In this report, structural frameworks of the theoretical traditions of International Political Economy of the theories of Marxism, Constructivism, and Liberalism will be thoroughly discussed. For a better understanding of, each of the theories detailed and meticulous dissection of each will be done in the forthcoming sections. The roles of international economic institutions will be critically discussed in the section of liberalism, in the unit of Marxism, class struggle and colonies at the international level will be precisely argued, and in the segment of the Constructivism, norms of economic society for growth and performance will be specifically talked about. Therefore, it is evident that the objectives of this report are to evaluate the three designated traditional theories of Marxism, Liberalism, and Constructivism and to the acute assessment of the Global Economy. The second part of this report will discuss in elaborate detail, the impact of COVID-19 on the global economy. The effect of the border closures on the trade balance, employment rate and the exchange rates of major countries will be included. In its latter portion, the report will be substantiated with graphical representations to depict the various ways in which the pandemic has impacted international trade and the economy.
2. Conceptual Evaluation
1. Part A
Marxism is a theory of sociology and economics which uses a materialistic interpretation of historical development, also called historical materialism, to explain class relations and social struggles as well as a dialectic view to view social change. Karl Marx is the father of the social-political-economic theory of Marxism (O’Regan, 2021). It discusses how capitalism influences labour, productivity and economic growth and promotes a workers’ movement to abolish and replace capitalism with communism.
To understand Marxism in International Relations (IR), the cognition of Marx’s core principle of capitalism’s development is important (Hunter, 2021). Simply put, historical materialism holds that human beings – and their relationships with one another and their surroundings – are dictated by the material circumstances in which they may live and replicate (Hall, 2021). As a result, Marxism argues that material factors may be altered both through human activity and by circumstances – consider climate change, which is dependent on both physical phenomenon and human behavior. Marxism profoundly challenges the significance of the word “foreign” in the sense of international affairs. The idea of anarchy generates the assumption that states are self-contained bodies whose reasoned actions can be anticipated (Swope, 2021). This, however, ignores the prevalence of regional inequality, as well as the systemic and historical relations that remain between governments, conflict, and the global political economy’s main players.
Liberalism is a democratic and moral ideology founded on the principles of democracy, the interests of the people, and equality under the law (Jørgensen, 2021). Liberal international political economy (IPE) is the product of a union of mainstream international economics and mainstream international relations, which place a strong emphasis on the state. Scholars label IPE a “sub-discipline of political science” in their conclusive declaration of the liberal method. Liberal IPE, on the other hand, has always had a special bond with its absentee father economics, looking to it for theoretical and, most importantly, methodological inspiration (van Loon, 2021). The liberal viewpoint on IPE is “embodied in the discipline of economics as it has evolved in Great Britain, the United States, and Western Europe,” according to Blachford, (2021). In particular, these authoritative presentations to the sector provide little or no difference between mainstream and liberal IPE. Individual involvement is the analytic starting point for liberals and is almost invariably formulated as content in nature in IPE. Rather than starting with key hypotheses about actors’ preferences, as realists do, liberals depend heavily on neoclassical economic theory, as per van de Haar, (2021).
Constructivism, also known as social constructivism, has been identified as a response to neoliberal and neorealist international relations theories’ supremacy (Theys, 2017). The conviction that “persuasive concepts, collective beliefs, history, and social identities form international relations” is a central component of constructivism. Constructivism falls somewhere between rationalist and interpretative philosophies of foreign relations as stated by Xie, (2021). The term “ideas” is used by constructivists to describe objectives, problems, interests, identities and other aspects of the perceived reality affecting states and non-state actors within the international community.
Traditional international relations theory’s static assumptions are rejected in constructivist theory, which emphasizes that international relations are a collective construction (Jäger, 2020). Constructivism is an anti-rationalist philosophy of foreign affairs that challenges the ontological premises of rationalist doctrines (Menchik, 2017). Constructivism is primarily concerned with the role of ideas in describing the international framework, whereas populism insists on economic complementarity and internal variables. While constructivism and liberalism may collide, both of them are distinct streams of philosophy, according to Charmaz, (2020). Constructivism claims that cognitive constructs provide value to the natural universe through collectively constructing international reality. The hypothesis arose from discussions about international relations theories’ empirical process and their position in the development of international influence. Havercroft, (2017) opined that constructivists claim that certain ideational considerations may have far-reaching implications and may sometimes overshadow materialistic influence issues. Constructivists often claim that societal values, rather than defense, form and alter foreign policy over time.
3. Part B
1. Global Economy
“Global economy” signifies the integrated global economic activities between several nations. These commercial activities may affect the countries involved either positively or negatively. Over the past few decades, the global economy has changed considerably as it is organised and dominated by partner countries. These changes influence not only the movsement of products and services between countries but also the mobility of the masses (Abodunrin, Oloye and Adesola, 2020). It has been observed from multiple occasions in the previous century that a major fluctuation in this international system can result in a massive global economic crisis.
2. Importance of international trade in the Global Economy
International trade in various countries has an essential share of GDP. Different businesses in different countries explore new markets for development outside their borders. Significant sectors of economies such as the transport and ICT sectors can be boosted because of foreign trade. International trade may therefore be essential for companies due to opportunities for profit growth, reduced reliance on the expansion of business, markets that are known, etc. (Riekhof, Regnier and Quaas, 2019). International trade thus has a huge effect on the global economy. The next segment will address two main factors that have a major effect on foreign trade.
The elimination of “tariff and non-tariff barriers” to foreign trade is known as trade liberalisation. This has far-reaching macroeconomic and distributive consequences.
7Liberalization of trade results in a faster rate of growth but a lower ratio of variety: scientific knowledge. The latter has a negative effect that is proportional to the size of the population (Yu and Zhu, 2019). When the population is small, trade liberalisation leads to a faster rate of growth, and vice versa.
The elimination of “tariff and non-tariff barriers” to foreign trade is known as trade liberalisation. This has far-reaching macroeconomic and distributive consequences.
Liberalization of trade results in a faster rate of growth but a lower ratio of variety: scientific knowledge. The latter has a negative effect that is proportional to the size of the population (Yu and Zhu, 2019). When the population is small, trade liberalisation leads to a faster rate of growth, and vice versa.
3. Economic Shocks-Covid-19 impact on the Global Economy
i. Political decision on border closure and its impact on the trade balance, employment and exchange rate (US, Europe, China)
a. Impact on Trade Balance
According to a World Trade Organization (WTO) information note, travel restrictions and border closures placed by nations as part of the initial policy response to curb the spread of the coronavirus have had a direct impact on trade in goods and services. According to the study, these restrictions and closures have hampered, business travel, freight transportation and the provision of services that depend on the presence of individuals abroad. It went on to say that travel restriction would almost certainly result in a significant rise in trade costs for as long as they are in effect (Press Trust of India, 2020).
The effect of the pandemic on key components of trade costs, especially those related to trade policy, travel and transportation, and uncertainty, has been explored in this note, and areas where higher costs remain even after the pandemic has been contained, have been established.
The initial policy response to the Covid-19 pandemic included travel restrictions and border closures, and these interventions had a direct effect on trade in goods and services.
While no related changes have been recorded in sea and land transportation, the amount of sailing has declined, whereas international land transportation has been affected by detours, borders and sanitation.
b. Impact on Employment
The global unemployment at the start of the year was around 190 million, according to Guy Ryder, Director-General of the International Labour Organisation, before the pandemic spread across this country.
Among the jobs suffering the most ‘dramatic’ consequences of the epidemic and falling demand are food and housing workers who are 144 million, retail and wholesale workers who are 482 million, corporate services and administration workers numbering 157 million, and manufacturers numbering 463 million (United Nations, 2020).
They make up 37.5% of the world’s occupations and the most recent “sharp end” of the pandemic has been felt.
c. Impact on Exchange Rates
The value of Chinese currency (renminbi or yuan) rose about 6 per cent by the end of September 2020. It has risen from 7.16 yuan equaling one US dollar by the end of May to 6.75 yuan equaling one US dollar.
The euro was low towards the US dollar when the pandemic began. Europe, particularly Italy, had been hit hard by Covid-19, before the virus scattered to the United States. Then, from 20 March to the end of August 2020, the euro rose more than 10% against the U.S. dollar (Putnam, 2020). However, the euro surge did not interrupt a political notice or a fresh publication of economic results. The growing signs of the second wave of the virus in Spain, France and elsewhere prevented the euro’s growth and was projected to have a negative impact on the recovery of the economy.
ii. Graphical Representation of the Condition of Trade and Commerce during Covid-19
Fig.1: Changes in the Value of Euro due to the COVID-19 Pandemic
(source: Putnam, 2020)
Fig.2: Change in GDP Growth after the COVID-19 Outbreak
(Source: OECD Interim Economic Assessment, 2020)
Fig.3: Impact of COVID-19 on GDP
(source: OECD Interim Economic Assessment, 2020)
The first part of this report delves into the details of the three theoretical traditions of Marxism, Liberalism and Constructivism to explore the subject of political economy from multiple perspectives, in order to get a holistic view. It is apparent from the discussion in the second part that the global economy is directly associated with international trade. Therefore, the multiple issues that the coronavirus pandemic has brought into the area of international trade can be regarded as the most important factor behind the fall of the global economy that followed it. The preventive measures of border closure have caused many difficulties in terms of international business. This has further caused great distress in the careers of millions of employees all over the world. The exchange rates have also been impacted to a great degree, as mentioned in the discussion above. Finally, the three figures containing the graphical representations offer much information about the overall impact of the pandemic on the global economy.
Although a lot of research has already been done to find effective solutions to the economic breakdown caused by the coronavirus pandemic, none has been able to come up with anything that can be considered foolproof. One reason behind this is, the changing pattern of the disease and its transmission. Nations across the world are struggling to devise methods for mitigating the issue. Nevertheless, every nation should focus completely on its healthcare department right now and the citizens should cooperate with the governmental orders. Responsible human action is the only way of dealing with the viral impact. When peoples’ health is ensured, more direct ways of boosting the global economy can be crafted and implemented. This investment in health would certainly pay off financially in a big way, right after the pandemic is taken care of.
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