Question

One strand of the hegemonic stability theory predicts that hegemons will promote an open international economic system because it is a global public good. Does this prediction hold if capital flows are no longer completely non-rival?

Answer 1

The flow of capital in the international market is always considered to be friendly or non-rival. This is because the international market consists of all nation’s transactions of financial or non-financial assets. All such transactions are homogeneously in the run in the international ecosystem. All the countries feed out of the movement of capital because in most of the countries the exchange system works in a conjugated manner where they deal in the currency of the foreign nationals. Therefore, the movement of capital between the countries in the international market is seamless and non-rival. However, if the flow of capital is rival, in a hegemonic economic system, where the actual financial power of all the economies in the international market lies in the hands of few economic powers, in such a situation, the prediction that hegemons will promote an open international economic system it is a global public good, will not hold true. This is because, in a rival financial capital flow system, the economies will not want to interact in the currencies of the rival economies because it will pull down the exchange rate of their country. Therefore, the promotion of the open international ecosystem will happen only when the flow of capital is non-rivalrous.