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date: 23 March 2017

Institutions and Global Political Economy

This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Politics. Please check back later for the full article.

If we were to compare today's global political economy to that of the last great era of globalization, the late 19th century, the most prominent distinction would be the very high degree of institutionalization of today's system. While the 19th-century system did have some important international institutions, in particular the gold standard and an emerging network of trade agreements, it had nothing like the scope and depth of today's powerful international economic institutions. We cannot understand the functioning of today's global political economy without understanding the sources and consequences of these institutions. Why were international organizations (IOs) such as the World Trade Organization (WTO) or International Monetary Fund (IMF) created? How have they gained so much influence? What difference do they make for the functioning of the global economy and the well-being of individuals around the world?

In large part, understanding IOs requires a focus on the tension between rules that are intended to constrain and the use of power. IOs are rules-based creatures. They create and embody rules for gaining membership, for how members should behave, for monitoring, for punishment if members renege on their commitments, etc. However, these rules-based bodies exist in the anarchical international system, in which there is no authority above states, and states continue to exercise power when it is in their self-interest to do so. While states create and join IOs in order to make behavior more rule-bound and predictable, the rules themselves reflect the international distribution of power at the time of their creation; and they only constrain to the extent that states find that the benefits of constraint exceed the costs of the loss of autonomy.

Some theoretical approaches to the study of IOs in the global political economy examine the underlying strategic problems of international cooperation and how institutions can mitigate these problems, allowing cooperation to emerge and be sustained. Others focus on the question of why states delegate authority to IOs, or how IOs should be designed in the face of different strategic challenges. These approaches allow us to understand the differential effects of IOs. At times they are highly effective, as in the role of Preferential Trade Agreements in promoting liberalization in developing countries. At other times their effects are contested and challenged. For example, the WTO has been criticized for channeling most benefits to the most developed countries, and the IMF has been harshly condemned for the painful austerity programs it demands as a condition of providing assistance. The tension between rules and power shapes the ways in which international institutions function and, therefore, the impact that they have on the global economy. For all their faults, international economic institutions have proven themselves to be an indispensable part of the modern global political economy, and their study represents an especially vibrant research agenda.