1.3 Global political economy
10 min read•august 21, 2024
Global political economy examines how politics and economics interact in international relations, crucial for understanding multinational corporate strategies. It analyzes how political institutions, economic systems, and market forces shape global economic interactions and policy decisions.
This field provides a framework for assessing complex relationships between states, markets, and multinational corporations. It covers topics like international economic institutions, global trade dynamics, and the role of multinational corporations in shaping the global economy.
Foundations of global political economy
- Global political economy examines the interplay between politics and economics in international relations, crucial for understanding multinational corporate strategies
- Analyzes how political institutions, economic systems, and market forces shape global economic interactions and policy decisions
- Provides a framework for assessing the complex relationships between states, markets, and multinational corporations in the global arena
Historical development
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- Emerged as a distinct field in the 1970s, combining elements of international relations, economics, and political science
- Evolved from earlier concepts of mercantilism and classical political economy (Adam Smith, David Ricardo)
- Gained prominence with the rise of and increasing economic interdependence among nations
- Influenced by major historical events (Great Depression, Bretton Woods system, end of Cold War)
Key theoretical perspectives
- Realism emphasizes state power and national interests in shaping economic policies
- Liberalism focuses on the benefits of free markets, international cooperation, and institutions
- Marxism critiques capitalist systems and highlights global inequalities and exploitation
- Constructivism examines how ideas, norms, and social structures influence economic behavior
- Feminist approaches analyze gender dimensions in global economic processes
Actors in global political economy
- Nation-states remain primary actors, formulating and implementing economic policies
- International organizations (UN, WTO, IMF) facilitate cooperation and establish global economic rules
- Multinational corporations wield significant influence through cross-border investments and operations
- Non-governmental organizations advocate for various economic and social issues globally
- Transnational networks of experts and policymakers shape economic discourse and decision-making
International economic institutions
- International economic institutions play a crucial role in shaping the global business environment for multinational corporations
- These organizations establish rules, facilitate cooperation, and provide financial support to maintain global economic stability
- Understanding their functions and policies is essential for developing effective multinational corporate strategies
World Trade Organization
- Established in 1995 as successor to the General Agreement on Tariffs and Trade (GATT)
- Facilitates international trade by negotiating and enforcing global trade rules
- Resolves trade disputes between member countries through its dispute settlement mechanism
- Promotes through successive rounds of multilateral negotiations
- Faces challenges in addressing new trade issues (digital trade, environmental concerns)
International Monetary Fund
- Founded in 1944 at the to promote international monetary cooperation
- Monitors global economic and financial developments to prevent crises
- Provides financial assistance to countries experiencing difficulties
- Offers policy advice and technical assistance to member countries
- Implements surveillance programs to assess economic policies and financial stability
World Bank
- Created alongside the IMF in 1944 to support post-World War II reconstruction efforts
- Focuses on poverty reduction and promoting sustainable economic development in developing countries
- Provides loans, grants, and technical assistance for infrastructure projects and policy reforms
- Consists of two main institutions: International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA)
- Collaborates with governments, private sector, and civil society to address global challenges (climate change, pandemics)
Global trade dynamics
- Global trade dynamics significantly impact multinational corporate strategies, influencing market access and competitive landscapes
- Understanding trade policies and agreements is crucial for companies operating across borders
- Navigating complex trade relationships requires adaptable strategies and awareness of geopolitical factors
Free trade vs protectionism
- Free trade advocates argue for minimal government intervention and open markets
- Protectionism involves government policies to shield domestic industries from foreign competition
- supports free trade benefits (David Ricardo)
- justifies temporary protectionist measures
- Trade policies often reflect a balance between these competing approaches
Regional trade agreements
- Proliferation of as alternatives to global multilateral negotiations
- Notable examples include (now USMCA), European Union, and ASEAN
- Preferential treatment for member countries through reduced tariffs and harmonized regulations
- Can lead to trade diversion and complex "spaghetti bowl" effect of overlapping agreements
- Potential stepping stones or stumbling blocks for broader multilateral liberalization
Trade barriers and regulations
- Tariffs impose taxes on imported goods, increasing their price in domestic markets
- include quotas, subsidies, and technical regulations
- Sanitary and phytosanitary measures protect human, animal, and plant health
- involve product standards and conformity assessment procedures
- impacts trade in knowledge-intensive goods and services
International monetary system
- The international monetary system profoundly affects multinational corporate strategies, particularly in finance and risk management
- Exchange rate fluctuations and directly impact corporate profitability and investment decisions
- Understanding monetary dynamics is crucial for effective cross-border operations and financial planning
Exchange rate regimes
- Fixed exchange rates peg currency values to another currency or basket of currencies
- Floating exchange rates allow currency values to be determined by market forces
- Managed float involves central bank intervention to influence exchange rates within a range
- Currency boards maintain a fixed exchange rate with full foreign exchange backing
- Dollarization adopts another country's currency as legal tender (Ecuador, Panama)
Currency markets
- Foreign exchange (forex) market is the largest financial market globally
- Spot market involves immediate exchange of currencies at current market rates
- Forward and futures markets allow hedging against future exchange rate fluctuations
- Currency options provide the right, but not obligation, to exchange currencies at a predetermined rate
- Interbank market facilitates large-scale currency transactions between financial institutions
Global financial flows
- involves long-term investments in foreign countries
- includes purchases of foreign stocks and bonds
- Remittances represent money transfers from migrant workers to their home countries
- provides financial aid from developed to developing countries
- refers to short-term speculative capital flows seeking high returns
Multinational corporations
- Multinational corporations (MNCs) are key players in the global political economy, shaping international trade and investment patterns
- MNC strategies must adapt to diverse political, economic, and cultural environments across different countries
- Understanding the role and challenges of MNCs is essential for developing effective global business strategies
Role in global economy
- Drive international trade through intra-firm transactions and global value chains
- Facilitate technology transfer and innovation across borders
- Contribute to economic growth and job creation in host countries
- Influence government policies through lobbying and bargaining power
- Shape global production networks and distribution of economic activities
Strategies for global expansion
- Market-seeking strategies target new consumer markets for products and services
- Resource-seeking strategies access natural resources or low-cost labor
- Efficiency-seeking strategies optimize production processes across different locations
- Strategic asset-seeking strategies acquire knowledge, technologies, or brands
- Transnational strategy balances global integration with local responsiveness
Challenges and opportunities
- Managing diverse political and regulatory environments across countries
- Navigating cultural differences and adapting to local consumer preferences
- Balancing standardization and localization in products and operations
- Addressing ethical concerns and corporate social responsibility expectations
- Leveraging technological advancements for improved global coordination and efficiency
Global economic governance
- Global economic governance structures significantly impact multinational corporate strategies by shaping the rules and norms of international business
- Understanding these mechanisms is crucial for companies to navigate complex global regulatory environments
- Effective engagement with global governance institutions can provide competitive advantages and mitigate risks
G7 and G20 summits
- comprises seven major advanced economies (US, UK, France, Germany, Italy, Japan, Canada)
- includes G7 plus emerging economies (China, India, Brazil, etc.) and the European Union
- Annual summits address global economic challenges and coordinate policy responses
- Influence global economic agenda-setting and policy harmonization efforts
- Provide forum for informal diplomacy and bilateral meetings between world leaders
Economic diplomacy
- Utilizes diplomatic channels to promote national economic interests abroad
- Involves negotiating trade agreements and resolving economic disputes
- Commercial diplomacy supports domestic businesses in foreign markets
- Financial diplomacy addresses international monetary and financial issues
- Energy diplomacy focuses on securing access to energy resources and markets
International economic law
- Governs economic relations between states and other international actors
- Includes trade law, investment law, and international financial regulation
- agreements form the core of multilateral trade rules
- Bilateral investment treaties (BITs) protect foreign investors' rights
- International Centre for Settlement of Investment Disputes (ICSID) resolves investor-state disputes
Globalization and its effects
- Globalization profoundly impacts multinational corporate strategies by creating new opportunities and challenges in the global marketplace
- Understanding the multifaceted effects of globalization is crucial for developing effective international business approaches
- Companies must navigate the complex interplay of economic, cultural, and political factors in an increasingly interconnected world
Economic interdependence
- Increased trade flows and integration of national economies
- Global supply chains and production networks span multiple countries
- Financial market integration facilitates cross-border capital flows
- Labor mobility and migration contribute to global workforce dynamics
- Technological advancements enable instant communication and information sharing
Cultural implications
- Spread of global consumer culture and homogenization of preferences
- Cultural hybridization combines global and local elements (glocalization)
- English emerges as the dominant language for international business
- Increased exposure to diverse cultures through media and travel
- Potential for cultural clashes and resistance to perceived Western dominance
Critics and proponents
- Proponents argue globalization promotes economic growth and poverty reduction
- Critics highlight increasing inequality and exploitation of developing countries
- Environmental concerns focus on climate change and unsustainable resource use
- Debates over the impact on national sovereignty and democratic accountability
- Discussions on the need for global governance mechanisms to address challenges
Emerging markets and economies
- Emerging markets and economies present significant opportunities and challenges for multinational corporate strategies
- Understanding the unique characteristics and dynamics of these markets is crucial for successful expansion and operations
- Companies must adapt their approaches to navigate diverse economic, political, and cultural landscapes in emerging economies
BRICS nations
- Brazil, Russia, India, China, and South Africa form the BRICS group
- Represent large, rapidly growing economies with increasing global influence
- Collaborate on economic and political issues through annual summits
- Established New Development Bank to finance infrastructure projects
- Face challenges of , , and political stability
Developing country perspectives
- Emphasize the need for policy space to pursue national development strategies
- Advocate for fair trade practices and access to global markets
- Call for technology transfer and capacity building to support industrialization
- Highlight the importance of debt relief and sustainable financing for development
- Seek greater representation in global economic governance institutions
South-South cooperation
- Promotes collaboration and knowledge sharing among developing countries
- Focuses on technical cooperation, technology transfer, and capacity building
- Includes trade agreements and preferential market access arrangements
- Supports joint infrastructure projects and development initiatives
- Aims to reduce dependence on traditional North-South aid relationships
Global economic challenges
- Global economic challenges significantly impact multinational corporate strategies, requiring companies to adapt to changing environments
- Understanding these challenges is crucial for developing resilient and sustainable business models
- Effective responses to global issues can create opportunities for innovation and competitive advantage
Income inequality
- Growing disparity between rich and poor within and between countries
- Concentration of wealth among top 1% of global population
- Impact on social cohesion, political stability, and consumer markets
- Debates over progressive taxation, universal basic income, and wealth redistribution
- Corporate responses include fair wage policies and inclusive business models
Environmental sustainability
- Climate change threatens global economic stability and resource availability
- Depletion of natural resources challenges traditional production models
- Transition to low-carbon economy requires significant investments and innovations
- Growing consumer demand for environmentally friendly products and services
- Corporate sustainability initiatives address environmental impacts and risks
Technological disruption
- Artificial intelligence and automation transform labor markets and skill requirements
- Digital platforms create new business models and disrupt traditional industries
- Cybersecurity threats pose risks to global financial systems and critical infrastructure
- Data privacy concerns impact consumer trust and regulatory landscapes
- Rapid technological change challenges existing regulatory frameworks and governance mechanisms
Future of global political economy
- The evolving global political economy presents both opportunities and challenges for multinational corporate strategies
- Understanding emerging trends and potential future scenarios is crucial for long-term strategic planning
- Companies must remain adaptable and responsive to shifting power dynamics and technological advancements
Shifting power dynamics
- Rise of China and other emerging economies reshapes global economic order
- Potential transition from US-led unipolarity to multipolar or bipolar system
- Increasing importance of regional economic blocs and alliances
- Growing influence of non-state actors (tech giants, NGOs) in global governance
- Geopolitical tensions impact trade relations and investment flows
Digital economy impact
- Digitalization transforms business models and value creation processes
- E-commerce and digital platforms enable global market access for SMEs
- Cryptocurrencies and blockchain technology challenge traditional financial systems
- Data-driven decision-making and analytics reshape competitive landscapes
- Digital divide raises concerns about equitable access to opportunities
Post-pandemic economic landscape
- Accelerated adoption of remote work and digital technologies
- Increased focus on supply chain resilience and diversification
- Growing emphasis on health security and pandemic preparedness
- Potential for green recovery initiatives and sustainable development
- Debates over the role of government in economic management and social welfare
Key Terms to Review (39)
Balance of Payments: The balance of payments is a comprehensive record of a country’s economic transactions with the rest of the world over a specific period. It includes trade in goods and services, capital flows, and financial transfers, providing insights into a nation's economic position and stability. A positive balance indicates that a country is exporting more than it is importing, while a negative balance shows the opposite, reflecting the dynamics of international trade and investment.
Bretton Woods Conference: The Bretton Woods Conference was a gathering of 730 delegates from 44 nations held in July 1944 in Bretton Woods, New Hampshire, aimed at establishing a new international monetary order after World War II. This conference led to the creation of key institutions such as the International Monetary Fund (IMF) and the World Bank, which were designed to promote global economic stability and facilitate international trade, laying the groundwork for modern global political economy.
Comparative Advantage Theory: Comparative advantage theory is an economic principle that explains how and why countries benefit from trade by specializing in the production of goods and services they can produce more efficiently than others. This concept highlights that even if one country can produce everything more efficiently than another, both countries can still gain from trade by focusing on their relative efficiencies. It ultimately promotes international trade as a means of maximizing economic welfare and efficiency across nations.
Currency markets: Currency markets are platforms where different currencies are traded against one another, determining their relative value. This market is crucial for facilitating international trade and investment by allowing businesses and investors to exchange one currency for another to conduct transactions across borders. The fluctuations in currency values can significantly impact the global economy, influencing everything from inflation rates to foreign direct investment decisions.
Dependency Theory: Dependency theory is an economic and sociopolitical concept that argues that the prosperity of wealthy nations is often reliant on the exploitation of poorer nations. It posits that underdeveloped countries are trapped in a cycle of dependence on developed nations, which can hinder their economic growth and development. This theory emphasizes the structural inequalities in global trade and the lasting impacts of colonialism, suggesting that economic systems favor rich countries while keeping poorer countries marginalized.
Economic Diplomacy: Economic diplomacy refers to the use of economic tools and policies by a nation to achieve its foreign policy objectives. This encompasses negotiations, trade agreements, investments, and sanctions that can influence relationships between countries. Through economic diplomacy, states can leverage their economic power to foster cooperation, resolve conflicts, and promote their national interests on the global stage.
Economic Union: An economic union is a type of regional integration where member countries not only remove trade barriers among themselves but also adopt common economic policies and a unified external trade policy. This form of integration goes beyond a free trade area or customs union by implementing a shared currency or coordinated economic policies, leading to deeper political and economic ties between the countries involved.
Environmental Sustainability: Environmental sustainability refers to the responsible management of resources and practices that ensure the health and viability of ecosystems for future generations. This concept emphasizes the importance of balancing economic growth with environmental protection, aiming to minimize ecological damage while promoting social equity and economic development. The interconnection of these elements is crucial, as businesses and governments must collaborate to create policies that foster sustainable practices in a global context.
Exchange rate regimes: Exchange rate regimes refer to the methods by which countries manage their currencies in relation to other currencies. These regimes can vary widely, from fixed exchange rates where the currency value is tied to another major currency, to floating exchange rates that fluctuate according to market forces. The choice of exchange rate regime can significantly impact a country’s economic stability, trade balance, and monetary policy effectiveness.
Foreign direct investment (FDI): Foreign direct investment (FDI) refers to the investment made by a company or individual in one country in business interests in another country, typically through the acquisition of assets or the establishment of business operations. FDI is a crucial aspect of global economic integration as it enables capital to flow across borders, creating jobs and fostering economic growth in host countries while providing investors with access to new markets and resources.
Free Trade Agreement: A free trade agreement is a pact between two or more countries that aims to reduce or eliminate barriers to trade, such as tariffs and quotas, in order to promote the exchange of goods and services. These agreements facilitate easier access to markets, foster economic cooperation, and can lead to increased trade volume among the signatory nations. By encouraging competition and specialization, free trade agreements can enhance economic growth and efficiency.
G20: The G20, or Group of Twenty, is an international forum comprised of 19 countries and the European Union, which represents the world's largest economies. It was established to discuss and promote global economic stability, addressing pressing issues that affect the global economy and fostering international cooperation. The G20 serves as a platform for dialogue among its members, focusing on financial regulation, sustainable development, and other critical global challenges.
G7: The G7, or Group of Seven, is an intergovernmental organization consisting of seven of the world's largest advanced economies: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. This group meets annually to discuss and coordinate economic policy, address global issues, and foster international cooperation, particularly in the context of global political economy.
Geopolitical stability: Geopolitical stability refers to the condition in which nations experience minimal conflicts and tensions, allowing for consistent political relations and economic growth. This stability is crucial for fostering international trade, investment, and cooperation, as it reduces risks associated with wars, terrorism, and political upheaval, thereby creating a favorable environment for multinational corporations to operate effectively.
Global Financial Flows: Global financial flows refer to the movement of money for the purpose of investment, trade, and other economic activities across international borders. These flows include foreign direct investment, portfolio investment, remittances, and international loans, all of which play a crucial role in shaping economies worldwide. Understanding global financial flows helps in analyzing how capital moves between countries and influences economic growth, exchange rates, and financial stability.
Globalization: Globalization is the process of increasing interconnectedness and interdependence among countries through the exchange of goods, services, information, and culture. This phenomenon affects economies, politics, and societies worldwide, leading to the integration of markets and the expansion of multinational corporations across borders.
Gross Domestic Product (GDP): Gross Domestic Product (GDP) is the total monetary value of all finished goods and services produced within a country's borders in a specific time period, usually measured annually or quarterly. It serves as a comprehensive indicator of a nation's economic performance and health, reflecting the overall size and growth of the economy. Understanding GDP helps in analyzing economic trends, comparing economic productivity between nations, and assessing the impact of government policies on the economy.
Hot Money: Hot money refers to financial assets that move quickly between markets or countries to take advantage of interest rate differences or short-term economic conditions. This term highlights the rapid flow of capital and its potential impact on exchange rates and financial markets, emphasizing how swift investments can lead to instability in local economies due to sudden inflows or outflows.
Income Inequality: Income inequality refers to the unequal distribution of income among individuals or groups within a society. This disparity can stem from various factors, including education, occupation, and socioeconomic background, resulting in a situation where a small percentage of the population holds a significant portion of the total income while others struggle to meet their basic needs. Understanding income inequality is essential as it influences social stability, economic growth, and overall quality of life within nations and globally.
Infant Industry Argument: The infant industry argument is a theory in economic policy that advocates for the protection of emerging domestic industries from foreign competition until they become mature and competitive. This concept is significant in discussions around global political economy and trade barriers, as it supports the idea that temporary protectionist measures can help new industries grow, leading to increased innovation, job creation, and long-term economic development.
Intellectual property rights protection: Intellectual property rights protection refers to the legal measures that safeguard creators' innovations and original works, allowing them to control how their creations are used and distributed. This protection encourages innovation and creativity by ensuring that inventors and artists can reap the benefits of their efforts. In the context of the global political economy, strong intellectual property rights can affect trade relationships, influence market access, and shape the competitive landscape among nations.
International Economic Law: International economic law encompasses the legal frameworks and principles that govern economic transactions and relations between countries. This area of law includes treaties, trade agreements, and regulations that facilitate international trade, investment, and economic cooperation while addressing issues such as trade barriers, tariffs, and intellectual property rights. It serves as a crucial foundation for understanding how countries interact in the global economy.
International Monetary Fund (IMF): The International Monetary Fund (IMF) is an international financial organization that aims to promote global monetary cooperation, secure financial stability, facilitate international trade, promote high employment, and reduce poverty around the world. The IMF plays a critical role in the global political economy by providing financial assistance and advice to member countries, influencing their economic policies and stability. Additionally, it helps countries facing balance of payments problems and provides a platform for cooperation on international monetary issues, shaping the legal and regulatory environments across borders.
NAFTA: The North American Free Trade Agreement (NAFTA) is a trade deal established in 1994 between Canada, Mexico, and the United States aimed at eliminating trade barriers and promoting economic cooperation. This agreement has influenced global trade patterns and economic policies, significantly impacting the political and economic relations among these three countries while also reshaping supply chains and investment flows across borders.
Non-tariff barriers: Non-tariff barriers are trade restrictions that countries impose to control the amount of trade across their borders without using tariffs. These can include quotas, import licenses, standards, and regulations that can make it difficult for foreign goods to compete in the domestic market. They play a significant role in shaping global political and economic relationships, influencing how countries interact and engage in trade.
Official Development Assistance (ODA): Official Development Assistance (ODA) refers to government aid designed to promote the economic development and welfare of developing countries. It is typically characterized by its concessional nature, meaning that it is provided with the expectation of improving long-term development rather than being primarily motivated by commercial interests. ODA plays a vital role in global political economy, influencing international relations, economic policies, and sustainable development efforts across nations.
Political Risk: Political risk refers to the potential for changes in the political environment or government policies to adversely affect the operations and profitability of businesses. It encompasses a range of factors, including instability, corruption, regulatory changes, and the potential for expropriation or nationalization, which can impact various aspects of international business activities.
Portfolio Investment: Portfolio investment refers to the purchase of financial assets such as stocks, bonds, and mutual funds in a foreign country, with the aim of earning returns without seeking direct control over the businesses in which the investments are made. This form of investment allows investors to diversify their holdings and access opportunities in different markets, contributing to both individual financial growth and broader economic development across countries.
Regional Trade Agreements (RTAs): Regional Trade Agreements (RTAs) are treaties between two or more countries in a specific region that aim to facilitate trade by reducing or eliminating tariffs, import quotas, and other trade barriers. These agreements are designed to promote economic integration among member countries and can take various forms, including free trade areas, customs unions, and common markets. RTAs play a critical role in shaping the global political economy by influencing trade patterns, investment flows, and economic cooperation.
South-South Cooperation: South-South Cooperation refers to the collaboration between developing countries in the Global South, aimed at promoting mutual economic growth, knowledge sharing, and sustainable development. This concept emphasizes the idea that countries with similar developmental challenges can support one another in achieving their goals, often through trade, investment, and technology exchange, creating a more balanced global political economy.
Subsidy: A subsidy is a financial aid or support provided by the government to promote economic activities, reduce the cost of goods and services, or encourage the production of certain industries. This tool is often employed to stabilize markets, support domestic industries against foreign competition, and achieve social objectives. The use of subsidies can influence trade patterns, market prices, and competitive advantages in the global economy.
Tariff: A tariff is a tax imposed by a government on imported goods and services, aimed at regulating trade between countries. It serves to increase the cost of foreign products, making domestic goods more competitive in the local market. Tariffs can be used strategically by governments to protect local industries, influence trade policies, and generate revenue.
Technical Barriers to Trade (TBT): Technical barriers to trade (TBT) are regulations, standards, and testing procedures established by countries to control the quality, safety, and environmental impact of products being imported or exported. These barriers can significantly affect international trade by creating challenges for foreign companies trying to enter a market, often leading to increased costs and compliance issues. TBTs can be beneficial for protecting consumers and the environment, but they may also be seen as protectionist measures that restrict free trade.
Technological Disruption: Technological disruption refers to the transformation of industries and markets due to the introduction of new technologies that fundamentally change how businesses operate and deliver value. This phenomenon often leads to the obsolescence of existing products, services, and business models, forcing companies to adapt or risk failure. The impacts of technological disruption can reshape competitive landscapes and drive shifts in global economic power dynamics.
Trade liberalization: Trade liberalization refers to the process of reducing barriers to trade between countries, such as tariffs, quotas, and regulations, with the aim of promoting free trade and increasing economic integration. This process is closely linked to the idea that open markets lead to more efficient resource allocation, greater competition, and ultimately higher economic growth. It plays a significant role in shaping global economic relations and influences various factors like international institutions, new trade theories, and international agreements.
Transnational Corporation: A transnational corporation (TNC) is a large company that operates in multiple countries, managing production or delivering services across borders while maintaining a centralized management structure. TNCs are key players in the global political economy, influencing trade patterns, investment flows, and economic policies in various countries. Their ability to leverage resources and labor from different locations allows them to optimize production costs and maximize profits, making them integral to understanding globalization and international business dynamics.
World Bank: The World Bank is an international financial institution that provides loans and grants to the governments of low and middle-income countries for the purpose of pursuing capital projects. It aims to reduce poverty and support sustainable development by providing resources and expertise, making it a key player in global economic growth and development.
World Trade Organization (WTO): The World Trade Organization (WTO) is an intergovernmental organization that regulates international trade by providing a framework for negotiating trade agreements and resolving trade disputes. Established in 1995, the WTO aims to promote free trade by ensuring that trade flows as smoothly, predictably, and freely as possible. It plays a crucial role in shaping the global political economy by influencing trade policies and agreements among member countries while also establishing legal and regulatory standards that govern international commerce.
World-systems theory: World-systems theory is a sociological perspective that views the global economy as a complex system structured by relationships among countries, divided into core, semi-peripheral, and peripheral nations. This framework helps to explain how wealth and power are distributed on a global scale and how historical processes, such as colonization and industrialization, have shaped current economic relations and inequalities.