International political economy (IPE) is an interdisciplinary field of study that is concerned with different ways in which political forces, such as institutions, states and even individual actors determine the interaction of economic systems. On the contrary, international economy also studies the effect of economic interactions, such as individual actions, both within and outside them, and collective market’s power influence on political structures. In general, this field of study analyzes two aspects combined, international relations and political economy (Gilpin 45). Therefore, political science and economics are valuable fields that this study makes reference to.

However, international political economy works hand in hand with other disciplines, such as cultural studies, sociology and history. Topics that form integral parts in studying international political economy include; globalization, relationship between democracy and markets, development, international markets, finance and trade (Gilpin 48). It should be noted that the term international political economy is always used interchangeably with the global political economy.

Political Economy and Other Fields of Economics

The political economy has a narrow difference with economics. Economics narrowed down from the term political economy. The political economy was the original word used for the study of the act of buying and selling, production and their relationship with customs, laws and government (Kurt 04). Political economy was the earlier term used to refer to economics. However, in the 19th century, economics as a term narrowed down as a discipline and avoided the narrow political interest of political economy.

Economics now became a field of the social science that is involved in the analysis of the production, supply and consumption of both goods and services.  Economics, therefore, emphasized on how economies work, behave, and interact with economic agents (Kurt 07). Furthermore, scholars emphasized the study of the economy based on mathematics. Political economy, on the other hand, takes an iterdisciplinary approach and draws from political science, law and economics in understanding political environment, institutions and capitalism, and how these aspects influence one another.  The political economy centers its attention on structural relationship, whereas economics focuses on trade-offs through measurable values. What is more, economics emphasizes price and looks at production and consumption as what affects the price. On the contrary, political economy looks at economics as the reality of effects of the policy and law (Kurt 08).                  

Determinants of Economic Ativities

Whereas economy refers to the whole aspect of production and exchange that is buying and selling on a daily basis, economic activity measures the level of these activities over a given period of time. Economic activities are determined by people. This is because different people are making decisions depending on circumstances they are in. Decisions can be affected by a variety of changes (Kurt 10).

Changes in economic activities might be influenced by alteration in income levels. People’s perceptions, with regards to future changes, affect their economic activities. People worried about their job safety will probably cut down on their spending and opt for investing. Confidence or lack of confidence in reference to the future of an economy affects people’s current economic activities. Main political events in the world, like the September 11 attacks, tensions in Iran and war in Iraq, affect people’s decision on investment (Kurt 12).

Events that Shaped International Economic Order

Many events have shaped an international economic order. To begin with, there was the inception and the end of the Cold War, and the uplift of the threat of the Soviet Union against the US and its Japanese and European allies. The last half of the 20th century was influenced by the United States.  Its key allies were subordinating any potential economic conflicts and, therefore, traded amongst one another. Alliances provided the political unity that held the global economy together (Gilpin 67). It also led to countries compromising on the essential national difference over economic matters. The end of the Cold War made capital leadership among alliances die out. As a result, the world market grew rapidly. This is because the third  world countries, as well as formerly communist ones, became more willing to join the world market system. This is evidenced by the growth of the less developed countries’ involvement in the World Trade Organization (WTO) (Gilpin 71).

In the nineteen sixties and seventies, an increased global trade transformed economic affairs worldwide. Consequently, in the nineteen eighties, the expansion of multinational firms overseas integrated national economies extensively. Foreign direct investment (FDI) and multinational firms (MNCs) revolutionized international economic affairs in the mid nineteen eighties. These two institutions started having a profound impact on nearly all aspects of the world economy. In the course of nineteen eighties and nineties, competition among trading countries intensified due to industrialization that was now taking place in the East Asia and elsewhere. This competition has intensified immensely in later years (Gilpin 89).

United States Is Facing an Identity Crisis

It is true that the United States faces an identity crisis. The once known US is not going to come back. Privileges and opportunities that the country once enjoyed have disappeared in the thin air like smoke. What have remained in the United States are myths about its strength that cannot be validated. In days past, myths about America’s exceptionalism could be validated, especially after the civil war and the inception of the industrial revolution. This is because during this period, the US experienced the immence achievement. America was one of countries commanding manufacturing industries between the 1860 and 1900 (Goldenberg 01). America during the later period did not only produce, but enjoyed a large continental market.

However, today even manufacturing in America is not manufacturing, but, generally, sourcing, designing, assembling, financing and marketing. The later can only be explained as an international trading. Globalization has worked to the United States’ disadvantage. United States’ continental market has now been lost in the international marketplace. The US is experiencing an identity crisis portrayed in the feeling of the national insecurity (Goldenberg 06). This is evidenced by the tightened immigration policies now present in the United States of America. The financial crisis prevalent in United States today has increased its changing perspective of the country’s superiority.

Living Standards of the Poor Countries Are Diverging

Convergence and divergence in standards of living between poor and rich countries is a fundamental phenomenon that has been widely researched on, especially by scholars in the field of Economics. Various indicators have been used to compare  living standards of people in different countries. Indicators include the growth of the labor productivity or per capita Gross Domestic Product. Many scholars have advocated for the convergence in standards of living between rich and poor countries (Cooter 09). 

However, it is quite evident from the statistical data that a divergent, rather than the earlier convergent neoclassical model, is prevalent between poor and rich countries’ standards of living. Statistics by 2003 showed that the poor countries had an income per capita of about $ 500, while their rich counterparts had approximately $ 25,000. This gives a 1: 50 ratio. Living standards are positively correlated with the income per capita of any country (Cooter 16). These poor countries face a number of challenges that make them have comparatively poor living standards. Instead of adapting the new technology, most developing countries directly imitate it, which works to their disadvantage. The other main challenge of developing nations is finance. Developing countries lack finances to improve the innovation.

The Relationship between Economic Growth and Nature of Political System

There exists a controversy on whether democracy and instability have any effect on the economic growth of different nations. Some scholars argue that democracy slows down the pace of economic growth, hence lowering living standards of citizens. However, recent studies have proved such arguments to be wrong. Lack of political and civil liberties is negatively correlated with an economic growth. Studies show that political freedom is positively correlated with economic growth (Jacob 179). This does not mean that the practice of democracy by nations automatically leads to their economic growth. As a matter of fact, there is no robust relationship between the economic growth and democracy.

Dictatorial, as well as democratic nations can experience an economic growth. It only depends on mechanisms put in place to advance an economic growth. A country like South Korea, which was considered dictatorial, has been able to experience the rapid economic growth (Jacob 179). Similarly, the United States of America as a democratic country has also had an economic growth over past years. A country can be democratic to an extent that it fails to take harsh, but necessary economic decisions, thereby negatively affecting the economy. On the other hand, political freedom can be used by the press, for example, to expose corrupt actions of the private sector and government, which would have been an impediment to an economic growth.                                                          

Two Democracies Do not Go To War against One Another

A theory has been put forward states that democratic countries do not go to war against each other. Proponents of this theory base their arguments on a number of concepts. They argue that most of the democratic countries are richer than undemocratic ones. Wealthy countries avoid wars, because in the process they lose more. Furthermore, democratic nations always solve their disputes through a discussion and not by the physical fighting. Lastly, proponents of the theory also argue that democratic leaders have all reasons of not going to war, because they are answerable to voters (Brown 03). Consequently, they look for alternative means of solving conflicts.

Two democracies do not go to war against one another theory has found a considerable support, especially during the recent years. Wars that have recently happened in Korea and Vietnam were against the dictatorial communist regime. Two recent wars in Kosovo and Afghanistan were against the dictatorship of the proponents of “two democracies do not war against one another”. Hitler, though being elected, assumed a dictatorial leadership style (Brown 19). Despite all this, history still harshly judges proponents of this theory. There are many wars that have been fought between democratic countries. The war between the second French republic and the Roman Republic in 1849, the Spanish-American war, the First and the Second World Wars are just a few examples of wars between democratic countries.

Challenges in the Arab Region

Many challenges affect Arab nations. Economically, most of Arab nations lack water resources. Most of water is shared by nations in the region or outside the region. Countries compete on water with outside region, including some parts of Africa and Turkey. Competition for these resources is not only between nations, but regions as well. Most countries also have a poor agricultural base and small manufacturing. Countries depend on imports. Some countries, such as Yemen and Egypt, experience overpopulation. Furthermore, around thirty percent of people in Arab countries are illiterate. This means that their labor force is mostly unskilled, which cannot succeed in technological invention and innovation, leading to an industrial underdevelopment. There is a restriction of civil rights in many countries in the Arab region (Ibrahim 15).

Politically, there has been increased militarization in Arab countries against  international laws and conventions. A recent example is the invasion of Iraq in 2003, as if there were not enough radical Islamic movements that are growing every passing day.  Most leadership cases that existed have either been undemocratic or dictatorial. Elections have been marred by malpractices or undemocratic electoral laws. Problems in the Arab world arethese challenges interlinked (Ibrahim 21).