International political economy Dr.

Marta Golonka

03.10.2023. L. 1 Note: Валить. Пізно не приходити. Не балакати і не

My seminar group: 2
All seminar groups will need to have presentations by the next week:
what is international political economy. Next tuesday 3 groups
Martagolonka@yahoo.com - email
сидіть в телефоні. Запрошує писати вручну.
Задавати питання. Надає перевагу стаді групам та
змішуванню різних груп. Не любить групи
друзяшок. Використовує яху імейл, не уйот. Не
дуже любить походи до туалету. Будуть летучки
(якщо пропустити більше ніж двоє квізів потрібно
буде робити щось додатково). Не перевіряє хто
приходить на лекції.
 Lecture 2. 09.10.23

PE focuses on explaining economic and poilitical outcomes, not about discovering the best way bet knowing what choices there are and what
effect they make (critical analysis)

Economic policies change depending on what party is in power. Choices vary per government, as the power changes. What are the actors in
power?

There are two levels: international and domestic. We cannot study domestic economics without looking at the international level.

Where does IPE come from?

IR comes from the end of WW1, when countries wanted to establish relations between each other. Why do we have war and how do we avoid it?

Economics were linked to security in 1970s, when the oil prices started to rise. The two were studied together. “Public choice” and “Constructivism”

Levels of analysis problem: at what level and by whom is the decision made? Where is the choice being made and why? Actors are not rational

Causal relationship: a connection between cause and effect?

Three systemic theories:

Mercantilism/nationalism: primacy of state and national interest, wealth and power. Zero sum game leading to conflict. Purpose is to enhance
power of nation state. Viner, Machiavelli.

Liberalism: emerged by Adam Smith, renaissance. Emphasises interdependence, individual, democracy and institutions. Invisible hand and
laissez faire. Mutual gains of trade leading to peace. To enhance aggregate social welfare. Smith, Ricardo, JS Mill, Kant, Friedman

Marxism: interclass warfare. Exploitative interdependence. Means of production shape society, labor theory of value. Capitalism leads to under
consumption, declining rate of profit, class conflict, eventual revolution. Equitable distribution of wealth and income. Keynes.

Structure of the system in economics: But it is also about actors:

• Either class • actors exist at many levels
• Power of the state • International actors, domestic
• Or market • Relationship between them

Framework for analysis: policy is changed by

• Interests - where do preferences come from?

• Institutions - How political institutions transform demands into policies. Rules of the game. Traditional: democracy vs. Authoritarian
system. Do interests make the institutions and rules or do they constraint them?
• Ideas - identities, legacies, mental models that provide set of beliefs

We focus on mid-level theories that does not cover everything
• Power structure vs. Process of decision making
• Power influence on policy
• EU policy makning
• Decision making analysis and factors
Pure economics:
• EXPLAIN why scarcity and choice are basic problems of economics
• IDENTIFY land, labor and capital as factors of production
• EXPLAIN why all resounces are scarce
• Reflects on how society has unlimited needs and identify “best” way
of trading off one to another
• “BEST” discussion

Scarcity: a situation in whoch the amoint of something actually available would not be sufficient for everyone, if it was free of charge
Shortage, in contrast, can be short term
Factors of production:
Opportunity cost • Land
Production possibilities graph • Resources
• Labor
 State and globalisation
Financial crisis

• Recession - at least 2 quarters of falling gdp

• Sub-prime mortgage
• Housing boom and default - people evicted because couldnt pay loans - more available houses - less house value
• Financial losses
• Banks in trouble - lehman brothers
• Fear and panic spread globally Imbalances - domestic
• Bailouts - too big to fail
• Consumer boom - it was easy to get money. They started to buy houses
1. De-regulation (domestic) but couldn’t pay it back
2. Financial liberalisation (international) • Savings and spendings increase
• Imbalances - both • There was no international financial management - no regulation
plus • Income inequality
3. Innovation in finance

Austerity - not spending your money. Should we cut it and prevent inflation. EU
Vs. Stimulus - increase spending. USA printed more money
Globalisation can be entrenched and enduring and will not break down. It is about mobility and movement of people goods thoughts. It is about
the speed of ideas and specialisation of a country on a product.

First gloalisation - belle epoque 1890-1914. WW1 broke down globalisation. Can today’s globalisation stop the same way?

L. 4 23.10.23

Myths of globalisations
• Thomas friedman: the world is flat: a brief hitory of the 21st century. Although we see the economic flatness, we can approach and move
people and goods. A t the same time we have mountains, states of conflict show that we shouldn’t go to linear globalisation. Cultural
identity is threatened due to the flatness of the world
•

Early IPE scholars were asked big questions. “Why are countries not big traders? Why dont interdependent countries wage war?” Systemic
theories (Merc, Liberalism, Marxism), and domestic theories. IPE is concerned with development

Traditional IR realism
• is a more modern application of mercantilism: was born a lot earlier but is being confused with realism. Mercantilism is a doctrine
based on power, born during machiavelli times. Today we have Neo-mercantilism, or economic nationalism, or modern realism. The old
merc as well as modern focus on “black box states”, meaning there is always national interests, the states are unitary actors. But there
is no national interest. There is personal interest that is used for populist purposes.

What is happening inside the “black box” is more important that what it looks like outside.

Power structure for mercantilism is about state fighting over economic power and gaining wealth
Power Structure for liberals are freedom, market and individuals
PS for marxists is class struggle: critque of capitalism
See photo for three major theories

According to marxism, ussr and china wouldnt have communist because they were agrarian states and were not in their development period.

Realists - Hegemonic stability: coercive or benevolent hegemon?

Neoliberal institutionalism. Regime theory (realist) - regimes create order: they reflect interest of the most powerful states. International institutions
do this today as well.

Regionalism
• State response to globalisation. Means of adjustment
• Is the global system being broken up into regional clusters instead of global?
• Is regionalism a response to global economy, or does it itself create globalisation?
• What’s driving regionalism and globalisation? Is it states? Markets? Companies and interests?
 IPE in US us economic oriented, based on numbers
IPE in UK went towards deconstructing on individuals: holistic approach. Based on political science

Rational choice: what would humans choose based on certain policy (whether it benefits themselves)

Constructivism: Not everything in economics is quantifiable. Qualitative analysis. Critical theory, historical and interpretative. Actors
cannot understand interests without relying on ideas, norms, understandings and systems of meaning.

Economics is about Ideas

• Ecoomics is a sciece of substitues
• Normative approach
• Welfare, quality of life

Domestic politics and internationalisations

• Nature of the political regime
• Different types of regimes (capitalism)
• Growth models
• Interests, institutions and ideas
• Levels of analysis (domestic, international)

European council, european parliament, european commission, eu court of justice

Commission: 27 members, a full representation of EU internationally. The commissioners are not country representatives, but more like the
ministers. A liberal body. They work with directorate generals of EU (administrative bodies). They are executive power that has a power to
propose legislation. It also carries the legislation power
Council: 27 members, the main body is represented by leaders of state. They represent the interst of the member states. There is also a
veto.
Parliament: weakest, elected directly by the people, they sit in parties.
EU court
Agencies (frontex, decision on borders)
Central bank (20 MS)
 Economic liberalism Seminar

Adam Smith - scottish philosopher. inquiry into the nature and causes of the wealth of nations - the first work in political economy
• Principles of human nature
• Theory of invisible hand
• Mechanism of competition
• Free market
• Division of labor

HUMAN NATURE
• Self-interest + competition based on moral values.
• Introduced by Adam Smith

DIVISION OF LABOR
• “Theory of Specialisation”, dividing particular stages of production between qualified workers
• “Each individual becomes expert in his own particular branch”

VALUE OF LABOUR
• labor is never varying, a standard by which the value of all commodities can be estimated and compared. If you work hard, you get
more. Luxury gold is more expensive because it takes more time to create

David Ricardo: British. Principles of political economy and taxation.

• Comparative advantage
• Labor theory of value
• Theory of rent

COMPARATIVE ADVANTAGE
• An individual has comp. Advantage if he has lower opportunity cost of producing it.
• Nations should concentrate resources in industry where they have the greatest production relative to their own alternative uses of
resources
• Sheep and wine: scottish and portuguese have their own better resources, therefore they trade and save time by making their resource
 PRIVATE PROPERTY
• People have right to own and control what is theirs
• Protection of individual freedoms and pursue one’s own interest
• PP is the basis of Market economy where indviduals can do with the goods what they want
• The property is protected by the legal system that s essential to promote economic development

LAISSEZ-FAIRE - Adam Smith

• Minimum government interference in economy. Dominance of market ideology. If the market is left alone, it would itself regulate the wages
and profit.

INVISIBLE HAND
• Induviduals pursing self interest will allocate resources efficiently
• By inventing something and selling this you are contributing to the greater good by giving it to people, making their lives better.
• Harmony in the market system is the result of individuals pursuing selfish interest (that must be rational)

MARKET AS A STRUCTURE
• Physical markets, online markets. ]
• A place where buyers and sellers can meet to exchange goods and services.

FREE MARKET
• Markets in which governments do not intervene.
• The market price is determined by the proportion between supply and demand. The more goods, the less is price

TYPES OF DEMAND
• Absolute demand - desire for certain goods, not necessarily ability to pay
• Effectual demand - Themand accompanied with the right willingness to pay

NEOLIBERALISM
• Post WW2 reality
• Developing economics
• Reflection on american isolationism
• 1970s International Stagflation
• Washington consensus
It favors private enterprise, includes privatisation, deregulation, globalisation, trade, monetarism
Neoliberlaism encompasses both pilitics and economics

Margaret Thatcher
• UK’s PM conservative
• Denationalisation
• Popular Capitalism - ordinary people can buy shares and command the economy - share ownership
• “Right to buy” policy - “shock policy”
• Belief in the virtues of free market capitalism, also has a role in downfall of communism

Ronald Reagan: 40th president

• Increased defence spending, balancing federal budget, reducing federal income tax, capital gains tax, tightening the money supply to reduce
inflation.

Milton Friedman - US economist

• Research on consumption analysis and monetary history
• Ideas concerning monetary policy have influenced goverments
• Monetary theory had influence on policied in responsze to financial crisis in 2007

MAIN CONCEPTS OF NEOLIBERALISM

• Free enterprise and competition
• Opposition to the expansion of government power, state, welfare, inflation
• Minimizing government contrrol of industry
• Gloibalisation rather that regulated market and protectionism
• Reduction in government spending and lower taxes
 L. 5.
Economics and political economy
Policy and theory Read until putnam (he is two-level games.
Prepare specific materials for the seminar.
Tomorrow is mercantilism.

States are divided by different institutions, ideas and culture. The rule of culture and the past is particularly
important in their reaction to globalisaton. E.g. US: god, we must be able to protect, therefore we bear arms.
(Constructivism). If all colonies were trapped in the system, why do they still react differently to the
international developments.

How state responds to globalisation is determined:

1. Structural position of the state: lichtenstein is weak internationally
2. Nature of its political system (state-centered and institution approaches). What institutions does the state have?
3. Influence of special interests. Lobby inside countries is powerful depending on state.
4. Ideas and public opinion. Germany is afraid of its past. North Korea are antagonistic and love their leader

Idea of national interest is incompatible with realism. In realism, it is called “balance of interest groups”.

Openness. It refers to the degree of free trade and investments. If a state enters global economy, it causes the external shock to the states
position in the global economy. Joining globalisation changes national interest and different interest groups. E.g. Ukraine changes national interest
when independent. Globalisation creates conflict because different interest groups and competition starts to grow.
State position must be strong in order to keep balance between winners and losers. Some times governments would commit to
international rules to resist pressure of domestic groups.
S. 4?
Mercantilism

Economic theory and practice from 16th to 18th centuries in western europe. Nations wealth and power is the most important and is accumulated via
colonies. It used taxes, financial support, increasing export and limiting import, accumulating wealth.

Case study
• Spain, largest first colonial power. Spain applied mercantilism policy in a wring way. Influx capital must be invested in the country’s industries. But
in spain, the influx of gold had created the inflation, therefore an incentive to import cheaper products from abroad. Aristocrats were not eager to
give their lands to the industry, as they were already renting the lands to farmers.
• England
• Navigation act 1651 meant that foreign traders would be able to sell goods only manufactured in their own country. French from france
•
L. 6
Factors of openness are trade and investments
Openness and interests

1. Changes internationally cause shock

2. Openness changes national interest (macro) and individual preferences of
domestic actors (micro)
3. New coalitions, new interests
4. Both above are affected by institutions on national and international level
5. Consequences are for:
• Macroeconomic performance - welfare gains and losses
• Microeconomic performance - distribution of winners and losers, conflict
6. Government responds through policy reform and institutional change
Sometimes Government uses International leverage to pursue domestic
objectives, thus pursuing international cooperation
Credible commitments matter

Economic policy reform are created domestically and through international cooperation and is ruled by:

I. Interests: society centered approaches

• World market connect with domestic coalitions
• Globalisation changes balance of power between interest groups.
• Free trade and capital mobility create welfare gains and losses for some groups
• All national decisions are influenced by interest groups
• Interests are more important than the structure in global economy

Economic analysis Political analysis

• Actors are rational • We have values, cultures, ideologies (we might want to care for the environment)
• Egoistic • To economic preferences of interests, we have political institutions
• Maximise their benefit
• Have preferences

2. The character of the political regime and its institutions (rules)

• Institution can stop or give power to interests

• The rules of government is as importan

Typical rules:

• Protection of private property

• Banks and other financial markets
• Labour market institutions: social policy and the social safety net

Institutions - definitions

• Dilemmas: nature of state, state boundaries, objectives of state, state competences

• Economic institutions feature:
1. They regulate economic behaviour in ways which often conflict with individual preferences
2. They are based on shared expectations, derived from custom, trust, legal provisions
3. They make most sense if the economy is thought of as a “repeated game” in which most types of transaction occur many times
4. Anonymity, in the sense that the functioning of a given institution should not be dependent upon the identity of the economic agents seeking
to conduct the types of transaction to which this institution relates. Airplane regulators must not depend on plane manufacturers, and should
be impartial to the safety.
3. Ideas

• The role of culture and constructivism

• Social relations construct people
• Ideas have structural power
• Epistemic communities (what is)
• Sociological approach - actors cannot understand interests without relying on norms, ideas, norms
• All social phenomena are based on ideologies or political discourse, inter-subjective meanings, world views
 Marxism
(Ew)

Modes of production - combination of forces of production: feudalism, capotalism. How society organisas itself economically
Forces of production - modes of production
Relations of production - institutions
 Openness, internationalisation

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institutions
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Domestic DP

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democratic institutions have one more complexity involved. They need to respect the liberal interests when they push preferences.

Varieties of capitalism & democratic institutions. There is a huge split within th democracies
• Trade-offs
• Coordinated vs. Liberal market economies and models
• Relationship between state and firms
• Ways of interest articulation: lobby, legal fashion, corruption
• Dialogue with civil society

Domestic policy in democracy

• In decision to pursue policy. Government informs about the decision to consolidate budget and cut spending.
• Initiation - how are we going to cut debt. Congress says that we cannot do that and set up additional rules
• Inplementation - cut spending. Austerity. Stop building roads etc.
• Consolidation - it starts to be accepted by the society
• Social participation and contestation - society works with government, some will accept, some will contest.
• Outcome of the process is uncertain - strikes can be strong and disrupt so much, that the government backs off

Rules are certain and predictable, but the outcome is uncertain

But in authoritarian states, rules are unpredictable and the outcome is predictable.

Bureaucratic politics - Collective whole of fragmented

• Executive - heads of state
• Legislative
• Beraucracy
• Local gvernment
• System of interest representation

What it everything goes wrong after the resistance? You cut spending and people see their wages are lowered This is a policy
dilemma
• You can ignore the consequences and continue
• You can give in to the process and back off
• Government is, completely aware of happenings, so committed that will set up rules to discipline itself, commit to international rules, make
sure that it sticks on path. A democratic government knows that society will resist harsh reforms. So they create common international rules,
so that they have a scapegoat and say “this is internationally accepted”

Democracies can stop and stall important decisions due to the long procedures. = Governments tie their own hands

• But with rules, you create commitments - neoliberal institutionalism. They use external world as the leverage to push reform.
• But domestically, they also create independent agencies like central banks, in order to make quick economic decisions based on price
stability and inflation.
So they delegate their work different anchors for the cases when there is no time for democratic process. Technocracy.
 How are regulations made? On the example of customs

• In theory, all nations gain in trade. But there will also be losers. How do governments address losers? They introduce trade policy. In order to
gain trade benefits, nations regulate trade through trade policies. Governments have to also regulate other aspects of economic life, such as
property rights.
• They also regulate aspects of market failure

Justification of regultaion: economies are not perfectly competitive. Free markets do not exist

Market failure: competition is not perfect (unlike adam smith wanted), information flows imperfectly and delayed, Market is unable to pay for the
collective and public goods, market externalities

Competition policies: How do we fix?

• We don’t want monopolies • When a large company wants to buy a smaller one, it is checked by competition
• Oligopolies - several large companies authorities and decide what market share it acquires. If it is too much, then it is not
• Cartels - companies that fix prices allowed.
• Monopsony - one buyer and multiple sellers

Externality is something that takes place during market failure: if you are bying a car, and there is transaction. The rest of us are affected, because
when the car is made, pollution is created. When the car is not bought, the pollution stays there and the car does not enter the market. = negative
externality. Therefore, it is not my fault

Governments try to address the distortions by making regulation. But how far should it intervene? Should it stabilise the conomy against income
and price level fluctuation

Government should:
• Influence the rate of economic growth
• Achieve some standard of equity: should class, gender, race matter, or should it be earned?
• `stabilise the economy against income and price level fluctuations:

Case study - customs as an independent organisation

Chinese government and American government have representative of states on trade. They get together and work in a multilateral setting.
Simplified: US and China have now signed a bilateral agreement on international trade and agreed they would sell dolls, Chinese sells, US trades
on something else. US says that we will accept 60k dolls at a 0% tariff. After the number extends, the tariff would be 60%. The agreement is in
force. They can now start trading under the new rules. Now, an independent agency walks in. When the goods are shipped, customs create a
declaration. When China had put a number (Harmonised System HS number), guards open it up and receive the information about what a doll
should posess and how it is classified by WCO and what characteristics it has. The hardest part is not signing the agreement, but agreeing for
the two companies on a price and getting the goods into the market. Those products need to receive the market access. But a harder thing is to
meet the standards (bioplastic, etc). These standards are approximated

Combined Nomenclature CN - is an EU HS number.

In conclusion, market access is harder to achieve that just a trade agreement

Neoliberal institutionalism theory - States go to institutions to pursue neoliberal policies that are socially costly
Openness - governments delegate authority to international anchors to avoid criticism
Efficiency vs accountability - It is sometimes more efficient to delegate policy rather than solving it on a domestic level. When you start listening to
everyone, you won’t be able to make a decision. But if you ignore everyone, democracy won’t work.

Two- or multiple level games

Putnam model is about discussing with states with each other on international level 1, and then ratify these agreements domestically on level 2.
When you have the desire to become EU member, governments will discuss the terms of accession, Then the diplomats go home to the parliament
and ask for approval. Same for the Brussels: they go for their domestic institutions. Actors who enter into interaction rarely emerge the same. ,
There is a dilemma between pursuing market type and democratic reforms. Society wants schools, but the market wants to lower taxes and pursue
little debt. In china, economic growth takes place at the expense of democracy.

Exam: always introduce the terms first, explain what is market and what is state

Sequence of reform is crucial.

Economic diplomacy. WTO Doha and other trade rounds. States now negotiate trade agreements on the ground of organisation. It is also difficult
because of tensions (between economics, politics, technocrats, bureaucrats)

Sequence of decision making

1. Identifying the Lead Department

2. Consultation, both external and internal
3. Political decision. Now the ministers have to agree (because we elect them, not diplomats)
4. Democratic legitimization. Minsters report to legislature
5. Negotiation itself. Negotiators go to brussels and talk (and then return back)
6. Ratification. They come back home and ratify it.
 State VS Market
• Role of Government in the economy
1. Fiscal policy - improve people’s lives
2. Monetary policy - control inflation and stabilise economy
3. Trade and international relations - international economic cooperation
4. Infrastructure development - Investments, transports
5. Regulation oversight - market regulation, law, consumer protection, property rights
6. Social welfare - social safety nets, protecting the vulnerable through healthcare and education

• Market Failure
Happens when market cannot ensure the fair distribution. Happens due to:

1. Externalities - something that indirectly influences the economy: pollution (environment), health costs (smoking). The resource allocation
is therefore inefficient. Negative externalities lead to overproduction of goods. Government usually intervenes with subsidies into
transactions to address the costs. [farmers incentives or fines to produce greener]
2. Information failure - People involved in business do not have enough information to conduct business. One side of transaction knows
more: computer seller knows that it is bad), false advertising misleading to invest into something wrong
3. Market control - When a single company or a few powerful ones control the market dynamic. Monopoly and oligopoly lead to higher prices
and limited choice for consumers. Governments use laws to promote fair competition and monitor the industry
4. Public goods - Non-excludability and non-rivalry consumption. You can’t exclude access to them.

• 2008 Crisis
1. Housing bubble - rapid increase is house prices. Sub-prime cheap mortgages led to houses being expensive and inability to pay off
2. Securitization and Derivatives - Complex financial institutions: securities were sent as assets. Derivatives - banks had no liquidity, money
was going around but never stayed in banks.
3. Credit and leverage - excessive borrowing, reliance on ratings.
4. Regulatory failures - lack of oversight and ineffective regulations. Risky practices were unchecked.

Consequences
• Global financial meltdown
• Banking bailouts - government decided to help banks
• Economic recession - job loss, unemployment,
• Housing market crash - increased foreclosures
• Global impact - global stock market decline because of interconnected trade
• Regulatory reforms -

Market structure and types of competition

• Refers to the organisationall characteristics how market operates. How much control firms have over setting prices. How does the product
differentiate across companies, and how do you introduce the new company to the market.
• Market structure is influenced by number of firms, product differentiation, control over prices, regulations, technology and innovation,
consumer behaviour, natural forces

4 types of market structure

• Perfect competition: many buyers and sellers, identical products, perfect information: agriculture markets (theoretical)
• Monopoly: single seller, unique product, high entry barriers, control over prices: public utilities (water, electricity)
• Monopolistic competition: many buyers and sellers. Differentiated products, some control, low barriers to entry: retail and restaurant
industries
• Oligopoly: few large firms dominate, high barriers, interdependence among firms: automobile industry, telecom

Competition authorities control so that monopoly is not estabilished

Monopsony: single buyer controls the majority of the market supply. The buyer’s decision influences the prices. Volkswagen group, alibaba
Oligopsony: few buyers dominate the market, sellers have limited choice who to sell to, buyers can coordinate. BMW, Renault, Fiat

Accountability - account for activities

States using external anchors (neoliberal institutionalism) to not be held accountable to the people
Independent agencies are not accountable to any governments
 The state and foreign economic policy

Foreign economic policy refers to the way states are caught in the two-level games. Economic diplomacy is negotiations
Economic diplomacy is both state-made, but also involves non-state actors. It can involve lobbying, NGO’s, and interplay with state and civil society
on an international arena.

Brexit:

GB: Johnson, Camerron, Teresa May. EU: 27 countries, Tusk

Constant no-deal, because

House of Lords, House of commons,
Conservatives, lib dems, labour - All had II EP, EC I there was no win-set (possible
agreements)
different ideas ws ws

The Larger the win-set, the more likely an agreement

Government is seeking reciprocity and domestic change.

What grop is going to win or lose from free trade?

1. Stolper-Samuelson model. We have to find out what factor of production is the most abundant in a particular country. India - labor will support
international trade treaties, US- capital, too. The other, scarce groups will be opposed to the open trade
2. Specific factors model. Sectors, not class, determines preferences. Owners AND employees are pro-trade, but industries competing with
imports should support protectionism

Interest groups would use all available means through parties, finance, bribes, lobbying, to support or oppose the policy.

Negotiator’s strategies

A) With no change in actual win-sets

• Internationally: People will misrepresent their win-sets as more constraining than they are.
• Domestically: Negotiator has much influence on the precise terms to properly present it at home and make it more convincing.

Decision-making in the EU

• It is the commission that consults and leads the negotiations. Commissioner for trade, agriculture, etc.

In general, developing countries:

• Foreign ministry is usually the negotiation lead department. They go and represent the country. In developing countries they do not send specific
minsters.

The state fills the void which Market cannot fill. Besides the business, ngo’s, state still creates rules, regulates, but is also bound by these regulation

Negotiating for a loan with IMF. The negotiations will be biased - IMF will have power, because it is the country that needs loan. Therefore,
negotiations are assymmetrical. Doha agreement was never reached and paralyzed WTO, they could not support the developing countries. When
it wasn’t reached, it led to the paralysis.

In WTO, there is club mentality. People hang out together and really want that deal, therefore are easy-going and use retaliation method.
In EU, surplus of interest groups and commissions, such as protectionist agriculture commissioner, have different ideologies. Northern countries
want to be more liberal, southern ones want to be protectionist. It took a while to reach the lowest common denominator to agree with all these
institutions.
 Economic doplomacy is how state and non-states interact in the international setting on the economic issues. Countries will try to promote
themselves thrpough trade, and investment policies. Economic diplomacy emphasizes process of decision-making, not the structures.

Actors - state
• Executive branch, legislative, beraucrats, local government, international organisations, transnational policy networks

Other interests in ED
• Civil society, business, industry, trade unions, consumers, international organisations, epistemic communities

Instruments
• Informal negotiations, soft regulation
• Persuasion
• Confrontation

Negotiator as perfect agents

• His ideal point coincides with ratifier’s ideal point
Negotiator as hawk
• Aggressive. Does not coincide with the ratifier’s ideal point
Dove
• Does not coincide
• Closer to the ideal point of the opposing egotiator
• Incentive to expand domestic win-set
• Turns to the other side

Poland in 1989 needs to get into EU. The position was dependent on what was happening at home, but also internationally.

Step 1: Open the polish economy and liberalise.

• Unilateral - open up by yourself without expectations from the other side. Estonia needed that themselves
• Miltilateral: every member gives a bit to me
• Plurilateral: group that have similar characteristics. Least developed countries together negotiate with OECD
• Bilateral: two countries
Weak countries would not do bilateral, as they are afraid that the stronger state would control it.
 Seminar Two-Level games

Levels of analysis:
• Individual
• Domestic - country’s internal framework
• Systemic (International) - global institutions, interdependency

Interests:
• State interests, enhance economic prosperity, security and power. States prioritize trade liberlisation, minimise restrictions on goods
movement. EXAMPLE: China’s Belt and Road initiative. Also russia’s gas influence on europe
• Actor interests, pursue conflict or align state interests. NGOs urge governments to do something. Companies urge foreign governments to
effecient movement and trade
• Interest in conflicts, it always has a clash in international economic relations. Eg: intellectual property rights in pharmaceutical companies,
make them cheaper, but you still have to make money

Institutions:
• Formal institutions, WTO, IMF, WB, that instabilish rules to govern international economic relations. EG: WTO settles disputes between states
and urge to increase trade
• Informal institutions, these are norms in business practices that shape behaviours
• Institutional evolution, change over time to shifts in global politics. EG: technological evolution in government.

Ideas:
• Economic theories and paradigms: examine dominant economic theories and how they influence choices and strategies.
Monetarism,Behavioural economics: how people make decisions
• Policy ideas: how the ideas shape economic policy. Free trade, protectionism, fiscal policies, monetary policy. Also FDI’s which encourages
others to invest into the economy
• Ideational change: changes in dominant economic ideologies, how they change and influence international economic relations. Examples: digital
economy and technology governments. Climate change and green economy, had also influenced decision, also making the Paris agreement.

International approaches
• Global perspective: interconnectedness across borders. Examines global economic systems and impact of international policies on nations
• Power dynamics: hegemonic stability and relations between states
• Institutional analysis: WTO, IMF and how they shape interactions among states

• Multilateralism: Collaborative diplomacy:cooperation among many nations to address challenges

• Bilateralism: country-to-country
• Regionalism: regional economic communities to closer ties and remove regional restrictions

• Global governance: international institutions

• Coalitions and alliances
• Diplomatic negotiation strategy

Domestic approaches
• State-centric focus: role of individual states that shape economic policy, How domestic politics influence economic decisions
• Interest groups and political economy: how labor unions, businesses and advocacy organisations shape policies
• Policy-making processes: internal mechanisms and decision making process that leads to economic policy

• Trade policies
• Monetary - supply of money, interest rates, and fiscal policies: government budget and spendings
• Industrial policies - subsidies

• Investment policies: incentives for FDI

• Innovation and technology policies: R&D support, tech developments
• Social welfare policies: healthcare, education, poverty alleviation

MERCOSUR negotiations

• Trade agreements: negotiations with EU about trade deals, tariff reductions

• Diplomacy and Bilateral Relations
• Public opinions and political considerations: agreements align with individual economic goals
• Economic impact assessments
• Stakeholder consultations to take into account the various interests
Multi-level games

• Domestic, regional, international, institutional