International Political Economy

I

Introduction

International Political Economy, field of study that deals with the interaction of politics and economics among the world’s nations. The most important of these interactions concerns foreign trade. Students of international political economy also examine the politics of international financial relations, regional political and economic cooperation, international environmental management, international investment patterns of multinational corporations (MNCs), foreign aid, and relations between rich and poor regions of the world.

Military and defense issues dominated the study of international relations after World War II ended in 1945. In the decades that followed, attention focused on the Cold War conflict between the United States and the Soviet Union. However, since the end of the Cold War in 1991, policy makers and scholars have directed new attention to the importance of the international political economy in the study of international relations. Students of international political economy examine how government policies affect economic trends and why nations adopt specific economic policies. They also seek to understand the foundations of global or regional economic cooperation in a world of growing, independent national governments.

II

Trends in International Political Economy

Since the end of World War II, the pace of international economic transactions has risen steadily. At the same time, different regions of the world have experienced dramatically uneven patterns of economic growth. New international institutions have emerged to coordinate policy efforts and resolve international disputes that have accompanied these transformations in the global economy.

A

International Trade

In the 21st century, international trade has grown to 20 percent of the world’s total production of goods and services—around $6.5 trillion per year. This volume of trade is almost seven times larger than the world’s military spending.

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New institutions have developed to promote and manage the world’s trade. From 1948 to 1995, nations negotiated a series of treaties through the General Agreement on Tariffs and Trade (GATT), which gradually lowered tariffs for most manufactured goods. In the 1990s the GATT transformed itself into the World Trade Organization (WTO), with more powers of enforcement and a broader mandate to promote trade. Overall, most political activity related to trade is concentrated in the industrialized countries of North America, Western Europe, and East Asia. Together, these countries account for about two-thirds of all international trade.

The goal of WTO is “free trade,” the open exchange of goods and services without tariffs. Proponents of free trade argue that increasing trade promotes economic growth, to the benefit of all. Many activists and developing nations have recently spoken out against free trade at WTO meetings, instead arguing that states should be allowed to protect their environment, workers’ rights, and infant industries with tariffs and other trade restrictions.

B

International Currency

Explosive growth in the exchange of foreign currencies in international markets has also transformed the global political economy (see foreign exchange). Advanced telecommunication technologies now link these markets in major financial trading centers, such as Tokyo, Hong Kong, Zürich (Switzerland), and New York City. By the mid-1990s, well over $1 trillion in foreign exchange transactions occurred daily. This huge sum of privately controlled money exceeds annual global expenditures on military forces. It also dwarfs the amounts of money available to national governments, which have lost some of their former ability to influence the international purchasing power of a given currency in foreign exchange markets.