International Political Economy

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International Political Economy

International Political Economy

Q. 1.

The trade and production structure is a set of relationships amongst international organizations, states, NGOs, and international businesses. Together, these entities influence and control international norms and rules relating to production, where production takes place, who produces, who is the market, and lastly at what price. Economics of trade and its politics are inseparable. International trade has enlarged in value as well as in volume partially, as a manifestation of production internationalization. Progress in communication technology has precipitated a disintegration of production, with organizations outsourcing segments of the production process to diverse parts of the world. As a result of the mobility of capital, foreign direct investment demonstrates growth although much of it is concentrated in the developed economies. Trade encourages political, economic, and social interdependence among trading partners (Salvatore, 2009).

Q. 2.

In regard to comparative advantage, while one country may be less efficient than another country in the production of two commodities, there would still a foundation for mutually advantageous trade. The first country should focus in the production and export of the commodities in which it has comparative advantage, and import the commodities in which it has a greater absolute disadvantage. Comparative advantage is established by contrasting relative prices or the opportunity costs across nations.

Nations would always specialize depending on their comparative advantage. Competitive forces direct nations towards specialization depending on comparative advantage. International resources are utilized more efficiently, as total global output rises with specialization depending on comparative advantage. With trade and specialization, the consumption value increases in each country. Comparative advantage is an easier way of illustrating the trade patterns. Prices of commodities in foreign as well as domestic markets as well as the exchange rate assume secondary significance when it is implicit that comparative advantage provides a more fundamental illustration of trade (Salvatore, 2009).

Q. 3

Economic Liberals

The liberal ideas in regard to trade are influenced by David Ricardo formalization of the theory of comparative advantage. According Ricardo, trade is not based on who can produce the most of any given good (absolute advantage) since limitations of scarce resources mean that no nation can produce as much as it wants of all goods and services. Opportunity cost should as a result be considered. The theory of comparative advantage holds that a nation should produce those the same goods produced in other countries. Finally, a nation should import goods if the price of the import (terms of trade) is less than the opportunity cost of home production (Salvatore, 2009).


Although trade itself makes all nations better off, changes in the terms of trade can make one nation better off and another worse off. Also, mercantilists view the theory of comparative advantage as incomplete because it does not take into account other factors that affect trade and national welfare.


In the perspective of structuralists, trade helped mother countries dominate and subjugate undeveloped colonial territories. Contemporary structuralists emphasize the extent to which international trade reflects the exploitative relationship that exists amongst core, semi-peripheral, and peripheral nations. Several structuralists point out that while trade has generated economic growth; the benefits in developing countries have been distributed very unevenly, promoting greater inequality (Salvatore, 2009).

Q. 4.

The approach of the Mercantilists best accounts for the relationship of the Northern industrialized nations to the Southern developing nations when it comes to trade. The approach perceives that states can intentionally create and can also easily gain comparative advantage by adopting strategic trade policies and having new technology, skills and other resources like cheap labor. Another political reality is that, in democratic nations, it is the state’s duty to protect society and its businesses from the negative effects of trade. Trade protection is also associated with a fear of becoming too dependent on other nations for certain goods. Then some neo-mercantilists are concerned that the protectionist trade policies of a regional trade alliance like NAFTA, EU are designed to help local industries, might either intentionally or unintentionally disrupt another country. Often this disruption is followed by an assortment of defensive or retaliatory neo-mercantilist policies like tariffs, import & export quotas, export subsidies, currency devaluation, non-tariff barriers, dumping, etc. that counter the original measures with the other state (Salvatore, 2009).

Q. 5.

In the 1980s trade accounted for an increasingly higher percentage of GDP in the industrialized states, generating demand for new protectionist policies. This led to the Uruguay Round of GATT multilateral trade talks in 1986. Strategic trade policies grew in importance, especially in the 1980s and 1990s. The Uruguay GATT Round (1986-1993) attempted to deal with a number of newer trade issues including services and intellectual property rights (IPRs). Domestic support for agriculture and LDCs was also issues dealt with in the Uruguay Round, but that had not been dealt with effectively (or at all) in previous GATT Rounds. Agriculture remained an especially sticky issue throughout the negotiations and held up the talks several times. Agreement was finally reached on agriculture, opening the door to agreements on services, IPRs, and other issues. While the Uruguay Round did make progress on these and other issues, many of them remain for the WTO to either deal with or solve.

The Doha Round

Both the EU and United States face tremendous domestic political pressure to leave agricultural protections in place to safeguard local farmers, in spite of the incentive these policies create for overproduction and dumping, which depress global prices for agricultural commodities. No subsequent proposal has been agreeable to all sides, and once again agriculture is poised to derail the Doha Round. One possibility is a “Doha lite” agreement that would not require nations to give up so much. There is great fear that failure to reach some agreement will damage the credibility of the WTO as an institution. In the meantime, many states are putting new energy into bilateral and regional trade agreements to advance the objective of trade promotion.


Three different international monetary and finance systems

The Bretton Woods System

The Float or Flexible Exchange-Rate System.

The Classic Gold Standard system.

The Bretton Woods System

The Bretton Woods System was created following World War II with the objective of promoting the cooperation required to rebuild Europe. It was seen as imperative to create a currency regime that would prevent the competitive currency devaluations that had precipitated tit-for-tat retaliation during the Great Depression. John Maynard Keynes proposed the “Keynesian compromise” which gave nations the ability to regulate their own domestic economies, but permit the IMF to collectively manage global financial policies to avoid another Great Depression. The IMF would provide temporary assistance to debtor nations in paying back wartime debts. This system restored confidence since all currencies were theoretically convertible into gold. The system subsisted on the basis of a bargain between the United States and Western Europe where the United States consciously accepted its hegemonic role of providing collective goods (like the dollar as a reserve currency, and security), in exchange for military and diplomatic support from Europe (Salvatore, 2009).

The Float or Flexible Exchange-Rate System.

Following the collapse of the Bretton Woods system, the major powers authorized the IMF to widen the trading bands so that changes in currency values could more easily reflect the supply and demand of currencies. The oil shocks of the 1970s helped preserve the dollar’s status as top currency, as OPEC demanded ever-greater quantities of dollars to purchase OPEC oil. OPEC nations placed many of these “petrodollars” in Western banks. Petrodollars were loaned out to developing countries, which substantially increased their debt. Stagflation (concurrent inflation and slow economic growth) during the 1980s prompted the U.S. to raise interest rates to combat domestic inflation, which contributed to global recession. Concerns about the growth of communism in Latin and South America, the IMF and World Bank under U.S. pressure provided opportunities for developing countries to reschedule their debts.


The new global security structure can be perceived as a three-tiered structural arrangement made up of a relatively small number of great or major powers at the top, a bigger number of minor powers in the middle of the framework, and a large number of weak powers or poor states on the bottom layer. On the top layer states are preoccupied primarily with realist concerns of national defense and war when it comes to security. IOs are important to the extent that they serve the interests of their creators, nation-states. And NGOs have relatively little influence at this level. Third-tier states represent the great majority of poorer countries that lack both hard and soft power capabilities. They wrestle not only with territorial issues but also with a wide diversity of security concerns such as immigrants, refugees, minorities, human rights abuses, epidemic diseases, and environmental issues. UN peacekeeping forces and NGOs are quite active and play major roles at this level. Actors such as the United States tend to be involved in security issues in all tiers given its interests, capabilities, and global influence. Actors at all levels are connected by formal treaties, conventions, and other arrangements (Salvatore, 2009).

The Top Layer: Power Politics and the State-System Order

The focus of defense officials in these states is on preparation to fight wars or the protection of national borders. Realism usually prevails as the outlook that shapes official views about security. The basic principles of realism are summarized. The major powers and hegemons have global interests, one of which has been the balance of power. Three schools of thought about polar configurations of power are identified and discussed (Salvatore, 2009).

The Second Layer: The Changing Role of IOS

Minor powers usually focus on protection of the homeland, but because of their limited hard power capabilities are more likely to seek assistance from IOs when it comes to security. NATO has been and is still looked to by many minor powers for protection. Many of these states are strong supporters of a new International Criminal Court (ICC) to, in part; hold accountable those who commit war crimes.

The Third Layer: The Coming Anarchy?

Third-layer states are relatively weak states, and not as capable as the other two layers of states in dealing with security issues. They exhibit a good deal of domestic violence and conflict related to lack of economic development and persistent poverty. These states are quite dependent on IOs such as UN peacekeeping forces and NGOs like the Red Cross and Red Crescent to help them solve many of their security issues.


The relationship of security to development in poor nations is a hotly debated topic. For economic liberal development experts, security issues prevent or help delay economic development by wasting resources. Security issues in these nations are linked to heavy debt to international banks and finance institutions, overpopulation, poor infrastructure, and environmentally threatening issues. Some poor states adopt measures to grow their economy that may violate a group’s human rights. Support for terrorists can often be in failed states, while urban violence is linked to slum areas around large cities. Many developed nations ship arms to the poorer states in consideration of major power security but also economic interests. Many poorer states must look to IOs and NGOs for assistance when it comes to security issues (Salvatore, 2009).

Q. 9

IPRs are lawful tools to control access to innovation. IPRs therefore are an issue in the interaction of markets and nations in the IPE. IPR are the rights to control use of intellectual property – an invention or a creative work such as a novel or poem. Patents are issued by government and bestow exclusive rights to create, utilize or trade in an invention for a time usually ranging from 15-20 years. The trademarks are symbols registered by manufacturers or merchants to identify services and goods. Protection is generally granted for a decade and is also renewable. The copyrights protection is granted for inventive works of authorship such as artistic, literary, and scientific works. It is also issued for software and databases. Protection last for the author’s lifetime, plus fifty years (Salvatore, 2009).

Three Perspectives of Intellectual Property Rights

Liberals perceive IPRs as necessary to generate a mutually advantageous market for intellectual property.

Mercantilists perceive IPRs as an approach to acquire an advantage for local firms over foreign competitors. It may also be a way to control the increase of military technology that may be significant to national defense.

Structuralists perceive IPRs as another approach of exploitation. They view enforced IPRs as producers of dependency and underdevelopment (Salvatore, 2009).

Q. 10.

Three significant trends are;

Power and wealth increasingly rely on technology and knowledge.

The rate of technological transformation has increased.

The level of technological transmission has increased.

Q. 11.

Mercantilists perceive IPRs as an approach to acquire an advantage for local firms over foreign competitors. It may also be a way to control the increase of military technology that may be significant to national defense.

Liberals perceive IPRs as necessary to generate a mutually advantageous market for intellectual property.

Structuralists perceive IPRs as another approach of exploitation. They view enforced IPRs as producers of dependency and underdevelopment.


The Product Life Cycle (PLC) phenomenon is the markets response to a product. It largely judges when one phase in the life cycle will diminish and the next phase set in. The product life cycle exemplify how innovations happen, multiply, and ultimately are transferred in foreign countries. The production structure is influenced strongly by the changing trade. High-tech (knowledge) industries are termed “Schumpeterian” to indicate that only firms with monopoly power have the incentive and ability to invest in risky, costly, and long-standing research and development projects (Salvatore, 2009).


Salvatore, B. (2009). Theory & Problems of Global Economics. N.Y: McGraw-Hill.

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