Course Description:

Economics is the study of the production, distribution, and consumption of scarce resources. Political economy considers the role that the state plays in such production, distribution, and consumption. International Political Economy (IPE) considers the flows of such production, distribution, and consumption across national borders, recognizing that not just national governments play a role, but foreign governments and international institutions must also be taken into account.

So, what role do domestic, foreign, and international institutions play in the economy? Consider the historic debate within the field of traditional political economy. The fundamental theorems of welfare economics teach us that (1) under various conditions, competitive allocations are pareto efficient, and (2) any point on the contract curve can be reached by an appropriate re-initial endowment. In other words, there is little role the state should play in the economy, either for issues of efficiency or for issues of equality. The beauty of these theorems is that best outcomes result from individual actors pursuing self-interest without the intervention of a any centralized authority. The study of political economy should thus be devoted to understanding the ways in which centralized authorities intervene in the pristine market.

Of course, one of the most amazing features of the fundamental theorems of welfare economics is just how fragile the results are when the certain assumptions are relaxed. The traditional market failures - such as externalities, monopolies, and public goods - open room for improvement: a welfare-maximizing government can beneficially intervene in the economy.

But if economic actors are self-interested, why should we assume that governments are altruistic? The actions of self-interested individuals may not produce best results, but this does not necessarily mean that the state can do any better. There is room for improvement, but a self-interested government may actually make matters worse. Defenders of the market argue that there are decentralized solutions to traditional market failures that are superior to the solutions offered by the centralized authority embodied by the state.

Yet, contemporary market failures - such as those deriving from problems of imperfect information, uninsurable risks, moral hazard, and adverse selection - present much more difficult challenges to defenders of the market. Indeed, problems of missing markets indicate that the single monolithic “market” is a myth. Markets are incomplete and there is ample room for even a self-interested government to improve outcomes by intervening in the economy. Contemporary political economy, thus, focuses on the interaction of centralized and decentralized mechanisms of allocation, recognizing that both may play a positive role, in both a normative and empirical sense.

This approach must be pushed further. National governments do not operate in a vacuum. There is an INTERNATIONAL context!

The study of International Political Economy has come to include many questions surrounding international relations and political economy. Perhaps the most fundamental question is:

Note that the phenomenon we are trying to explain – the dependent variable – is typically an international one, involving the flow across borders of either goods (trade policy), capital (financial and exchange rate policy), the location of production (foreign investment policy), or people (migration).

What if the cross-border flow is considered to be the causal variable being used to explain some domestic political or economic outcome? Because problems of endogeneity, it is often important to consider causality running in both directions. Accordingly, we will also consider questions such as:

So, broadly conceived, the field of International Political Economy is concerned with how politics influence economics and vice versa, where at least one of the variables is international.

This course addresses the major theoretical debates in the field and introduces the chief methodological approaches used in contemporary analyses. We focus attention on the four types of cross-border flows mentioned above, and the policies – set forth by domestic and international institutions and arrangements – that regulate these flows.

As in political economy, we will typically be grappling with centralized versus decentralized mechanisms of allocation, where the two mechanisms often interact. What distinguishes IPE as an important field of study is the fundamental recognition that decentralized mechanisms of allocation have impacts across borders. The decision in one country to allow the decentralized free flow of goods and services across borders, and the decision of another country to have a centralized fixer of the exchange rate impact one another. Moreover, the institutions that embody centralized mechanisms of allocation may be domestically located in one country, or be located in an international institution governed jointly by many different national governments.

The challenges of trying to understand the interests, institutions, and information of actors in an international context are great, and the field of IPE is still so young that much remains to be learned. Nevertheless, since the publishing of the first IPE textbook in 1977 (Spero), tremendous strides have been made. This course presents a sampling of the finest work in the field. The work is demanding but extremely rewarding. And the course is designed not just to familiarize you with the literature, but also to stimulate your curiosity to pursue new research questions. An important goal of the course is also the equip you with the analytical tools required to pursue such research.

Requirements:

We meet once weekly to discuss each week’s readings. All students are responsible for being prepared to discuss the required readings. Furthermore, each student will be designated to co-lead with another student class discussion in two different weeks. The seminar leaders will circulate by email to class participants five discussion questions for the class meeting. (PLEASE EMAIL BY THE SUNDAY EVENING BEFORE CLASS.) The seminar leaders will also be charged with introducing the week’s topic by starting out class with a five-minute overview.

In addition to regular participation and taking two turns at seminar leadership, each student must select one of two options for fulfilling the remaining course requirements:

Option 1 – The Research Paper: Students selecting this option should write one 20-35 page paper. The paper can be co-authored and all papers (co- or single-authored) will be held to the same standard. The paper should be completed by the end of the exam period in May. In addition to the actual paper, students should meet with the instructor to discuss their topic by February 18 and submit a two to three-page outline by March 7. One particularly effective strategy for this paper is a replication and extension of previously published research.