange

Free tradeForeign investmentLoans and aidGlobal economy viewed as a nonzero-sum game

Economic structuralism: Current system must be altered

The Growth and Extent of International Political Economy

Trade

General pattern of expanding tradeMerchandise tradeServices trade

Trade expansion

Productive technologyResource requirementsMaterialismTransportationFree trade philosophy

Uneven patterns of trade: North and South

Dominated by NorthLDCs dependent on EDCs for export earningsLDCs rely on primary products

International Investment

Foreign direct investmentStake in foreign companies or real estate

Foreign portfolio investmentDoes not involve control of companies

International investment and multinational corporations (MNCs)

Private enterprisesSubsidiaries operating in more than one stateOwnership of plants and/or resource extraction in other countriesMost based in North

Monetary RelationsGlobalization of money

Four main banking centers: Germany, Japan, United Kingdom, United States

Globalization of financial servicesNorth-South patterns of money and banking

Dominated by North

Exchange ratesBalance of payments

CreditsDebits

The Impact of Expanded Economic Interchange

Increased economic interdependence

TradeForeign direct investmentForeign portfolio investmentsDomestic portfolio investments

Autarky--an unrealistic concept