International Political Economy: History, Theory, and Practice

International Political Economy
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International Political Economy
International Political Economy (IPE) refers to the study of the interrelation of international politics with the international economy and how they both shape each other in the context of the economic policies of individual states. Politics and economics approach global trade from varying perspectives and diverse analytical frameworks. The borders of markets are porous and dynamic while those of states are rigid, and international trade between states is, therefore, an object of political scrutiny. IPE treats global trade as necessarily different from domestic economic activity. It, therefore, examines the same from the viewpoint of national interest, particularly economic and military security (Schirm, 2020). International finance is a major IPE topic because of the challenge in disentangling economics from politics. International finance has political implications and is characterized by externalities and network effects. Therefore, IPE studies revolve around foreign exchange rates, inflation rates, free trade, and monetary policy issues.
Economic development is a central facet of IPE studies: IPE is focused on explaining how and why countries grow, especially the policies and practices that encourage economic development at the domestic and international levels. Common areas of interest include structural transformation, social and political institutions, human capital, and economic nationalism. Economic development is closely tied to production, and therefore, IPE studies also investigate how it creates wealth and power and helps further national interests and sovereignty. This essay will focus on three areas of interest: how countries reach an economic agreement, the causes of economic crises, and the consequences of economic agreements and crises. The thesis of this paper is: Economic integration and globalization have facilitated world stability and prosperity and heightened the vulnerability of individual states to financial crises.
IPE is a relatively new interdisciplinary field of social science that arose from the collapse of the disciplinary boundaries that divide International Relations and International Economics. The first scholarly interest in IPE as a new sub-discipline within political science started in the mid-1970s, but courses were not customarily offered until the mid-1980s. The rise of IPE as a helpful subject in global relations was partly the result of the decline in US economic dominance and the challenge to traditional notions of hegemony and security as demonstrated by US market crises and failure in Vietnam. IPE's prominence is also related to the economic challenges at the end of the Cold War and increased globalization, which saw developing nations pushing for a New International Economic Order (NIEO) to end economic dependency and colonialism. IPE studies typically focus on international finance, international trade, international organizations, North-South relations, hegemony, and globalization (Leiteritz, 2005). However, the domain of IPE studies has expanded beyond these traditional concerns over the years to include an even more extensive set of political, social, and economic issues.
It is often difficult to distinguish the boundaries of IPE. The field is now considered to include all global economic factors that are a critical cause or consequence. Although not all IPE scholars agree with one another, the field has reached an agreement on models, analytical methods, and critical questions in the past forty years. Most disagreements between IPE theorists relate to the relative weights that ought to be ascribed to different explanatory variables. These scholarly differences speak to a developed field of study that has moved away from paradigmatic clashes to more mature disagreements that ensure empirical regularities. Although analytical frameworks to IPE depend on the problem being examined, the three traditional theoretical perspectives include mercantilist, liberal, and historical structuralism (Cohn, 2005). Mercantilists focus on states' conflicting interests and capabilities as they vie for power and national sovereignty. In contrast to the mercantilist emphasis on increasing economic resources to further state power and interests, liberalists focus on possessive individualism. Liberalism is based on the idea that markets should be left to function as freely as possible without state interference except to benefit individuals who encompass the fundamental unit of life through their activities.
On the other hand, historical structuralism concentrates on the role of class in society, mainly how capitalism results in inequities. Of these three major perspectives, the most relevant one is liberalism. It considers a wide range of actors and entails comprehensive analyses, thereby allowing a more in-depth understanding of certain complexities primarily ignored by the other two theories. However, IPE theories have moved on from the three traditional approaches to include normative concerns in today's global political economy. The discipline is now subject to a more lively and current methodological debate, although founded on traditional approaches, about how theorists may explain outcomes in IPE (Dickins, 2006). These approaches are divided into neo-utilitarian and social constructivism. The former focuses on the incentive structure that guides countries to adapt in different ways to the changes in the world economy or to interact in specific ways with other countries. On the other hand, the latter focuses on historical and sociological factors and how they affect world economic policies.
The most pertinent IPE theory that explains how countries reach an economic agreement, the causes of economic crises, and the consequences of economic agreements and crises is the liberalist perspective. The liberalist approach advocates for more global integration between countries. It views globalization and the creation of international agencies that facilitate trade agreements between countries as necessary to advance participating countries' national interests. Economic agreements between countries formally started with creating the General Agreement on Tariffs and Trade (GATT) in 1947, where 23 countries agreed to minimize barriers to global trade by abolishing subsidies, quotas, and tariffs. This was a marked departure from previous economic nationalism and mercantilist ideologies that advocated for domestic control of the economy by imposing trade restrictions on the movement of labor, capital, and goods (Cohen, 2008). Liberals favor international agencies such as the IMF, WTO, and World Bank, which are responsible for facilitating international economic agreements between states by setting uniform trade policies. These international organizations have ended costly and undesirable trade polic...