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International Political Economy (IPE). International College Khon Kaen University 2012 Week 2 – The Global Economy. IPE – The Global Economy. IPE is increasingly important because international politics and international economics are so interdependent

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International political economy ipe

International Political Economy (IPE)

International College



Week 2 – The Global Economy

Ipe the global economy
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

Ipe globalization
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

Ipe globalization1
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

Ipe the global economy1
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

Ipe the global economy2
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

Ipe the global economy3
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

Ipe the global economy4
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

Ipe the importance of trade
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

Ipe the global economy5
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

Ipe the global marketplace
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

Ipe global production
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, …)

Ipe global production1
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

Ipe mncs in the global economy
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

Ipe the global economy6
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

Ipe the global economy7
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