The Study of International Economic Relations

International Economic Relations

International economic relations refer to the complex network of economic transactions and interactions that take place between countries around the world.

These relations can encompass a wide range of activities, including trade, investment, finance, and technology transfer. In today’s globalized world, international economic relations play a critical role in shaping the economic fortunes of nations, and understanding their dynamics is essential for anyone interested in the field of economics.

This post will explore the key concepts and principles that underpin international economic relations and highlight some of the key issues and challenges facing countries as they seek to navigate this complex landscape.

International Economic Relations
Image Source:

The realm of economic policy, contrary to popular belief, is in fact intricately intertwined with politics. It is the political forces that dictate the production targets, investment priorities across different economic sectors, the course of import-export activities, the strategic trade policy, regulations governing the entry and operations of multinational corporations (MNCs), as well as the degree of regional integration and financial ties within the global economic system.

Read Also: Why the Acronym International?

A thorough comprehension of the historical, current, and future developments of national and international production systems, market integration, and market offerings necessitates an examination of the political landscape. The reciprocal relationship between politics and economics means that changes in one domain inevitably impact the other.

Economics, in essence, determines not only a country’s production system and the means to sustain it but also its overall prosperity.

Therefore, economics functions as the foundation of production and serves as a means to achieve political objectives, including external military engagements.

The nature of a nation’s economy plays a critical role in its foreign policy analysis, as it determines the extent to which a country can project its power from a position of strength or weakness.

Economics serves as a tool for extending or receiving economic assistance, foreign aid, external debt and debt relief, economic sanctions, or economic warfare. Moreover, a country’s technological advantage or disadvantage is shaped by the interplay of politics and economics.

International economic relations involves measuring the interplay between politics and economics in determining national and international production systems, particularly with respect to the flow of international trade, capital, foreign direct investment, science and technology, strategic trade policies, economic integration, and market dynamics.

The study of international economic relations is not lawless and therefore includes protectionist policies that seek to strike a balance between protecting domestic economies through tariffs and the free trade philosophy that promotes competition with minimal protectionist barriers. The central thrust of international economic relations encompasses the following aspects;

Trade (International Economic Relations)

International Economic Relations
Image Source:

Understanding the export-import behaviors of nations across borders is a key focus in the study of international trade. This involves analyzing the functions of industrial organizations within and between nation-states, which may account for differences in strategic trade policies across national frontiers.

International trade also encompasses the overseas expansion of multinational corporations (MNCs) and firms in various sectors such as automobiles, telecommunications, consumer goods, and armaments. The complex interdependence of the current world market economy makes international trade more significant, particularly in terms of how trade policies impact the operations of the world political system, the function of the global economy, global business and diplomacy, and the central question of security, power, and collective welfare.

A nation’s external trade does not necessarily reflect its specialization, but rather its territorial specialization. For advanced industrial economies, MNCs facilitate international trade both cross-country and cross-continental. As Marc Humbert notes, the boundaries between national economies are becoming increasingly obscure due to the growing integration of their territorial apparatuses of production.

Foreign Direct Investment (FDI)

The impact of foreign direct investment (FDI) is increasingly felt by both governments and the private sector across national borders. This trend is accompanied by strategic trade policies, as both national governments and their firms are similarly concerned about policies designed to protect investments within and between countries. FDI promotes the international flow of capital and financial ties among and between countries.

The leading facilitators of FDI are the United States, Japan, and the European Union (EU).

Science and Technology

The modern production system heavily relies on technology, which permeates every aspect of the production process. As such, the strength or weakness of national economies is largely determined by their technological capabilities.

The overall strength of the present world economic system is technology-path dependent. Scholars have recognized a high-tech race to enhance both national and international competitiveness in production and exchange relations.

In recent times, there has been an increased focus on research and development (R&D) by both states and firms. This has arisen from various forces, including:

i) time compression and
¡i) the shortening of the life cycle of technologies

Global competition in industrial development goes beyond mere rivalry, as both states and firms strive to dominate the market, gain more market power, or become an integral part of the market system.

With the increasing application of technology in production, oligopolistic competition is gradually giving way to international cooperation, linkages, and alliances between big firms across the globe. This complex process is a clear definition of modern international economic and business relations.

Countries and firms alike employ science and technology to achieve economies of scale and establish up-to-date production facilities in order to keep up with the pressures of both regionalization and globalization. A firm’s ability to seek out and establish corporate platforms globally has a profound impact on today’s world trade.

Free Trade Philosophy

The philosophy of free trade is a key tenet of capitalism that underpins the linkages between national and international economies. Its central argument is for minimal restrictions on trade, capital flow, and labor movement in order to increase competitiveness across national frontiers.

However, the benefits of free trade are mostly reaped by leading capitalist countries, leaving socialist-market economies and less developed countries (LDCs) at a disadvantage. As a result, economic nationalism or neomercantilist policies have emerged as a check on the free trade philosophy. These policies seek to provide greater protection for local economies and industries against adverse foreign competition.

International organizations such as the General Agreement on Tariffs and Trade (GATT), the United Nations Conference on Trade and Development (UNCTAD), and the World Trade Organization (WTO) have implemented varying protectionist measures in response to these concerns.

Strategic Trade Policy

Strategic trade policy refers to the approach adopted by leading developed countries and their firms to employ minimum restrictive policies that facilitate intra and inter-firm competition within and across states.

In the field of strategic studies, policies need to be well-defined and have specific targets. Issues must be clear and resolved based on the following principles:

  • the inflow and outflow of FDI
  • appropriate high-tech to cope with the demands of international production and exchange relations regime
    level of efficiency of national firms and local affiliates
  • national and international protectionist policies.
  • States and firms need very clearly defined industrial policies!.

The global economic landscape is shaped by policies that have the potential to reflect the current architecture of the world economy. In order to achieve this, there is a need for comprehensive rules and regulations in a variety of non-border policy areas. However, this policy option may not necessarily be advantageous to the vast majority of developing and underdeveloped countries.

Despite this, the dynamics and realities of the global economic system continue to move forward, regardless of any national economy. The process appears to be self-propelling and self-determining, and the lines of gains and losses are highly predictable. Strong and weak economies are aware of their possible gains or losses in international division of labor and exchange relations.

Fundamentally, strategic trade policies are domestic-centered policy measures designed to establish links between evolving ideas, values, and domestic industrial establishments, as influenced by the current structure of the world economic and political system.

Clarification of the Acronym International Economic Relations

In order to gain a better understanding of international economic relations, it is important to dispel some common misconceptions about the subject. Firstly, it is not merely an economic process, but a political one as well. Secondly, the actor composition is more complex than simply being a game between nations.

It is incorrect to assume that international economic relations is solely a game played by nations, as the term “international” may suggest. In reality, the actor composition is made up of both nation states and non-state economic actors. While nation-state economic actors are the dominant policy-oriented actors, there are also non-state actors who play an important role in shaping economic relations between nations.

These non-state actors include multinational corporations, non-governmental organizations, and international financial institutions, among others. They operate across national borders and have the power to shape economic policies and practices at the international level.

It is important to recognize the diversity of actors involved in international economic relations, and the complex ways in which they interact with each other. Only then can we gain a more comprehensive understanding of the forces shaping the global economy.


1. Spero, Joan E., The Politics of International Economic Relations, London, George Allen & Unwin, 1980, chapter one (pp.] -12).

2. Gilpin. Robert, The Political Economy of International Relations, New Jersey, Princenton University Press, 1987.

3. Aja Akpuru Aja, Fundamentals of Political Economy and International Economic Relations, Owerri, Data Blobe Nigeria, 1998, pp. 183 – 188

Be the first to comment

Leave a Reply

Your email address will not be published.