Page 148 - Global Political Economy_Understanding The International Economic Order

SIG NIFIC ANCE O F NEW T HEORI ES
Regulations governing the market can significantly affect both the
strategies available to market participants and also which Nash equi-
librium will be chosen. Therefore, the rules or regimes can be or are
important determinants of the outcome of economic activities. 15 Al-
though liberals would argue that the rules and regimes can result
from cooperative processes, more powerful actors frequently impose
rules or regimes on other players in the market. Since the rules and
institutions governing economic activities may reflect the interests of
the powerful actors, market outcomes are profoundly affected by po-
litical, institutional, and other noneconomic factors; this is a subject
central to the study of international political economy.

Technological Innovation

All the new theories of growth, economic location, and strategic trade
accord an increasingly important role to technological change in de-
termining the nature and dynamics of the world economy. Even
though technological progress has always been acknowledged as an
important factor in economic affairs, technology’s scale, ubiquitous
character, and rapid rate of advance are now reshaping every aspect
of social, economic, and political affairs. As the twenty-first century
begins, technological advances in computers and telecommunications
are forcing nations to make major adjustments in their policies and
economic structures. As we have already observed, technology has
created a fluid world of scale economies and imperfect competition
in which trade patterns, the location of economic activities, and
growth rates are more arbitrary and dependent than in the past on
the strategies of private firms and the policies of national govern-
ments. The increased importance of technological innovation in eco-
nomic affairs has resulted in the following changes.

Technological Developments and International Competitiveness
Electronics-based design, manufacturing, and distribution have greatly
reduced the time lapse between the innovation of a new product and
its production and marketing, and this has facilitated rapid, flexible
16
response to changes in demand. Consequently, product diversifica-
tion has increased and such activities as design, distribution, and ser-
vice have gained importance as factors in competition. Moreover, the

15
Kreps, Game Theory and Economic Modeling, 182.
16
This discussion is based largely on Carl Dahlman, “The Third Industrial Revolu-
tion: Trends and Implications for Developing Countries” (April 1992), unpublished.
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