This document provides an overview of international political economy (IPE). It discusses key debates around the role of the state in domestic and international economic governance. At the international level, it examines how trade, investment and finance should be governed and the role of institutions like the IMF, World Bank and WTO. It then covers the main theoretical perspectives in IPE - mercantilism/nationalism, liberalism and Marxism. The document also analyzes influential national political economy systems like the US and Japanese models before examining core issues in IPE like international trade, investment and finance and their governing institutions.

1. GLOBAL TRENDS (GLTR-1012)
COURSE
CHAPTER THREE
INTERNATIONAL POLITICAL ECONOMY
(IPE)
BY: YIRGA ABEBE
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2. Introduction
 The study of Political economy has always been
dominated by a national or/and international level
debate over the responsibilities of the state with regard
to the economy.
 At the domestic level, the debate poses the
following pressing questions:
 Should the state be responsible for determining how the
economy of a given country is to be organized and run?
 Should such responsibility be left to the market which is
populated by self-serving individuals acting as private
agents?
 Should, for example, housing, medical care, education,
welfare be provided by private citizens using the resources
they have available to them? Or should they be
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3.  At the international level of analysis, the debate
also poses such pressing questions as:
 How should international trade be governed?
 How should international investment be governed?
 How should international finance be governed?
 What should/not be the role of international institutions
like the IMF, WB and WTO in the governance of
international finance, investment and trade?
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4. Meaning and Nature of IPE
 There is no universal agreement on how IPE should
be defined.
 IPE is “the study of the tension between the market,
where individuals engage in self-interested
activities, and the state, where those same
individuals undertake collective action”.
 However, a broader definition of IPE considers that
a “market economy cannot exist and operate
without some kind of political order (the state)”-
 There is a great deal of disagreement between
minimalist and maximalists over exactly what kind
of political order is needed.
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5.  Minimalist view: the best political order is one in which
the state only provides the legal-institutional framework
for enforcing contracts and protecting private property
(neoclassical economists).
 Maximalist: the most appropriate political order is one
in which the state plays an active and direct role in a
much wider range of economic activity.
 In general, IPE is a field of inquiry that studies the ever-
changing relationships between governments,
businesses, and social forces across history and in
different geographical areas.
 As such, it encompasses two central dimensions; A
political dimension (the use of power, and decision
making) and the economic dimension (how scarce
resources are distributed).
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6. Theoretical perspectives of
IPE
 There are three major theoretical perspectives
regarding the nature and functioning of the IPE:
liberalism, marxism, and nationalism
(mercantilism).
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7. Mercantilism/nationalism
 It defends a strong and pervasive role of the state in the
economy – both domestically and international trade.
 It emphasizes the importance of balance-of-payment
surpluses in trade with other countries
 It promotes an extreme policy of autarky to promote
national economic self-sufficiency.
 It defended even a much more sophisticated and
interventionist role of the state in the economy-for
example, the role of identifying and developing strategic
and targeted industries through a variety of means.
 States should also play a disciplinary role in the
economy to ensure adequate levels of competition.
 Eg. the experience of Japanese, South Korean,
Taiwanese and Chinese national political economies
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8. Liberalism
 It defends the idea of free market system (i.e free
trade/trade liberalization and free financial and FDI
flows)
 Removing impediments (barriers) to the free flow of
goods and services among countries is the foundational
value and principle of liberalism.
 It encourages comparative advantage (countries
focused on what they do best and freely trade their
goods with each other): specialize in producing certain
goods, thereby contributing to the optimum utilization of
resources .
 There is a shift from the conventional theory of
comparative advantage to competitive advantage-
despite global acceptance of free trade, governments
continue to engage in protectionism whereby states
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9. Marxism
 It reflects and critiques the inherent instability
and volatility of a global capitalist system that
has become increasingly reliant on financial
speculation for profit making.
 It considers that global and national income
inequality, exploitation of labor, the problem of
child labor and even child slave labor are
byproducts of capitalism.
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10.  In addition to the above mentioned foundational
theories of International Political economy, the
following three contemporary theories of
International political economy are also worth
considering:
 Hegemonic Stability Theory (HST)
 Structuralism
 Developmental State Approach
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11. Hegemonic Stability Theory
(HST)
 It advocates for benevolent hegemon—that is, a
dominant state willing and able to take responsibility
(in the sense of acting as an international lender of
last resort as well as a consumer of last resort) for
the smooth operation of the International
(economic) system as a whole.
 E.g. Great Depression of 1920s and 30s
 It influenced the establishment of the Bretton
Woods institutions (IMF and WB) - both being the
products of American power and influence.
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12. Structuralism
 It starts analysis from a practical diagnosis of the
specific structural problems of the international
liberal capitalist economic system whose main
feature is centre-periphery (dependency)
relationship between the Global North and the
Global South which permanently resulted in an
unequal (trade and investment) exchange.
 The perspective is also known as “Prebisch-Singer
thesis” Latin American model in the 1950s
 It advocates for a new pattern of development
based on industrialization via import
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13. Developmental State
Approach
 It is presented as an alternative development paradigm to
neo-liberal development paradigm.
 It advocates for the robust role of the state in the process of
structural transformation.
 The term developmental state refers to a state that
intervenes and guides the direction and pace of
economic development.
 Some of the core features of developmental state include;
 Strong interventionism:
 Existence of bureaucratic apparatus to efficiently and effectively
implement the planned process of development.
 Existence of active participation and response of the private
sector to state intervention
 Regime legitimacy built on development results-equitably shared
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14. Survey of the Most Influential
National Political Economy
systems
 The differences among national systems of
Political Economy is based up on;
 the primary purposes of the economic activity of the
nation,
 the role of the state in the economy, and
 the structure of the corporate sector and private
business practices.
 The most influential national political economy
systems in the world are;
 The American System of Market-Oriented
Capitalism
 The Japanese System of Developmental
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15. Core Issues, Governing
institutions and Governance of
IPE
 International Trade and the WTO
 The World Trade Organization (WTO) is an international
organization which sets the rules for global trade.
 It was set up in 1995 as the successor to the General
Agreement
on Trade and Tariffs (GATT) created after the Second World
War.
 It has about 150 members.
 All decisions are taken unanimously but the major economic
powers such as the US, EU and Japan have managed to
use the WTO to frame rules of trade to advance their own
interests.
 The developing countries often complain of non-transparent
procedures and being pushed
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16. International Investment and the
WB
 International/Transnational/global production
(global FDI) is a type of production in which different
parts of the overall production process for a particular
product take place across different national territories.
 The World Bank was created after WWII in 1945.
 Its activities are focused on the developing countries. It
provides loans and grants to the member-countries.
 It exercises enormous influence on the economic
policies of developing countries.
 It is often criticized for setting the economic agenda of
the poorer nations, attaching stringent conditions to its
loans and forcing free market reforms.
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17. International Finance and the
IMF
 The IMF is an international organization that oversees
those financial institutions and regulations that act at
international level.
 The IMF has 184 member countries, but they do not enjoy
an equal say. The top 10 countries have 55 % of votes.
 The global financial system is divided into two systems:
 The international monetary system can be defined as
the relationship between and among national currencies- it
revolves around the question of how the exchange rate
among different national currencies is determined.
 The credit system, refers to the framework of rules,
agreements, institutions, and practices that facilitate the
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18. Exchange Rates and the
Exchange-Rate System
 An exchange rate is the price of one national
currency in terms of another.
 There are two main exchange rate systems in the
world namely: fixed exchange rate and floating
exchange rate.
 In a pure floating-rate system, the value of a
currency is determined solely by money supply and
money demand.
 A pure fixed-rate system, on the other hand, is one
in which the value of a particular currency is fixed
against the value of another single currency or
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19. Thank You!!!
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