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Introduction to
International Relations
Political Economy
Jaechun Kim
Intl Regime
Concept is relatively new… in 1980s…
Sets of implicit or explicit principles, norms,
rules, and decision-making procedures around
which actors’ expectations converge…
This is the most widely accepted definition of
International Regime
Stephen Krasner (1982)
GATT – what is it? Is it international regime?
Established in 1947
1994 – WTO…
GATT is a formal agreement, but regime
includes informal institutions (implicit and
explicit principles and norms…) as well…
What is International Trade Regime? What is it
made of?
Informal parts
Principles – idea that member states cherish
Norms – specify general standards of behavior… norms
of reciprocity
Formal parts
Rules – formal rules specified by GATT
DMP – specifies the ways in which you arrive at
Rules and DMP change, but Principles and Norms
seldom change…
Sogang GSIS regime? Marriage regime?
Examples of international regime?
Intl aviation regime
Intl post delivery regime
Nuclear non-proliferation regime
Intl Trade Regime
Intl Monetary Regime…
Free international economic relations (or free
international trade relations) is (international)
quasi-public goods…or collective goods…
Beneficial, but hard to provide…
Free international econ order was established twice in
world history… when?
Who or what provided it??
How can we explain the origin of the post WWII free
international economic relations?
Realist answer to this?
 Hegemon! e.g., Stephen Krasner, “State Power and
the Structure of International Trade”
It takes hegemon to create and maintain free
international economic order…
Creation of free international economic order
force others to join..
bear the costs of creation of such order…
monitor other states’ behavior and punish defectors
e.g. US, GB..
HST (Hegemonic Stability Theory)
The US had the preponderance of power and had
the will to act as hegemon in the post WWII era...
Therefore created and maintained post-WWII free
international economic order (free trade order)…
Brits played the role of hegemon in the late 19th c…
Decline of American hegemon in the late 1970s
and early 1980s?!
Germany and Japan were catching up..
Vietnam quagmire… too much spending in military..
Abandonment of BW monetary system…
What should have happened according to realism
What really happened?
How would you explain the continuation of
free international economic order?
Regime theorists (a.k.a., neo-liberal
answer lies in international regime…
internationall free trade regime sustained free
international trade order…!
Robert Keohane (Neoliberal institutionalist)
–After Hegemony (1984)
Cooperation is possible without hegemony
since International Regimes make this
cooperation possible…
Anti-thesis of HST…
Keohane however uses realist assumption!
Anarchy assumption and Rationalist assumption…
Hegemony is less important for the continuation of
Although hegemony can facilitate cooperation, it is
neither necessary nor a sufficient condition for
continuation of cooperation…
Once regime is created, it takes life of its own.
What are the functions and/or benefits of
international regimes? What are the mechanisms
by which international regimes elicit cooperation?
Reducing transaction costs… etc.
non-hegemonic cooperation is difficult but not
 History of IPE as a distinct discipline of IR
 Little interest in IPE in the post WWII era…
 Booming industry in the post-Cold War era
 What is PE?
Interplay between politics and economy.
IPE – the way international politics affect international economy and
vice versa…
 Three traditions in IPE
Realism (statism; mercantilism); Liberalism; Marxism
Realist theory of IPE
 Early mercantilists (Friedrich List; Alexander
List said: Discussion of IPE must begin with a
recognition of inherently conflictual nature of IR…
(realist assumptions about the world…)
 Primary goal of state is to pursue power and security. 
Realpolitik… breaching international norm is
OK…defection is OK (if it helps our interests!)
 Discount the primacy of liberal international economic
system and institutions… Open international econ
order is important only when it benefits our national
 “Beggar-thy-neighbor
policies” are OK!...
Hamilton – nurture our “infant industry!” If the
US wants to be more powerful, we have to
intervene in the market and cultivate
manufacturing sector…
 A.
 Economy
is only means to enhance states’ power.
 Economy is subordinate to politics…
 Contemporary realists IPE theories (R. Gilpin; S.
 Methodologically,
 States’
they are more positivist in orientation…
power and states’ interests do shape econ outcomes,
instead of saying that states’ power and security concern
should shape econ policies…
 R.
Gillpin – states and states’ interests does dominate the logic
of IPE… not international institutions or regimes…
 S.
Krasner – Pattern of international econ relations reflect
global BOP.. Powerful countries shape word econ relations…
e.g., HST!
Liberalist theory of IPE
 Classical Liberalism (A. Smith; D. Ricardo)
shouldn’t intervene in the market… let the
“invisible hand” do the trick! laissez faire!
 The goal of the state goes beyond security and
power to the protection of human rights and
enhancement of individual welfare..
 Free economy will create greater welfare to the
 Politics
 Contemporary liberalists (R. Keohane)
 Regimes (institutions) and interdependence do
matter as well… cf. Realists - only states’ power and
national interests affect IPE..
political economy starts from the
assumption that economics is about the relations
between people and classes, not the relationship
between commodities, prices, supply , and
is about people and the social
relationships between them…
economy is a dynamic system full of
Marxist theories – international K
economy would collapse!!
theory of IPE… structural
deficiency of international K economy!!
 Dependency
 I.
theory (從屬理論)
Wallerstein – International Capitalist System
 Anti-globalizationists
 Negative
impact of internationalization of K
economy ….
International Monetary System (or Regime)
Why IMS matters?
 Sound
international monetary system is a
prerequisite for maintenance of stable world
economy. It is prerequisite for the growth of world
trade and foreign investment…
imposes different costs and benefits
upon states and groups within them. Different
IMSs have varying impact on the distribution
of power among states and welfare of
different groups within the states… important
political implications!!!
Requirements for Stable IMS
(International Monetary System)
is it?
 Amount
of cash or liquid assets that can be
easily available…
should provide an adequate supply of
liquid assets to finance international
 Adjustment Mechanism
 It
must specify methods to resolve BOP (Balance of
Payments) disequilibria…
 What
 All
is BOP?
payments between a country and its trading
partners ..
 Current
Account + Capital Account
deficit adversely affects states’ economy…
 Confidence
 Sound
IMS should provide confidence in the system..
History of international Monetary System
 The Era of Specie Money
 In
the pre-modern era, specie money was the
basis of the IMS.
 What
is specie money?
 Specie
money constituted a medium of exchange...
 Governments
had no control over monetary issues
(money flow)…
The Era of Political Money
the 18th and 19th centuries, a financial revolution
took place... Paper money; modern banking; private
credit instruments… This was very important. Why?
 The government started printing money… 
government acquired extensive control over the money
 “macro-economic variable”  influence econ
 Government could solve the inadequacy of specie
 For instance, government could fight against
“deflationary pressure.”
 But this can also create inflationary bias… which will
diminish the value of currencies… and instability in
 During
 We
want both flexibility in domestic econ policies
and stability in IMS, but…
 Trade
off between autonomous domestic econ
policies and stable international monetary order…
 The
way this dilemma has been resolved
characterizes the subsequent phases in the
history of IMS…
The Classical Gold Standard (1870-1914)
 Features:
 Central bank of a state bought and sold gold at a fixed price! Price of
gold was fixed..
 Private citizens could freely export and import gold…
 Central banks didn’t interfere with K flow…!!
  Fixed XR mechanism for adjusting BOP payment
 Embodiment of classical liberal economic principles..
Laissez-faire economic policies!
 Very successful IMS.. Facilitated growth of world trade and global
prosperity.. It achieved remarkable success in creating and
sustaining stability in international economic (monetary)
 But at the cost of autonomy in domestic economic policies…
 This system worked pretty well till WWI…
The Interregnum between Classical Gold
Standard and BW System: Gold Exchange
 Why did the Gold Standard collapse?
and its aftermath…
 Rise
of warfare state
 Major
consequence of WWI was a nationalization of the
IMS. States quickly safeguarded their gold supplies…
and disengaged from fixed XR and abandoned the
primacy of tight monetary policy…
 Advent
of Keynesianism… - gov should fight against
frequent recessions and high unemployment… how?
 Feature of Gold Exchange Standard:
Currency tied to gold. But the return to the gold std. was ruled out…
Instead of the gold, states could use gold-backed currencies such as
British Sterling… basically very similar to those of Classical Gold
 It only survived a few years… Why?
Rise of welfare state… give priorities to the autonomy of domestic
economic policies! welfare objectives such as continuous economic
growth and full employment are more important than a stable
international monetary order…  rise of Labor Unions, etc.
Earlier, the ruling elites preferred the dangers of tight money and
deflation to those of cheap money and inflation. … higher rates of
unemployment and decreased welfare… but this can no longer be
tolerated! Because of change in political dynamics!!!
Active intervention in monetary issues…!!
 Autonomy of domestic econ policies over stable
international monetary system!!
 Beggar-thy-neighbor policy; competitive depreciation..
Great Depression  WWII (??)
The Bretton Woods System 1944
 Two goals of the BW
world in which government would have considerable
leeway to pursue national economic objectives, yet
 the
monetary order would be based on fixed XR to
prevent the competitive depreciations…
Both autonomy and stability!!
 Creation of IMF to supervise BWS…
 The compromise of domestic autonomy and
international monetary stability 
 Embedded Liberalism
 “Unlike
the economic nationalism of the thirties, it would
be liberalistic in character; unlike the liberalism of the
gold standard, its liberalism would be predicated upon
domestic interventionism.” John G. Ruggie
 Avoided
 (1) subordination of domestic economic activities
to the stability of the IMS (this was the key feature
of Classical Gold Std.) and also
 (2) the sacrifice of IMS to the domestic policy
autonomy (which was the key char of the interwar
 Intended to enable government to pursue
Keynesian growth policies at home, without
sacrificing international monetary stability…
 It was also intended to achieve stable
international monetary system, without
subordinating autonomy in domestic econ
How the dilemma was solved during the
a country is suffering temporary BOP
disequilibria, IMF provided medium-term
loan to the country…
If a country is suffering fundamental BOP
disequilibria, the system permitted a
country to change its XR… with consent…
 The key to the system?
 American
economy… dollar…
 Other nations pegged their currencies to the dollar,
so this was the system of fixed XR.
 The US pledged to keep the dollar convertible into
gold at $35 per ounce.
 Dollar was the principal medium of exchange,
store of value, and unit of accounting..
It was quite successful !!
 Why did the system collapse?
 Triffin Dilemma
 The
soundness of BW system was dependent upon
liquidity and international confidence created by the US
economy. Every state wants dollars to rectify their BOP
 But the US can’t print dollars indefinitely. Because this
will create inflationary pressure, which will devalue the
worth of dollar… People will lose confidence in dollar and
in the system…
 To provide liquidity, the US would have to run BOP
deficit… ??
 American BOP deficit in the long run will undermine
confidence in the dollar and the system…
 This was a dilemma!!
 Two basic asymmetries.
The role of dollar as providing international
liquidity  leads to American BOP deficit 
decreased confidence in the IMS
The US, not able to devalue the dollar to improve
its BOP position!!
 Vietnam War; Great Society  expansionary
 1971, 8. 15. Nixon announced that the US will
suspend the convertibility of the dollar into
1976 Kingston Conference – the
determination of the par value of a currency
is the responsibility of the country
(Non)system of flexible rates
Dirty Floating  Loss of international
financial discipline
More liberalization of financial and capital
Embedded Liberalism Revisited…
Prof. Chang, Ha-Joon of Cambridge
Kicking away the ladder
Bad Samaritans