International Political Economy
Global financial recession comes with a wide range of consequences, which affect policy makers worldwide including scholars of international political economy due to cross-national and sequential variations in how national governments control their financial sectors, for example, state ownership of banks in OECD countries like Greece, Italy, and Portugal, as well as in developing nations. The current economic crisis in these nations is influenced by the relationship between financial regulators and the regulated firms where regulators vary across nations, as well as regulators differing in their ties to the government bureaucrats and chosen leaders. Regulators in some nations are sovereign from political interference, as well as the entities they regulate while others are vulnerable to devotee pressures.
Capital requirements, financial clarity, main company holdings, and supervision, as well as portfolio limitations, are some of the factors influencing international political economy crisis across nations in the context regulations. Diversity of national regulatory structures, cosmopolitan firms and dogmatic arbitrage are also significant factors as the system is prone to financial relapse within any respective country. IPE scholars have done few studies and the existing ones focus on the individual nations at the expense of cross-national approach. Booms and busts have been influenced by laxity in the banking system supervision than conservative banking restrictions. Countries like Canada employ principle based approach during regulation of the banking system, which is less stringent. Empirical analysis has not captured formal procedure in place for banking, as well as their application, that is, independence of the central bank was domestic in nature. In this regard, nations that grant independence to their central banks result in lower borrowing costs on international markets and this has an impact on booms and busts.
Global cooperation started when the crisis prompted greater inclusion of emerging market countries in global financial governance and it involved the G7and G20. G7 formed the consultation opportunity for macroeconomic strategy in addition to promoting attempts at monetary principles and systems in the early 90’s while G20 formed the point of international cooperation. During their 2008/2009 meeting, member states agreed to pursue regulatory and financial reforms in capital availability, liquidity management, and expansion of financial institutions as well as international cooperation on fiscal and monetary policy by agreeing to triple their allocation to the international monetary fund. The nations agreed to dismantle the rich country financial stability and develop a more profound financial stability board, which empowers them by increasing their reputation in the emerging markets globally.
Politics affected the post crisis adjustment as some nations like china were excluded from the bargaining table despite its high economy and had pushed its mandate in supplanting the dollar with another global alternative currency. Imposed quota led to appreciable changes in the International Monetary Fund behavior by preferring to cooperate with the G7 nations as opposed to the G20 nations due to post colonial ties, security, and cross border financial cooperation. Public pressure for inclusion of G7 provided the locus for further discussions for regulation and control but due to their size, diversity, and different political atmospheres, as well different standards of development makes agreements tricky. Defunct system by the earlier G20 nations has altered the distributional nature of negotiated outcomes while, politically speaking, this is perfectly acceptable in some G7 nations like U.S due to their ambivalence towards their worldwide regulatory efforts. The current crisis may be mitigated by inclusion of private arms in financial policy making in order to improve transparency and to standardize the accounting rules to back up the public sector coupled with proper self-regulation.