National Differences in Political Economy for International Trade

Political economy is an interdisciplinary branch of the social sciences that focuses on the interrelationships among individuals, governments, and public policy.

International business operations and activities are faced with various difficulties due to political, cultural, and legal differentials amid different countries. Different nations advance their economy at dissimilar rates and thus yield varying economic growth as well as development. Political systems and legal structures in a given country determine how successful and healthy the economy ranks.

Political System

Political system is the system of government in a nation. Political systems can be assessed according to two dimensions. The first is the degree to which they emphasize collectivism as opposed to individualism and the second is the degree to which they are democratic or totalitarian.

Collectivism and Individualism: The freedom of enterprise and decision making advocated by individualized economy is essential to valuable economic performance. Citizens oversee a democratic political stance, either directly or through elective seats. Collective systems of governance put more emphasis on collective goals rather than personal goals while individualized systems emphasize personal goals. Socialism tries to encourage business people to enhance democratic rights in order to create an active market, both locally and internationally.

Democracy and Totalitarianism|: Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives. Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties.

Economic Systems

Political ideology and economic systems are connected. An economic system is a means by which societies or governments organize and distribute available resources, services, and goods across a geographic region or country.

Economic systems can be categorized into three main types: Market Economy, Command Economy and Mixed Economy.

Market Economy: Market economic systems are based on the concept of free markets. In other words, there is very little government interference. The government exercises little control over resources, and it does not interfere with important segments of the economy. Instead, regulation comes from the people and the relationship between supply and demand.

Command Economy: In a command system, there is a dominant, centralized authority, usually the government – that controls a significant portion of the economic structure. Also known as a planned system, the command economic system is common in communist societies since production decisions are the preserve of the government.

Mixed Economy: Mixed systems combine the characteristics of the market and command economic systems. For this reason, mixed systems are also known as dual systems. Sometimes the term is used to describe a market system under strict regulatory control. Mixed systems are the norm globally.

Legal System

The legal system of a country refers to the rules, or laws that regulate behavior along with the processes by which the laws are enforced and through which redress for grievance is obtained. The legal system is influenced by the prevailing political system, although it is also strongly influenced by historical tradition.

Common Law: Common law is a body of unwritten laws based on legal precedents established by the courts. Common law influences the decision-making process in unusual cases where the outcome cannot be determined based on existing statutes or written rules of law.

Civil Law: A civil law system is based on a detail set of laws organized into codes. When law courts interpret civil law, they do so with regard to these codes.

Theocratic Law: A theocratic law system is one in which the law is based on religious teachings. Islamic law is the most widely practiced theocratic legal system in the modern world.

Property Rights and Corruption

Property rights define the theoretical and legal ownership of resources and how they can be used. The role of the political system includes ensuring that individual property rights are safeguarded. This prevents theft and misuse and hence guarantees maximum utilization for personal and national benefit. Corruption jeopardizes economic activities and thus hinders growth and development in countries highly affected. Therefore, fighting corruption is essential in ensuring valuable and efficient national growth and international business’ competitive base.

Economic development is affected by political, legal, as well as economic systems. Different countries perform at varying economic levels when gross national income is measured comparative to each other. Hence, a country’s level of economic development is affected by political and legal decisions. Economic growth and development are motivated by innovations and entrepreneurial actions that promote trade. Therefore, useful policies and economic environments guarantee success in local and international businesses.