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An international political economy (IPE) is a subdiscipline in the field of political science that examines international issues and problems. This discipline began in the 1970s in response to the 1973 world oil crisis. Higher education institutions began offering courses focused on historical bases of sociology, economics, and political science. The eventual breakdown of the Bretton Woods system, a method of global monetary management, convinced many academics to teach and study the economic foundations of the world’s political structure. International political economy is considered by many scholars to be one approach that focuses on the study and understanding of international and global problems through economic and political analysis.
The various aspects of the international political economy school of thought evolved from the rise of the Organization of Petroleum Exporting Countries (OPEC) and the Arab oil embargo in 1973 and 1974. Since economic tools played an integral role in the foreign policy decisions made by participating countries, the oil embargo reinforced the idea that political economies existed within the greater body of global politics. Additionally, many political scholars began to recognize that there was an important connection between domestic politics and economics, as well as international politics and economics. These international economic issues created the need for a global financial system.
Each of the main Bretton Woods institutions, including the World Bank, the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT), sought counsel from the United States for leadership in forming an international political economic system. On August 15, 1971, US President Richard Nixon ended the gold link to the American dollar that had previously supported the Bretton Woods monetary system. President Nixon’s action led to the collapse of the fixed exchange rate system used previously to define the global monetary system.
Following this global economic and political shift, scholars sought out new ways to understand the decline of political and economic hegemony and the the relationship between the United States and the rest of the world. The new international political economy offered a complex analytical approach to the study of the events that bridged political and economic issues. The international political economy that emerged was viewed as an unusual new approach to the more traditional focus on international studies in law, politics, and diplomatic history.