International Political

Economy (IPE)

By: CSP Karam Ali (50th CTP, CSS2021)

Contact: 0311-2808760
 Introduction

"It is a sub-discipline that arose in parallel with

globalization which has blurred demarcations
between what is political and what is economic
and what is national and what is international
Theories are important to give detailed analysis of
economic conflict between two States like US-
China trade war is explained by Protectionism/
Mercantilism

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Definition
 "The interplay of politics and economics in world affairs is called IPE"
 "IPE is the study on the basis of economic activities taking place around
the world"

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Assumptions:
•1) Economic events in the country/region can have economic implications for other countries
 like Great Depression 1930s in America
 Global oil crisis of 2020 in America
 2008 global financial crisis in America
•2) Political events have economic implications
•like revolution 1917 Russian revolution-> Communist style of economy
•Rise of Hitler and following of protectionism
•Donald Trump election

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Assumptions:
•3) Economic events have political implications
 Collapse of Germany after WWI and rise of political extremism
 2008 Crisis-> Far-right arousal in Europe
•4) Power in IR came from economic as well as military might
 USA economy and Chinese economy
•5) International political structures reflect economies
 UNO allow IMF and World bank

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Theories of IPE

 Mercantilism
 Economic Liberalism
 Marxism and Neo-Marxism (Dependence theory and Core-periphery )
 Imperialism

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Mercantilism
(Economic Realism)
Introduction
•World Economy is an area of competition among states seeking to
maximize their relative strength and power.
•If economic power is at the cost of other states then there is nothing bad in
it.
•"In fact, the industrialization of Britain is due to deindustrialization of
India. "Sashi Tharoor

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Background:
•Basis in Europe
 1492: Age of Explorations and colonization of other world through navigations
 Ideological motivation behind the colonization was the white man’s burdens or Civilizing the savages
 But the colonies were rich in raw material
 So, they also maximize the economic interests
 They pursue protectionism

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Background:
•Establishment of colonies outside Europe
 Take raw material from colonies, process it into finished goods in mother country. Later sale it to colonies worth
double (high) rate.
 Economic development of mother country
•1945- Neo liberalism emerged
•In contemporary time it is re-emerging.

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. Main assumptions of Theory

•a) Encourage exports over import

 US China trade war
 According to US the import of China to US are of $425bn and the exports of USA to China are $125bn
 China is winning. Trump's America first
•b) The government should involve itself in international trade
 Price regulation, subsidies, policy of intervention
 China concept of State-owned enterprises
 So, government is backing industries
 PIA, Steel mill, Railway and Postal Services
 If private capital would be powerful then government would be subservient to the private

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. Main assumptions of Theory

•c) International Economics is competitive, not cooperative

 In CPEC, China benefits more than Pakistan

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. Main assumptions of Theory

•d) Protectionism
 i) Tariffs: Taxing of imports
 ii) Currency devaluations: Change the value of currency to make exports cheaper and imports dearer
 iii) Quotas: allowing imports only up to a certain number. (Bra wars: EU vs China)
•China is exporting everything to Europe. So, in reaction EU made list of products to imports and other not import

 iv) Export subsidies: Government support to exporter to sell abroad

 v) Government subsidizing Industry: In order to compete against foreign competition
•Local industries not foreign
•We might suffer pre-mature de-industrialization due to CPEC
 vi) Red Tape: Using domestic laws to un-officially restrict foreign competition
o One file .for example, for approval due to domestic laws it took 2 months. Limitation of foreign competition

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Criticism

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