International Political Economy (IPE)

1. International Political Economy (IPE) International College KhonKaenUniversity 2012 Week 2 – The Global Economy

2. IPE – The Global Economy • IPE is increasingly important because international politics and international economics are so interdependent • International politics shift with changes of power – realism prevails • But international economics is changing much more quickly • Globalization drives a fundamental change in the way countries interact economically

3. IPE - Globalization • The four major areas of impact of globalization are in: • economics (the global economy) • politics (political globalization) • culture and society (the global community) • the environment • In IPE, we are interested primarily in the global economy and global politics

4. IPE - Globalization • The Global Economy: • Marketplaces are more global • Production is more global (supply chains) • Financial markets are more international • Labour markets are more global • Political Globalization: • International organizations (global and regional) are becoming more important in global governance • National governments give up some of their powers and influence as they sign up to international agreements and treaties

5. IPE – The Global Economy • Two main factors explain the changes in the global economy: • Falling barriers to trade and investment flows • Technological innovation • In 1947, 23 countries signed the first major multilateral trade agreement – the General Agreement on Tariffs and Trade (GATT) • This started the process of accelerating world trade through tariff reductions and agreeing rules on non-tariff barriers

6. IPE – The Global Economy • This global negotiating process continues today - the GATT is more effective since the WTO was established in 1995 • 155 countries are now members of the WTO and are participating in the Doha negotiating round • Bilateral and regional trade and investment agreements also contribute significantly to the growth of trade and investment

7. IPE – The Global Economy • On the technology side, the main drivers of economic globalization have been: • Industrial technology (robotics, biotechnology, micro-processing, seed and fertilizer technologies) • Transportation technology (containerization, energy efficiency, materials technology) • Information and data technology • Communications technology

8. IPE – The Global Economy • Global trade has grown by an average of 7% per year since 1970, while global GDP has grown by an average 3.5% per year • But there is a big difference between countries and regions: • In their degree of integration • In the benefits gained from the global economy • The share of world output accounted for by developing nations is rising and is expected to account for more than 60% of world economic activity by 2030

9. IPE – The Importance of Trade • Trade is a key means to fight poverty and achieve the Millennium Development Goals • Trade allows countries to: • import ideas and technologies, • realize comparative advantage and economies of scale • foster competition and innovation to increase productivity and achieve higher sustainable employment and economic growth

10. IPE – The Importance of Trade

11. The World: GNI per capita

12. IPE – Sharing Economic Growth

13. IPE – The Global Economy • Many former Communist nations in Eastern Europe and in Asia are now committed to market economies • These countries become new markets for international businesses • The BRICS (Brazil, Russia, India, China and South Africa) economies are assuming greater importance in world trade and investment • Other “economies in transition” are also growing quickly: Indonesia, Thailand, Vietnam, Turkey, Mexico, Argentina

14. IPE – The BRICS

15. IPE – The Global Marketplace • Falling trade barriers make it easier to sell internationally • Companies can view the world, rather than a single country, as their market • Companies base production in the optimal location for each stage of their supply chain • Consumers get a wider range of products and brands to buy; often prices are lower as a result of competition

16. IPE – Global Production • The globalization of production refers to the sourcing of goods and services from different places around the world to take advantage of differences in the cost and/or quality of factors of production: • Raw materials • Land • Labour • Capital • Infrastructure (energy, transport, water, …)

17. IPE – Global Production • Exploiting these global differences can involve establishing complex supply chains across several countries: raw materials source > processor > manufacturer > retailer > customer • Companies plan production and logistics so as to: • Minimize costs • Improve product quality • Add value by better serving customer needs

18. IPE - MNCs in the Global Economy • Multinational corporations (MNCs) benefit from: • access to global marketing and branding • the reduction of tariff and non-tariff barriers • MNCs now account for around: • a third of global production • 70% of world trade • 80% of international investment • Developing country MNCs are growing much more quickly in both number and size than US, European and Japanese MNCs

19. IPE – The Global Economy • The global economy is a competitive place: • Companies v. companies for market share and profits • Countries v. countries for investment, job creation and infrastructure • Governments v. companies for tax revenue, regulating labor conditions, environmental standards • Companies v. governments for investment incentives, stability, regulatory certainty, ease of doing business

20. IPE – The Global Economy • Our readings note that the global economy has four main issue areas: • The international trade system • The international monetary system • Multinational corporations • Economic development • Over the next few weeks we will look at each of the these in more detail, and also at: • International migration, especially labor mobility • Regional economic integration in Southeast Asia