Page 121 - Global Political Economy_Understanding The International Economic Order

CHA PTER F IVE
become increasingly dependent upon a nation’s technological capabil-
ities. The increased importance oftechnological innovation in turn
has given every government a strong interest in the technological
strength ofits economy and has stimulated “technonationalism”—ef-
forts by governments to prevent diffusion of their most important
technologies. Competition among national economies for technologi-
cal superiority has become a major feature of the international politi-
cal economy.

History and Geography
The economic universe portrayed by the new theories is very different
from that encountered in formal economic theories where the “econ-
omy” ofneoclassical economists occupies neither time nor space and
the equations that define the neoclassical economy and determine
market equilibrium are solved simultaneously in a timeless void.
What we noneconomists recognize as the economy—that is, a geo-
graphic space with a name like the American economy or the British
economy—finds no place in formal economic theory. Neoclassical
economists assume that the national economy is nothing more than a
dimensionless point in space and the international economy is only a
set ofinterconnected points. 6

The New Theories

The newer theories assume that history and geography are crucial to
the definition ofthe nature and functioning ofthe economy, that the
economic past largely determines the economic present, and that eco-
nomic activities have a distinct spatial and hierarchical structure.
They do not share the neoclassical assumption ofan economic uni-
verse populated by powerless actors dispersed evenly throughout a
timeless and dimensionless economic space.

Theory of Endogenous Growth
Possessing important implications for understanding the dynamics of
the international political economy, the controversial “new growth
theory” (or “theory ofendogenous growth”) was first set forth by
7
Paul Romer (1986) and Robert Lucas (1988). This theory leads to
6
Ibid., 2.
7
Paul M. Romer, “Increasing Returns and Long-Run Growth,” Journal of Political
Economy 94, no. 5 (October 1986): 1002–37; Robert E. Lucas Jr., “On the Mechanics
ofEconomic Development,” Journal of Monetary Economics 22, no. 1 (July 1988):
3–42.
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