International political economy (IPE) is the study of how politics shapes the global economy and how the global economy shapes politics. A key focus in IPE is on the power of different actors such as nation states, international organizations and multinational corporations to shape the international economic system and the distributive consequences of international economic activity. It has been described as the study of "the political battle between the winners and losers of global economic exchange." A central assumption of IPE theory is that international economic phenomena do not exist in any meaningful sense separate from the actors who regulate and control them. Alongside formal economic theories of international economics, trade, and finance, which are widely utilised within the discipline, IPE thus stresses the study of institutions, politics, and power relations in understanding the global economy. The substantive issue areas of IPE are frequently divided into the four broad subject areas of 1. international trade, 2. the international monetary and financial system, 3. multinational corporations, and 4. economic development and inequality. Key actors of study may include international organizations, multinational corporations, and sovereign states. International political economy initially emerged as a subdiscipline of international relations in the 1960s and 1970s, prompted by the growth of international economic institutions such as the World Bank, International Monetary Fund, and the General Agreement on Tariffs and Trade, alongside economic turmoils such as the fall of the gold standard, 1973 oil crisis, and 1970s recession. The study of multinational corporations also featured prominently in the early IPE, in close interaction with scholars in adjancent disciplines and the regulatory initiatives championed by the United Nations Centre on Transnational Corporations (1975–1992). IPE eventually developed into an independent field also linked to international economics and economic history, where scholars study the historical dynamics of the international political economy.
History and emergence International political economy has its historic roots in the discipline of political economy; the study of the national economy and its interactions with governance and politics. Adam Smith's publication of The Wealth of Nations profoundly influenced the development of the field of political economy. While the newly founded discipline of economics; which studies economic phenomena absent of political and social considerations; began to diverge from political economy studies in the late 19th century, political economy continued to live as an academic tradition within political science departments, as well as within modern economics as a pluralist approach. While notable works from John Maynard Keynes' General Theory and Karl Polanyi's The Great Transformation published in the early 20th century are still written in the tradition of political economy, economics in its narrower form was dominating economics departments from the 1920s and onward. The emergence of international political economy can be traced to the late 1960s and early 1970s, when deepening economic interdependence prompted by the growth of post-war economic institutions such as the International Monetary Fund, World Bank, and General Agreement on Tariffs and Trade, drew increasing attention within international relations scholarship towards the study of these institutions, and more broadly, to the study of governance of the world economy. The need for a more comprehensive understanding on global economic governance within political science circles became increasingly apparent through the crises of the 1970s; with the end of the gold standard, the 1973 oil crisis, 1973-1975 recession and calls for greater trade protection. Influential figures in the emergence of the discipline were international relations scholars Robert Keohane, Joseph Nye and Robert Gilpin in the United States, as well as Susan Strange in the United Kingdom. IPE has since become a key pillar in political science departments as well as a major subdiscipline of international relations, alongside traditional international relations scholarship centred on material security.
Topics of enquiry
International Finance International finance and monetary relations is one of the core areas of study in IPE. In IPE scholarship, the interrelation of economic and political interests in international finance assumes it impossible to separate the financial system from international politics in any meaningful sense. The IPE of international finance is characterized by political network effects and international externalities, such as beggar-thy-neighbour effects and contagions. A key concept in IPE literature on international finance is the impossible trinity, derived from the Mundell–Fleming model, which holds that it is impossible to simultaneously pursue all of the following three economic policies:
a fixed foreign exchange rate free capital movement; absence of capital controls an independent monetary policy Another key dilemma in monetary policy is that governments have to balance the inflation rate (the price of money at home) and the exchange rate (the price of money outside the home market). There is no agreement in the economics literature on the optimal national exchange rate policy. Rather, national exchange rate regimes reflect political considerations. National exchange rate policies can be 1. fixed, floating, or a hybrid of the two, and 2. entail a strong or weak currency. Different groups benefit disproportionately depending on the national exchange rate policies that is chosen. The liberal view point generally has been strong in Western academia since it was first articulated by Smith in the eighteenth century. Only during the 1940s to early 1970s did an alternative system, Keynesianism, command wide support in universities. Keynes was concerned chiefly with domestic macroeconomic policy. The Keynesian consensus was challenged by Friedrich Hayek and later Milton Friedman and other scholars out of Chicago as early as the 1950s, and by the 1970s, Keynes' influence on public discourse and economic policy making had somewhat faded.
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