Global Inequality in International Political Economy

The International Political Economy of Global Inequality

• Global inequality, marked by the unequal distribution of wealth and income, merits central attention in International Political Economy (IPE).
• Political factors like historical decisions, institutions, power dynamics, and contemporary financial, trade, and immigration practices shape global inequality.
• Global inequality differs from national inequality and poverty, demanding specialized analytical tools.
• IPE uses theoretical frameworks to probe the politics of global inequality, providing a research agenda.
• Studying the politics of global inequality has an empirical foundation yet lacks discussion on the interplay between politics and material inequality.
• Existing literature within IPE positions the field to examine the political dimensions of global inequality.
• Outlined is a research agenda intending to foreground inequality in IPE drawing from recent economic research and framing research questions of importance to both mainstream and critical IPE.
• Milanovic's (2003) research indicates that conclusions about historical trends in global inequality can vary depending on whether GDP per capita is weighted or unweighted, due to the significant impact of China and India.
• Piketty's work suggests that inequality is rooted in capitalism's dynamics.
• He acknowledges the potential for national and international redistributive institutions to mediate this dynamic, though his analysis is critiqued for an ill-defined role of institutions, ideology, and violence, relying on simple economic dynamics.
• Globalization's policies, practices, and trends influence the global interpersonal distribution of income.
• Capital account liberalization increases national inequality while reducing labor's income share.
• Institutions either restraining or freeing capital include bank regulation, capital controls, campaign finance laws, lobbying regulations, shadow banking, money laundering laws, and private regulations governing financial transactions.
• Wage inequality, particularly among top managers, is a key driver of rising inequality in the U.S.
• Financial market mechanics play a crucial role in perpetuating global inequality.
• The G20 is spearheading efforts to enhance transparency in shell companies, trusts, and corporate entities operating in regions with lenient tax regulations.
• Migration policy decisions can introduce a redistributive element.
• Understanding the persistence of global inequality requires looking at both tangible and intangible factors.
• Analyzing global inequality requires connecting national distributional consequences and global hierarchies by addressing both nationality- and class-based inequality determinants with structural analysis.

Global Political Economy: Evolution and Dynamics

• Global Political Economy (GPE) is a relatively new interdisciplinary field at Western universities, linking political science and economics.
• Specialized knowledge led to the development of distinct academic fields since the 1900s.
• Economics offers useful theories to GPE, especially from liberal perspectives.
• Political science contributes understandings of power and politics to GPE.
• GPE integrates knowledge from history, geography, sociology, and legal studies.
• Neoclassical economics views government intervention as inefficient.
• Keynesian economics asserts the necessity of government intervention, advocating for public goods and government spending to combat recession.
• Institutional economics posits that markets are socially constructed through legal, financial, and social institutions.
• Facts are pieces of information influenced by theory used to develop theories and prioritize information.

IPE Construction & Key Theories

• IPE is often framed by debates among economic nationalism, liberalism, and critical theories.
• Economic nationalism acknowledges the central role of states in the global political economy, linking power and wealth.
• Critical theories challenge the current world structure, including Marxist, feminist, and environmentalist perspectives.
• Core theories in international political economy are incompatible due to differing assumptions about analysis units, system nature, and actor motivations.
• Each theory can support its existence by explaining specific facets of the global political economy.
• Integrating theories may risk incoherence, so theorists suggest integrating them systemized, applying them to specific circumstances or within a hierarchy.

Industry, Trade Patterns, and Market Structures

• Many industries exhibit a variety of market structures.
• Industry and trade patterns relate to cost and demand conditions across countries.
• Increased firms in monopolistic competition reduce prices and average costs.
• Foreign trade expands the market, lowering average firm costs and raising consumer welfare.
• Trade lowers the cost of comparative advantage and reduces domestic resource waste.
• Manufactured goods suit large-scale production through task division, shipping the final product at low costs.
• Associations enhance opportunities for people in different firms to connect regularly.
• Market failure occurs when the private market does not deliver an optimal amount of goods or services, leading to resource misallocation.
• Industrial policy targets industries crucial for national competitive positions.
• The United States is the most important trading partner for Canada.
• The Canada-United States Free Trade Agreement (CUSFTA) evolved into the North American Free Trade Agreement (NAFTA).

Justifications for Trade Barriers

• The infant industry argument justifies trade barriers to protect emerging industries in less developed countries until they can compete globally.
• The theory of the second best suggests intervening in other markets to improve welfare if efficient market conditions are unmet.

Integration & Trade

• Since the mid-1980s, many nations embraced deeper integration as integration has been beneficial.
• The trade-to-GDP ratio ((exports + imports) / GDP) signifies a nation's role in international trade.
• The North American Free Trade Agreement (NAFTA) and the European Union (EU) exemplify regional trade agreements.

Economic Advantage

• Absolute advantage is defined by high labor productivity.
• Comparative advantage is defined by low opportunity cost.

Ricardian Model

• The Ricardian model relies on labor as the only input, with differing labor productivity across countries.

Class Content Overview

• The class explores economic globalization, studying its framework, including institutions, effects, mechanisms, and relevant policies.
• The course will examine how the global economy works, especially on trade, global finance and currencies, and migration.
• The course will explore the development of developing countries in the context of economic globalization via open or closed trade economies, foreign direct investment and aid.
• Economic globalization increases integration of production through trade and investment.
• Economic globalization increases integration of financial markets and currency exchanges.
• Economic globalization leads to increased movement of people and labor across borders.
• Global flows occur in a world divided into over 200 states, the interplay between the global and the international is central to economic globalization.
• International trade involves the movement of goods and services across borders with one-third of goods produced worldwide being traded in 2023.
• Inter-industry, intra-industry, intra-firm and foreign direct investment are types of international trade.
• International financial integration involves cross-border trading of stocks, bonds, government debt papers, and speculative instruments.
• Financial movements outsize real-world economy by 20-25 times.
• International migration involves movement of people on either temporary or permanent basis.
• Thirty million refugees, 70 million temporary foreign workers, and 230 million immigrants are among economic migrants.
• Economic globalization impacts individual lives, jobs, purchasing power, and government services.
• Economic globalization rearranges how the world taxes environments/resources, it brings together people in global markets and redistributes wealth/costs.
• Economic globalization or integration has evolved over time which has seen stages, including regional hubs in the distant past and horizontal, expanding stages since the 1990s.
• Both flow or region wise, economic globalization can completely or partially reversed.
• World trade flows declined in the 1930s, while financial flows remained stable and migration flows increased.
• The distribution of global trade shifted towards Asia (50% and growing), with decline in North America/Europe.

Globalization Effects and Considerations

• Larger economies and political powers (e.g., USA, European Union, China) dominate global exchange rules as these countries are least exposed to globalization.
• Smaller, often developing economies, stake more on economic well-being, jobs, and technology yet have limited power over governance/capital flows.
• Within countries, profession, location, gender, race, religion, and sexual identity influences how the benefits/costs of globalization are distributed.
• Understanding relationships between economics, international relations, is key Economic integration/globalization is present and requires attention where international trade, finance, and migration are key flows.
• National states retain control with larger states accruing gains and limited exposure.
• Economic globalization redistributes benefits and costs, impacting lives and the environment.
• Fast population and economic growth are both consequences and causes of global integration.
• Economic globalization is partially or fully reversible in terms of flows or regions.

Global Inequalities & Economic Globalization

• Economic globalization has accelerated income growth worldwide, but also income inequality with inequality having grown most in developing countries because since the 1980s, socialist economies shifted to market economies.
• Inequality has grown less in developed countries, but is relatively new, relating with the top 1%.
• Gender/ethnic inequalities inside communities have changed.
• Expansion of manufacturing-for-export has created jobs.
• The global distribution of wealth growth is uneven, building on pre-1990s basis so it is crucial to differentiate between relative/absolute gains.

Impact and Effects of Economic Globalization

• Trade flows integrates economies, putting pressure on wages and taxes.
• A global marketplace brings together economies with varied labor practices regarding child labor, unionization, labor codes, health, security, and pension systems.
• Financial global integration financializes commodities, leading to volatile prices, it can produce financial/banking crises and it can facilitate capital flight/corruption.
• Income inequality and poverty reduction are not the same with economic globalization increasing inequality inside countries but to different region extents, even though global poverty overall has been lowered.

Poverty and Globalization

• International trade/FDI flows make better jobs available in poorer places.
• New jobs are more accessible to previously excluded groups in society including women and ethnic minorities.
• Africa has undergone urbanization, better access to services and overall international cooperation efforts.
• Government policies assist FDI and trade to create better jobs and improve workforce, China's industrial policies exemplify this.
• Global income inequality has risen among countries, not just within, the Lakewood article argues, however the lecture graph disagrees, with many authors also disagreeing.
• Income inequality having a feedback effect on global governance remains the case, this affects institutions, interactions among countries and even domestic/international class conflict.

Inequality and International Trade

• Inequality and poverty are different phenomena with economic globalization (1950s-2024) having income and distributional consequences.
• Income has risen worldwide, poverty has decreased and wealth/income inequality has risen overall.
• Asia has recorded the greatest poverty decreases, while Africa and Latin America have been the slowest
• The North (North America/Europe) has recorded the greatest increases in consequence of inequality.

International Trade: David Ricardo

• David Ricardo (1777-1823) was a British parliament member and stock trader who advocated for free markets, democracy, and ending slavery.
• Labor being the only production input that mobile industries, but immobile across borders are assumptions the model.
• Simplified markets of two goods, perfect competition and no transaction or trade costs are assumed by the model.
• Technology was assumed to be given and equal across borders.

Trade Concepts

• Opportunity cost is what you give up for producing another.
• Absolute advantage goes to whom produces a good with smallest input or largest unit.
• Comparative advantage goes to whom produces goods at a lower opportunity cost.
• Gains from trade are the total benefit by engaging in derived comparative advantage.

Comparitive Advantage Example

• Martha and Sheldon paint and wallpaper rooms for a living.
• Martha holds absolute advantage over Sheldon in paint/wallpaper.
• Martha should give up 0.25 of the room, Sheldon should give up 0.4 of the room.
• Martha holds comparative advantage in painting, she should allocate her time to that to specialize.
• The cost of wallpaper varies.
• Martha should give up 4 painting rooms, Sheldon should give up 2.5 painted rooms.
• Sheldon has the comparative advantage in wallpapering.
• Martha and Sheldon both trade, and their specialization increases from 15 to 16.5 rooms.

Trade Prices

• Trading prices are decided by trading with 2.5 possible rooms.
• Exchange rate is the opportunity costs of both parties.
• Location matters even if both parties win from certain exchanges

Absolute and Comparative Advantage

• Absolute advantage does not take away opportunity of engaging.
• Disadvantage does not exclude benefitting through having in one activity,
• This allows Martha to specialize where it is comparatively more efficient and Sheldon can wallpaper her rooms faster.

Exports

• Total Canadian exports to the world in 2022 is shown where squares represents the relative goods importance based on grouping types reflected in color.

Considerations in Specialization

• Specialization economy implies industries' restructuring.
• Governments must provide welfare services and retraining.
• Labor markets meaning many people will end up losing out even when society has gains.
• Productivity is not fixed, better governance means countries do not progress strictly by specializing Investments requiring protection of competitive producers affect free trade in each country.
• Consumers benefit from free trade as some are untouched while others do not.
• Large relevance of international trade is a historical+political process. Ideas (Ricardo) matter but power has influenced outcome.
• Industrialization and capital want access to foreign markets but landowners want protection.
• Current ideas have industrialized countries perceiving freer markets to benefit.
• International trade has grown fast, helping globalize the world with the global economy slowing down.
• There is a possibility for a trade-driven globalization peak.

International Trade Policies

• Defensive trade policy
  • Trade Tariffs
  • Quotas
  • Bilaterial/regional trade agreements
• Offensive trade policy
  • Support for exporting industries/firms
  • Bilateral/regional trade agreements
  • Policies of trade competitiveness
  • Research/development budgets
  • Subdsidies/limits to foreign investment

General Agreement on Trade and Tariffs (GATT)

• GATT was created with 22 members in 1947.
• Tasked with liberalizing trade and reducing tariffs via manner.
• Negotiations occur are done with unanimity.
• Each country owns a vote.
• A secreteriat was created in Geneva for dispute compliance.
• The World Trade Organization (WTO) was created in 1995 which reinforced the monitoring tribunals.
• The Doha Round commenced, remaining unfinished so far.
• Done via country governments sending representatives.
• Countries request tariff reductions for exports.
• Countries must offer reductions to access markets.
• All offer is extended to most members.
• Trade liberalization occurs via a globalized manner.
• Large markets request the most and countries govern themselves.
• Capacitiy matters and governments should understand their economy.

Diversions from GATT Regulations & Beyond

• Countries have looked to liberalization alternatives with neighbors/preferred allies as GATT rounds grew.
• Trade agreements can come in the form of Free Trade Agreements, custom unions and ecomomic agreements.
• Diversions allow for degrees of limited competition and for access to larger markets.
• Agreements more or less ambitious due to diversity in initiatives.
• Economists find them a "second best" rather than universal in global liberalization. Limited impact uneven policing rules/developing countries.

Trade Policy & Tariffs

• Tariffs are taxes on imports varying across industries and time.
• Canada has been decreasing tariffs since the 1950's.
• Decreases are being implemented and negotiated mainly through GATT/WTO
• Some implemented by countries unilaterally and apply via regional partner.

Quotas

• Quotas limit how much goods can be bought with some applied on farming/textiles
• Industries such as sugar are considered sensible for high quantities.

Trade Policy: Quotas & Tariffs?

• Infant industry arguments show the necessity for production until fair foreign competition.
• Car, electronics and pharmaceuticals industries are subject to this.
• Labor practice makes them sensible. toy.
• Cultural argument with applying to services.
• Underdeveloped countries find it easier to apply the local economy.
• Industries better connected can advocate support from campaign voters.

Trade & Labor

• Support firms to buy machinery and export.
• Ontario gave $150 million in credits to auto industry in 2010-15.
• Export firms are given zones subsidizing contributions.
• Mexico's maquilas generate approximately $150 bn a year.
• Exporting firms and markets give fair expositions .
• Commissioner is positioned across worldwide to cost a certain amount on a certain personnel.
• Exports from Canda equal out to a certain billion.

Trade & Flows

• Industries to support becomes a consideration.
• Use inputs in all intensities, land or capital?
• Uneveleny distributed around a country.
• Industries labor capital resources need to be supported.

Trade Considerations

• Are some industries the future?
• Source locally/imported/
• Tech spillovers + crucial (i.e., pharma) + social factors require considerations.
• Not all markets work one way.
• Land decreases for more products and outputs not all uniform.
• Firms compete selling similar goods which is called intra-industrial trade.
• Prices are not only a consideration leading to larger markets firms to competing.
• Have firms that are differing sizes

International Trade

• Internal economy firm needs in local market.
• Units for output smaller.

International and Global Trade

• Externally it applies to size/economy.
• Societies exist with sizes.
• Include firms products/imports car airplane industry

Scale Economies

• Countries must achieve optimal trade and sustain it externally.
• Factors maintain competitiveness from monopolistic rents.

Global Economic Integration

• There are institutions since world war 2 (WB, WTO,IMF) and agreement on trade that facilitate trade.
• Pro-market policies of stable exhcange, privitization and liberalizaton are promoted.
• Before the 80's those institutions supported captialism.

Important Lessons

• The lessons learned from The Great Depression:
  • Free trade is limited economic action and unemployment
  • Financial integration is low without exchange
  • Gold makes recession and spread
  • Finance leads to deficits
• The lessons learned from The World War:
  • No colonalism
  • The economy gives living standards
  • The entity gives support from all over

Economic Effects

• Economic crisis gets transmitted regardless:
  • Finance
  • Trade
  • Migration
• Government can intervene through economics and policies.
• Only some are used for social sustainabilty.
• Captialism exists through regulations .
• Alternatives require caution.

Global IMF

• The Internaional Monetary Fund was founded in 1945.
• The US is the primary controller. The function of the IMP is to help financial to capitlaism stability, with intervation by demand/invitation only
• Governments must put structural plans receive loans for capital.
• IMF is seal and has shifted from neoliberalisaton in past.
• Presssure to form in 2008 and changes by the changes of neo-liberalisation

Explore global inequality within the context of International Political Economy (IPE). Political factors, historical decisions, institutions, and power dynamics shape the unequal distribution of wealth and income. This study uses theoretical frameworks to investigate the politics of global inequality, providing a comprehensive research agenda.