Notes – International Political Economy 2023
Lecture 01: 31/10/2023
Introduction
Economics:
- The study of the production, distribution, and consumption of scarce resources.
Political Economy:
- The study of the role of the state and politics in the production, distribution, and consumption of scarce
resources.
Comparative Political Economy:
- Focuses on the differences in economic policies (industrial policies, different types of capitalist systems,
drivers of economic growth and development, and variation in institutions).
International Political Economy (IPE)
- IPE studies the politics of the flows of production, distribution, and consumption across national borders.
- Investigation of international trade, international financial flows, sovereign debt, migration, and
international aid.
- Politics of international economic flows:
- How do institutions, businesses, distributional interests of voters, norms, and ideas influence
international economic policy?
- How do international economic flows influence domestic policies?
The global economy is broken into four issue areas:
- The international trade system
- The international monetary system
- Multinational corporations (MNCs)
- Economic development
,Notes – International Political Economy 2023
Traditional approaches to IPE
Commonalities of the traditional approaches:
- Each offers a way to view the politics and the world economy.
- The important actors.
- The relationship between them.
- Each proposes distinct economic policy recommendations.
- Each is limited because of their rigid frameworks and dependence on questionable assumptions.
- This leads to a normative view on how the world should work.
- However, they all have blind spots on how the economy works.
Traditional Schools of International Political Economy
Name Mercantilism Liberalism Marxism
Essential
The state Individuals Capital and Labour
actor
- The national power comes - Economics should make
- The capital is not
from economic power. individuals wealthier and
paying their labour an
- Trade is to be valued for not generate more
appropriate salary but
exports, while not for imports. power for the state.
keep the surpluses.
- Positive trade balance - There is no harm by
Ideological - Capital becomes more
(exports > imports). engaging in trade.
tenets concentrated and less
- Some forms of economic - All trade is good.
profitable over time.
activity are more valuable - Countries and individuals
- The revolution will
than others. gain from trade by
abolish private
- Manufactured goods are exploiting the
property.
superior to other products. comparative advantage.
- Establish and enforce
- Decisions are too important - The state is an
Role of the property rights to
than to let the uncoordinated instrument that should
state facilitate marked-based
market decide it. protect the capital.
exchange.
Conflictual:
Exploitative:
Image of the - Countries compete for Harmonious:
- Capitalists exploit
international desirable industries and - The economy offers
labour within countries.
economic engage in trade conflicts. benefits to all countries.
- Richer countries exploit
system - Zero-sum game: either you
poorer countries.
lose, or you win.
Objective of Promote an equitable
Enhance the power of the nation- Enhance aggregate social
economic distribution of wealth and
state in the international system. welfare.
policy income.
Capitalism and
The economy should be The role of the state should governments that support
Implication
controlled to gain power. be limited. it are bad for the
distribution of wealth.
,Notes – International Political Economy 2023
A modern approach
- Most important actor: Winners and losers
- Role of the state: Politicians want to survive in office
- Image of the IPE: Mix of conflict and cooperation
- Objective: Politically constrained efficiency
Based on interests, ideas, and institutions:
- The interaction between societal interests, how people interpret them, and the political institutions that
aggregate them into policy.
- We use assumptions about interests, ideas, and institutions to build models that help us explain an
outcome.
What drives political behaviour?
- Societal and elite interests are filtered through the domestic institutions.
- These filtered interests are interpreted by the leader who creates political interests.
- These interests are filtered through international institutions which then create international policy
outcomes.
- However, individual interests also shape the international institutions.
- Interests
- Whose welfare increases and decreases with different policy options?
- Material interests can be shaped by endowments:
- Factor of production or industry
- We use assumptions and simplify because interests are hard to identify.
- Ideas
- IPE scholars start with the assumption of objective economy and interests.
- Ideas matter:
- Interpreting the facts:
- There is no one agreed-upon economic theory.
- What economic theory decision makers believe in informs policy choices.
- Individuals often use simplified mental models to understand the economy.
- Whose interests we care about:
- Individual, family, region, country, etc.
- Depends on the time horizon.
- Discount rate: people prioritise the now compared to the future.
- Sometimes people act against their objective economic self-interest for ideological
reasons.
- Institutions (domestic and international)
- What keeps political leaders in office, and what checks and balances are they subjected to.
, Notes – International Political Economy 2023
Lecture 02: 02/11/2023
The International Institutions of Trade: The GATT/ WTO and Regional Trade Agreements
Barriers to trade and cooperation problems
- Tariff
- A tax on imported goods.
- Quotas
- Limits on the amount of goods that can be imported by a nation or globally.
- Rare because the WTO banned quotas and replaced them by tariffs.
- Non-tariff barriers
- Industry subsidies domestically (disadvantages foreign producers), safety standards, industry
insurance programs, laws to protect regional products (Champagne), and industry lobbies.
Why are there still so many barriers to trade?
- Free trade is a public good, and countries have economic incentives to free ride.
- Economic prisoners’ dilemma:
- Governments only liberalise when others do so too – rare unilateral liberalisation.
- If only one state liberalises, the comparative advantage might not be realised, and this
state might be worse off.
- While trade is jointly beneficial, it is more beneficial to exploit others’ open markets while
protecting the own market.
- This leads to both countries protecting the economy, leading to no liberalisation.
- Dominant strategy (protectionism) leads to a sub-optimal outcome.
- Other non-economic concerns, especially for non-tariff barriers:
- Consumer safety
- Environmental protection
- National security concerns
- Not clear that trade liberalisation would enhance welfare.
Bargaining
Because states will not liberalise unilaterally, they instead seek liberalisation through formalised agreements.
- However, sometimes states disagree over the
distribution of trade’s benefits and want to make sure
they are not getting the worst deal.
- Governments want to open foreign markets to
the exports of competitive domestic industries
and continue to protect less competitive
industries from imports. This leads to the
bargaining.
- Deals should be made on the contract curve,
where e is best for the EU and g is the best for
the G20 that the EU still accepts.
Lecture 01: 31/10/2023
Introduction
Economics:
- The study of the production, distribution, and consumption of scarce resources.
Political Economy:
- The study of the role of the state and politics in the production, distribution, and consumption of scarce
resources.
Comparative Political Economy:
- Focuses on the differences in economic policies (industrial policies, different types of capitalist systems,
drivers of economic growth and development, and variation in institutions).
International Political Economy (IPE)
- IPE studies the politics of the flows of production, distribution, and consumption across national borders.
- Investigation of international trade, international financial flows, sovereign debt, migration, and
international aid.
- Politics of international economic flows:
- How do institutions, businesses, distributional interests of voters, norms, and ideas influence
international economic policy?
- How do international economic flows influence domestic policies?
The global economy is broken into four issue areas:
- The international trade system
- The international monetary system
- Multinational corporations (MNCs)
- Economic development
,Notes – International Political Economy 2023
Traditional approaches to IPE
Commonalities of the traditional approaches:
- Each offers a way to view the politics and the world economy.
- The important actors.
- The relationship between them.
- Each proposes distinct economic policy recommendations.
- Each is limited because of their rigid frameworks and dependence on questionable assumptions.
- This leads to a normative view on how the world should work.
- However, they all have blind spots on how the economy works.
Traditional Schools of International Political Economy
Name Mercantilism Liberalism Marxism
Essential
The state Individuals Capital and Labour
actor
- The national power comes - Economics should make
- The capital is not
from economic power. individuals wealthier and
paying their labour an
- Trade is to be valued for not generate more
appropriate salary but
exports, while not for imports. power for the state.
keep the surpluses.
- Positive trade balance - There is no harm by
Ideological - Capital becomes more
(exports > imports). engaging in trade.
tenets concentrated and less
- Some forms of economic - All trade is good.
profitable over time.
activity are more valuable - Countries and individuals
- The revolution will
than others. gain from trade by
abolish private
- Manufactured goods are exploiting the
property.
superior to other products. comparative advantage.
- Establish and enforce
- Decisions are too important - The state is an
Role of the property rights to
than to let the uncoordinated instrument that should
state facilitate marked-based
market decide it. protect the capital.
exchange.
Conflictual:
Exploitative:
Image of the - Countries compete for Harmonious:
- Capitalists exploit
international desirable industries and - The economy offers
labour within countries.
economic engage in trade conflicts. benefits to all countries.
- Richer countries exploit
system - Zero-sum game: either you
poorer countries.
lose, or you win.
Objective of Promote an equitable
Enhance the power of the nation- Enhance aggregate social
economic distribution of wealth and
state in the international system. welfare.
policy income.
Capitalism and
The economy should be The role of the state should governments that support
Implication
controlled to gain power. be limited. it are bad for the
distribution of wealth.
,Notes – International Political Economy 2023
A modern approach
- Most important actor: Winners and losers
- Role of the state: Politicians want to survive in office
- Image of the IPE: Mix of conflict and cooperation
- Objective: Politically constrained efficiency
Based on interests, ideas, and institutions:
- The interaction between societal interests, how people interpret them, and the political institutions that
aggregate them into policy.
- We use assumptions about interests, ideas, and institutions to build models that help us explain an
outcome.
What drives political behaviour?
- Societal and elite interests are filtered through the domestic institutions.
- These filtered interests are interpreted by the leader who creates political interests.
- These interests are filtered through international institutions which then create international policy
outcomes.
- However, individual interests also shape the international institutions.
- Interests
- Whose welfare increases and decreases with different policy options?
- Material interests can be shaped by endowments:
- Factor of production or industry
- We use assumptions and simplify because interests are hard to identify.
- Ideas
- IPE scholars start with the assumption of objective economy and interests.
- Ideas matter:
- Interpreting the facts:
- There is no one agreed-upon economic theory.
- What economic theory decision makers believe in informs policy choices.
- Individuals often use simplified mental models to understand the economy.
- Whose interests we care about:
- Individual, family, region, country, etc.
- Depends on the time horizon.
- Discount rate: people prioritise the now compared to the future.
- Sometimes people act against their objective economic self-interest for ideological
reasons.
- Institutions (domestic and international)
- What keeps political leaders in office, and what checks and balances are they subjected to.
, Notes – International Political Economy 2023
Lecture 02: 02/11/2023
The International Institutions of Trade: The GATT/ WTO and Regional Trade Agreements
Barriers to trade and cooperation problems
- Tariff
- A tax on imported goods.
- Quotas
- Limits on the amount of goods that can be imported by a nation or globally.
- Rare because the WTO banned quotas and replaced them by tariffs.
- Non-tariff barriers
- Industry subsidies domestically (disadvantages foreign producers), safety standards, industry
insurance programs, laws to protect regional products (Champagne), and industry lobbies.
Why are there still so many barriers to trade?
- Free trade is a public good, and countries have economic incentives to free ride.
- Economic prisoners’ dilemma:
- Governments only liberalise when others do so too – rare unilateral liberalisation.
- If only one state liberalises, the comparative advantage might not be realised, and this
state might be worse off.
- While trade is jointly beneficial, it is more beneficial to exploit others’ open markets while
protecting the own market.
- This leads to both countries protecting the economy, leading to no liberalisation.
- Dominant strategy (protectionism) leads to a sub-optimal outcome.
- Other non-economic concerns, especially for non-tariff barriers:
- Consumer safety
- Environmental protection
- National security concerns
- Not clear that trade liberalisation would enhance welfare.
Bargaining
Because states will not liberalise unilaterally, they instead seek liberalisation through formalised agreements.
- However, sometimes states disagree over the
distribution of trade’s benefits and want to make sure
they are not getting the worst deal.
- Governments want to open foreign markets to
the exports of competitive domestic industries
and continue to protect less competitive
industries from imports. This leads to the
bargaining.
- Deals should be made on the contract curve,
where e is best for the EU and g is the best for
the G20 that the EU still accepts.
