International Affairs

2019-1

Final Exam
Research Paper

2019

After the Industrial Revolution, the world achieved great changes in the way of
trading between countries. The countries began to export new and improved
products over the years, they were implementing innovative processes to improve
product’s efficiency, also they formed and built lasting relationships between
countries that trade internationally. This contributed to reinforce political
bonds with the purpose of creating a bigger market to improve and develop the
internal market, which will provide employment, better education in citizens and
will improve the quality of life in countries.

Since last decades, countries of emerging economies have played an important role
worldwide. According to Kimberly Amadeo in The Balance - World Economy, Emerging
Markets, also known as emerging economies or developing countries, are nations
that are investing in more productive capacity. They are moving away from their
traditional economies that have relied on agriculture and export of raw
materials. Emerging markets are important because they drive growth in the
global economy.
This research essay will focus on the economic, political and social aspect based on
the question Which of the theoretical approaches presented throughout the course best explains
the relationship between emerging economies from Asia , North America and South America
region? .
Even though, choosing one or a mix of approaches can adjust better to the
question, each one (theoretical approach) is important and provides different
perspectives to explain certain events and moments in world’s history. The
theoretical approaches chosen among those studied in the course is a combination
of Liberalism, Capitalism and Constructivism. From my personal point of view,
those are chosen due to their higher adjustment in explaining the relationship
between emerging markets.

The theoretical approaches help to understand the subject through different

perspectives and it is unlikely that a single approach can explain or
comprehensively cover the relationships between countries of emerging economies.
Indeed, According to Mearsheimer, Even if one has an impressive theory or
perspective, it can not tell us all we need to know about politics. The reason is
simple: The world is remarkably complicated and all of our theories, including
the best ones, have limited explanatory power. To make sense of the world, we need
to have a variety of perspectives at our disposal (Mearsheimer, 2005). Theories are
formulated to explain, predict, and understand phenomena and, in many cases, to
challenge and extend existing knowledge within the limits of critical bounding
assumptions (Abend, 2008). The theoretical framework is the structure that can
hold or support a theory of a research study. Furthermore, introduces and
describes the theory that explains why the research problem under study exists
(Swanson, 2013).

The first theoretical approach studied was Realism. According to Morgenthau,

Realism explains international reality from the primary interest of States to
maximize their survival, security or power with the final goal of the domination
of other nations (Morgenthau 1986).

Another approach is Liberalism, unlike realism, the liberal school highlights the
possibility of cooperation and the generation of a context for general progress,
which are considered realizable, and where cooperation is present, at least in
power (Jervis, 1999). Also, the foreign policy of democratic states should not be
explained solely in exclusive terms of balance of power, but also through the
trust relationships that are generated between democracies (Doyle 1983).
According to Gino Pauselli, Rathbun (2010) in general terms, identifies liberalism as a
stream that focuses on the analysis of cooperation between States as a dependent
variable, where a greater potential for cooperation and progress in International
Relations is expected. Also, identifies liberalism as the analysis of international
reality (Pauselli, 2013).
We have also studied Post colonialism. According to Isabella Basaglia, Post-
colonialism undermine the notion that the history and political agenda of the
Third World countries is entirely a western creation. Colonised countries create
an identity which is an amalgamation of both the traditional and the Western in a
process of cultural fragmentation and multiculturalism: Hybridity. Thus, Post-
colonialism has altered the way we think about International Relations as it
questions and rejects grand narratives and acknowledge the transfer of ideas and
knowledge between the colonised and colonisers which defies any separatism to
nations and cultures. (Isabella Basaglia 2012)

Another topic is Varieties of Capitalism. Following Peter A. Hall and David Soskice,
To understand the varieties of capitalism, we need to know that this varieties of
capitalism approach to the political economy is actor centered, which is to say we
see the political economy as a terrain populated by multiple actors, each of whom
seeks to advance his interests in a rational way in strategic interaction with
others. The relevant actors may be individuals, firms, producer groups, or
governments. However, this is a firm-centered political economy that regards
companies as the crucial actors in a capitalist economy. About Liberal Market
Economies and Coordinated Market Economies, it follows that national political
economies can be compared by reference to the way in which firms resolve the
coordination problems they face in spheres. The core distinction they draw is
between two types of political economies, liberal market economies and
coordinated market economies (Hall & Soskice, ).

The next approach seen was Constructivism. According to Leandro Enrique

Sánchez in What is spoken of when talking about Constructivism?, The basic premise of the
constructivist approach is that human beings live in a world they construct, in
which they are main protagonists, which is the product of their own decisions. The
world, for this perspective, is socially constructed; that is, everything that is
inherent in the social world of individuals is elaborated by them. The fact that it
is men who build this world, makes it understandable. For Finnemore and Sikkink,
Constructivism in International Relations implies that: a) human relations, also
international relations, essentially consist of thoughts and ideas and not of
material forces or conditions; b) common intersubjective beliefs (ideas, concepts,
assumptions, etc.) constitute the central ideological element for the
constructivist approach; c) this common belief composes and expresses the interests
and identities of people, the way in which they conceive their relationships; d)
Constructivists emphasize the way in which these relationships are formed and
expressed (Finnemore & Sikkink, 2001). That is to say, the social world is an
intersubjective domain that, as such, has meanings for the people who give it shape
and live in it. (Jackson & Sorensen). Also, According to Alexander Wendt,
Fundamental principle of constructivist social theory is that people act towards
objects and other actors on the basis of the meanings that they have for them.
Social threats are constructed, not natural. It depends on how we interpret the
import of the first gesture for our own security. Actions depend on the
probabilities we assign as prior to first gestures, we actually have no systematic
basis for assigning probabilities. The first social act creates expectations on both
sides about each other future’s behaviour (Wendt, 1999).
Finally, we talked about Marxism. The Marxist tradition in international
relations highlights the North-South cleavage between States and relations of
inequality or dependence in international system. This cleavage is part of
capitalist expansion that reproduces inequalities between countries (Kubalková
and Cruickshank 1989). Given the linkage of the different degrees of differentiation
in product’s system and positions in the global structure of the capitalist system,
these generate differentiation between developed and underdeveloped countries.
Therefore, there is a difference of position within the international economic
structure of production and distribution. Domination relations (Cardoso and
Faletto 1969).

After reviewing the theories studied in class, this essay will focus on a
combination of Liberalism, Capitalism and Constructivism to answer the question
Which of the theoretical approaches presented throughout the course best explains the relationship
between emerging economies from Asia , North America and South America region?.

Economic Aspect

Emerging economies are exporting countries, in recent years, they are attracting
more foreign investment, also increasingly participating in international trade
and considering the global economic aspect in order to improve the national
industry and competitiveness. Industrialization provides greater added value to
the products than the export of commodities, which employes poor quality of
labor and innovation. The last leads to unsustainable long-term growth and the
high posibility of becoming a country dependent on exports of raw materials
subject to volatile prices in the international market.

Capitalism According to Merriam Webster, is an economic system characterized by

private or corporate ownership of capital goods, by investments that are
determined by private decision, and by prices, production, and the distribution of
goods that are determined mainly by competition in a free market. It is important
to mention that Capitalism plays a different role between developed countries and
developing countries. Due to this, literature on Varieties of Capitalism helps us
with a deeper approach. Following Robert Boyer, There is 3 reasons for the
extension of the number of capitalisms. First of them, most institutional forms are
the outcome of social and political struggles that potentially create
unprecedented forms of coordination. The second, is related to the characteristics of
growth regimes in developing countries. The contrasted growth regimes are associated with quite
different institutional forms. The last one, institutionalists argue that each national
economy has a specific institutional competitive advantage that clearly
distinguishes this economy from others. The hypothesis that similar economies in
developed and developing countries display complementary specialization much
more than they do typical unadulterated competition make viable the extension
of the number of capitalisms. (Boyer, 2007).
Emerging markets, are moving away from their traditional economies that have
relied on agriculture and the export of raw material. They are rapidly
industrializing and adopting a free market or mixed economy (Amadeo, 2019). Also,
According to Will Kenton, Emerging markets generally do not have the level of
market efficiency and strict standards in accounting and securities regulation to
be on par with advanced economies (such as the United States, Europe and Japan),
but emerging markets do typically have a physical financial infrastructure,
including banks, a stock exchange and a unified currency. Investors seek out
emerging markets for the prospect of high returns, as they often experience faster
economic growth as measured by GDP. Investments in emerging markets come with
much greater risk due to political instability, domestic infrastructure problems,
currency volatility and limited equity opportunities, as many large companies
may still be "state-run" or private. Also, local stock exchanges may not offer
liquid markets to outside investors (Kenton, 2019).

Following Gammeltoft, most economies acceded to the WTO during the second-
half of the 1990s, which accelerated processes of liberalization, privatization and
institutional reform and pushed Emerging Multinationals (EMNCs) to
internationalize to counter intensified competition at home as well as provided
them with more and easier accessible business opportunities abroad (Gammeltoft,
2010). The growth of Outward Foreign Direct Investment Investment (OFDI), from
emerging and developing economies over have grown by around 57 percent yearly in
2000-2008 (Annex 1,2). The story is consistent across different emerging sub-regions.
Firms that are aggressively investing are also from a number of smaller emerging
economies from Asia, Latin America, and Africa (Goldstein, 2007).

Regarding the Economic aspect, Liberalism, capitalism and constructivism are

present in the relations of emerging countries. The first approach defends individual
freedom, the exercise of rights in relation to private property with full freedom
and is based on a rule of law such as the division of powers in addition to non-
interventionism in the economy. Emerging countries respect private property and
foreign investment, in addition to individual rights in terms of freedom of
material development of companies within countries. It is also observed that
States increasingly support investments by reducing taxes, granting subsidies,
among others in order to attract more capital to their countries and continue to
develop their economy. We also find that capitalism is present, this is because every
time the emerging countries are looking for opportunities and support for their
internal industrialization to export goods with greater value added. The sale of
products abroad has the purpose of obtaining profits both for investors and for
the country in which the operations are established. The constructivist approach is
also present given that in an increasingly changing world, this is produced by the
thoughts and ideas of people worldwide. This expresses the identities of people,
their relationships, the way in which relationships are formed and expressed. It
also states that the international political system can be constructed or modified
depending on the practices of the agents (Sánchez 2012). In emerging countries we can
see a different pattern of international trade over the years, this is due to
preferences, perceptions and decisions within companies, specifically in agreements
between officials of private and public companies.

Political Aspect

The institutions of a nation’s political economy are inextricably bound up with its
history in two respects. One on the one hand, they are created by actions,
statutory or otherwise, that establish formal institutions and their operating
procedures. On the other, repeated historical experience builds up a set of common
expectations that allows the actors to coordinate effectively with each other.
Among other things, this implies that the institutions central to the operation of
the political economy should not be seen as entities that are created at one point
in time and can then be assumed to operate effectively afterwards (Hall & Soskice).

According to Gammeltoft, Firms evolve as active creators of economic systems and

their organization and strategies significantly influence economic outcomes.
Chandler (1997) showed how the modern business enterprise emerged at the core of
the capitalist economic system and triggered responses in government regulations
and policies, financial systems, and supporting institutions (Gammeltoft, Prakash
and Goldstein).

Following Glenn Morgan, There has been a development of interest in

international dimensions. The relationship between the European Union (EU) and its
member countries, in the role taken by the World Trade Organization (WTO) in
terms of setting the rules of the game for trade across national boundaries, and
the emergence of private forms of rule making between economic actors that
underpin phenomena such as the development of global financial markets.
Associated with the growing sense of the interconnectedness between national
capitalisms and broader global economic forces, there is an increased concern with
change and diversity within national systems. A number of authors have
challenged the idea that national systems can be characterized in terms of strong
fit and complementary between all their dominant institutions. (Crouch, 2005),
suggests that “mixed institutions are always likely to be more useful for change
and innovation, and more resilient than those that reproduce similar
characteristics over a wide institutional range. Firms tend to bee seen as active in
developing institutional reform and change. This process and institutional
entrepreneurship is open-ended and underdetermined, shaped by the skilful use of,
first, existing institutions; second, new emerging technologies and market
opportunities; and third, power resources. Institutional diversity is the very
heart of change. It is through the use of diversity and the engagement in processes
of recombinant governance that localities, regions, and nation-states can be
institutionally innovative.

In the political aspect, capitalism is an important approach to take into account.

Countries increasingly consider international trade, private investment and
security of public policies in their applicable laws. Liberalism is also present since
states respect individual rights related to freedom, private property, among
others. However, as the market is not efficient in the distribution of resources, its
regulated intervention in the economy is necessary. Indeed, Stiglitz points out
that today nearly everyone agrees that government needs to be involved in
providing basic education, legal frameworks, infrastructure and some elements of
a social safety net, and in regulating competition, banks and environmental impacts
(Stiglitz, 2007). These aspects are important for emerging countries. Their political
relations in emerging countries are reinforced more by the economic aspect. These
countries through trade agreements, participation in international
organizations, reinforce their presence at the international level. Emerging
economies have as a common objective, the development of their respective
countries, and this is carried out with the improvement of their economies and
with more efficient policies that integrate global trends and openness to trade.
Constructivism is also present. Emerging countries make decisions with respect to
political relations based on their beliefs, particular perceptions. These beliefs
shape their actions and fix their decisions or behaviors between them.

Social Aspect

The varieties of capitalism approach to political economy also opens up new

perspectives on social policy. In particular, it highlights the importance of social
policy to firms and the role that business groups play in the development of
welfare states. The relational approach we take to company competencies
naturally draws attention to the support that social policies can provide for the
relationships firms develop to advance their objectives. Social policy is often
thought to interfere with labor markets by raising labor costs or the
reservation wage. But the contributors to this volume explore the ways in which
social policies can improve the operation of labor markets, notably from the
perspective of the firm. Unemployment benefits with high replacement rates, for
instance, can improve the ability of firms to attract and retain pools of labor
with high or specific skills. Disability benefits and early retirement benefits can
allow firms that operate production regimes requiring employee loyalty to
release labor without violating implicit contracts about long-term employment.
There are many respects in which social policies can be crucial to the relational
strategies of firms (Hall & Soskice).

According to Ben Ross, Educational levels in Latin America remain lower than
those in developed countries and East Asia. From 1960 to 2000 the average
educational attainment in the adult population of Latin America almost doubled
from 3.3 to 6.1 years of school (Barro & Lee, 2000). The Inter-American Development
Bank (IDB) reported in 2005 that: in a study of 47 countries including most
developed countries, six Latin American countries and a sampling of countries in
Asia, Africa, Argentina was ranked 29th in productivity per worker, Mexico 34th,
Chile 36th, Brazil 38th, Colombia 40th, and Venezuela 42nd. The reasons for these
low productivity levels include slow progress in education, the failure of
training systems, poor labor relations, and the absence of compensation mechanisms
for workers who stand to lose their jobs or job standing due to innovations (IDB,
Competitiveness).
Following Alvaro Cuervo Cazurra, Developing country companies may follow
four alternative strategies for starting their multinationalization: (1) start in
countries that are proximate in culture and development, (2) start in countries
that are distant in culture and development, (3) start in countries that are
culturally proximate but distant in development, and (4) start in countries that
are culturally distant but proximate in development (Annex 4).

According to the research, the social and cultural aspect in emerging markets is
an aspect to be considered for foreign investment. Constructivist theory can be
identified in this process, since decisions are made in the way of beliefs and when
they change, so do the location of foreign investments in developing countries. As
for the varieties of capitalism, workers benefit from greater investment in emerging
countries, increasing their efficiency and purchasing power in the population. This
should undoubtedly be managed respecting the social norms in the country
invested and the social and environmental responsibility. The liberalist approach is
also present because one of its premises is that the rule of law obliges the
authorities to respect the rules, not arbitrarily use power and restrict
individual freedom. Societies are composed of individuals who, in all their freedom,
choose their employers. This, together with more investment in emerging
economies, translates into a greater development of human potential and in the
long term, more qualified personnel to incorporate better and innovative offers in
goods and services abroad.

Conclusions

The theoretical approaches of Liberalism, Constructivism and Capitalism help to

explain the relations between emerging countries in the economic, political and
social aspects. Liberalism defends the freedom of exercise our rights in relation to
private property. Emerging countries respect foreign investment. Also, it is
observed that States increasingly support investments by reducing taxes, granting
subsidies, among others, in order to attract more capital to their countries and
continue developing their economy. Due to the market is not efficient in the
distribution of resources, its regulated intervention in the economy is necessary.
Capitalism helps us to understand why emerging economies are looking for
opportunities to support their internal industrialization and exporting goods
with greater value added. The constructivist approach is also present, we can see
that the thoughts and ideas of people worldwide is changing our world and its
way of trading. In emerging countries, we can see a different pattern of
international trade over the years, this is due to preferences, perceptions and
decisions within companies.
Annexes
1.

Figure 2. OFDI from emerging economies 1970-2008

Taken from Emerging multinationals: home and host country determinants and outcomes
Gammeltoft, Prakash and Goldstein.
2.

Table I. Growth of OFDI from selected emerging economies, 1990 - 2008

Taken from Emerging multinationals: home and host country determinants and outcomes

3.
 Figure 3. Foreign assets, sales, employment and transnationality index (TNI) of
largest 50 MNCs from developing economies.
Taken from Emerging multinationals: home and host country determinants and outcomes
Gammeltoft, Prakash and Goldstein.

4.

Taken from The multinationalization of developing country MNEs: The case of multilatinas
Alvaro Cuervo Cazurra

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