Chapter 14: The International Economy: A Global Road Map Economics and politics are closely intertwined aspects of international relations. Each is a part of and affects the other. This interrelationship has become even more important in recent history. Economics has become more important internationally because of dramatically increased trade levels, ever-tightening economic interdependence between countries, and the growing impact of international economics on domestic economics. The study of international political economy (IPE) examines the interaction between politics and economics. There are many technical aspects to explaining and understanding the international political economy, and those not familiar with economic terms and methods should review the listing called Economics: Technical Terms and Sources found in the section toward the end of the book entitled Explanatory Notes on pages 557-559. The approaches to IPE can be roughly divided into three groups: economic nationalism (mercantilism), economic internationalism (liberalism), and economic structuralism. The core of the economic nationalist doctrine is the realist idea that the state should harness and use national economic strength to further national interest. Therefore, the state should shape the country's economy and its foreign economic policy to enhance state power. Economic internationalists are idealists who believe that international economic relations should and can be harmonious because prosperity is available to all and is most likely to be achieved and preserved through cooperation. The main thrust of economic internationalism is to separate politics from economics, to create prosperity by freeing economic interchange from political restrictions. Economic structuralists hold that world politics is based on the division of the world into have and have-not countries, with the EDCs keeping the LDCs weak and poor in order to exploit them. There are two types of economic structuralists. Marxists believe that the entire capitalist-based system must be replaced with domestic and international socialist systems before economic equity can be achieved. Less radical economic structuralists stress reform of the current market system by ending the system of dependencia. Whether or not you subscribe to economic structuralist theory, it is clear that the world is generally divided into two economic spheres: a wealthy North and a much less wealthy South. There are some overlaps between the two spheres, but in general the vast majority of the people and countries of the South are much less wealthy and industrially developed than the countries of the North and their people. The South also has a history of direct and indirect colonial control by countries of the North. Economic nationalists, economic internationalists, and economic structuralists all offer different explanations of why the relative deprivation of the South exists. The three schools of thought also have varying prescriptions about what, if anything, to do to remedy the North-South gap in economic development. The history of international economics is ancient, but a change that has occurred since the second half of the twentieth century is that the level of economic interchange (trade, investments and other capital flows, and monetary exchange) has increased at an exponential rate. Within the overall expansion of the international economy, there is, however, a pattern in which most of the trade, investment, and other aspects of international political economy are dominated by the North and work to its advantage. Trade in goods and services is booming, having grown 2,600 percent from $20 billion in 1913 to nearly $7.5 trillion in 2000. There has also been a rapid expansion of international financial ties. This flow of investment can be examined by reviewing types of foreign investments and multinational corporations. The increased flow of trade and capital means that monetary relations, including exchange rates, interest rates, and other monetary considerations, are a significant economic factor. It is not unreasonable to estimate that the daily currency flow is $1.5 trillion, or some $548 trillion a year. The expansion of world trade and investment has profoundly affected countries and their citizens. Economic interdependence has inexorably intertwined national and international economic health. Top of Page