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lOMoARcPSD|6873405Class Notes-POLI 305 - WHOLE SEMESTER
International Political Economy (Concordia University)
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POLI 305 – Political Economy
Part 1 Emergence and Study of the Global Economy
Week 2 - Origins of the global economy
Lecture 1
Origins of the Global Economy: The 15th and 16th centuries
- At the time, China is largest and most sophisticated economy
- Due to internal developments, Europe begins forcible expansion
- European expansion integrates Americas, creating first global economy
American silver for Asian good
-Long-range luxury trade had long existed
- European economic integration in 14th and 15th centuries increased demand for imports,
especially from China
- European countries did not have luxury goods to trade, needed gold or silver
- American mines provided silver to pay for Asian goods
American silver for Asian goods
European expansion to the Americas was imperialist and mercantilist.
Imperialism
Policy of extending power and control, especially through territorial acquisition, of other
peoples and areas. Economically, implies orienting the economy of the benefit of the
metropole.
Mercantilism
Economic theory that understood exchange as a means to enhance a country’s power. The goal
of economic exchange was to accumulate wealth, especially to accumulate gold or silver.
The fur trade and economic development
- European expansion into present-day Canada from 1600s onward driven by resource extraction:
furs, especially beaver pelts
- European trade with First Nations along Atlantic coast connected with indigenous cross-
continental trade routes
- As elsewhere, spread of European diseases had devastating effects
- Fur trade did not support long-run development
- Mercantilist resource extraction, no manufacturing within colonies, limited trade between
colonies.
- Hudson’s Bay Company used monopsonist and monopolist market power
How did industrialization and empire shape the modern economy? (ch 4)
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Lecture 2
The Long 19th century and the global political economy
Historians refer to the late 1700s to 1914 as the long 19th century:
- Technological innovation, industrialization, urbanization
- Expansion of European imperialism
- Political revolution and rise of nationalism
- Explosion of (unequal) economic growth
- Industrialized countries (Europe, Japan, US) establish dominance
- Idea of free trade emerges
- International monetary system around gold standard
Industrial Revolution
First industrial revolution (to mid-1800s)
- UK predominant - Steam-powered production
- International raw material imports; export to international markets
Second industrial revolution (from mid-1800s)
- Germany and US predominant
- Railway construction
- Integrating markets; opening areas to economic activity
European imperial expansion in late 1800s
- Competition and wealth of industrial revolution fueled European expansion
- European powers seized control of much of Asia, most of Africa
Driven by:
- Strategic competition
- Racist beliefs in “civilizing” mission
- Economic interests in expansion
Trade in 19th century global economy
- Volumes of trade increase - Patterns of trade remain largely the same
- Industrialized countries trade with colonies, dominions
- Ideas about trade change, but only partially implemented
Patterns of global trade endured
- Industrialized economies (Europe, US, Japan) export manufactured goods
- Rest of world supplies agricultural products and raw materials
- Very little trade among industrialized countries - Remember Canada’s leading trading partners
today!
- Industrialized countries trade with colonies, dominions, recently independent countries
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Changing ideas about trade
- In earlier centuries, thinking about trade dominated by mercantilism
- Political economists of 18th and 19th century introduced liberal theories of trade
- Ricardo’s theory of comparative advantage expressed idea of broad benefits from trade
Comparative advantage
Economic theory that countries benefit from international trade by specializing in producing the
good that they can produce most efficiently. Note: This is different from absolute advantage
Comparative advantage elaborated
If a foreign country can supply us with a commodity cheaper than we ourselves can make it,
better buy it of them with some part of the produce of our own industry, employed in a way in
which we have some advantage Adam Smith, Wealth of Nations, 1776
1. Countries specialize in producing the goods they produce most efficiently
2. Countries trade or exchange goods
3. The total volume of production is higher than it would be without specialization, even if one
country has an absolute advantage in all goods
⇒ Specialize and trade, open your markets!
Trade in practice in the 19th century
- UK leading proponent of free trade; unilaterally opened markets from mid-1800s
- Other industrialized countries (Germany and the US) were highly protectionist; increased
barriers in late 1800s
- Lower transportation costs enabled higher trade, but tariffs offset some of this
Emergence of an international financial system
- Large industrial projects (e.g. railways) required large amounts of capital
- Corporations used to pool capital and risk
- Attracting foreign capital - Post-1870, more than half of UK savings invested outside UK
- Financial globalization supported by the gold standard
International financial system and the balance of payments
- Global trade and movement of capital raised question of how to manage balance of payments,
especially balance of payments crises
- Pioneered by the UK, the gold standard became the international monetary system of the late
19th century
Balance of payments
The net value of international transactions, i.e. money flowing in and out of an economy. A
balance of payments crisis occurs when more money flows out of a country than in, e.g. if a
country runs a persistent trade deficit.
International monetary system
International institutional arrangement to manage exchange rates and international movement of
capital.
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