National Differences in

Political Economy
Chapter 2

Political Economy
How the political, economic, and legal
systems of a country are
interdependent
they interact and influence each other
they affect the level of economic well-being in
the nation

CrossCultural
Risk

Commercial
Risk

Risks in
International
Business

Currency
(Financial)
Risk

Country
(Political)
Risk

Political
System

Legal
System

Country (Political) Risk

1. Unstable political
system
2. Laws unfavorable to
foreign firms
3. Bureaucracy
4. Corruption
5. Government
protectionism

Political System
Political system refers to the system
of government in a nation
Totalitarianism government seeks
control of economic & political matters,
and beliefs of citizens.
Examples Previously China, Soviet
Union. Presently Cuba, North Korea, Libya,
Sudan, Zimbabwe etc.
Mainly related to command economy

Political System
Socialism government control basic
means of production, distribution and
commercial activities to ensure
collective welfare of people.
Examples China, Egypt, India, Russia,
Venezuela etc.
Mainly related to mixed economy

Political System
Democracy Government limited
intervention and individual property
rights.
Examples Australia, New Zealand,
Japan, Canada, United States, most EU
countries.
Related to market economy

Legal System
The legal system of a country refers to the rules
that regulate behavior along with the processes
by which the laws are enforced and through
which redress for grievances is obtained
Common Law
Civil Law
Religious Law

Common
Law

Based on traditions, previous cases and

precedents - interpretive
Australia, Canada, Ireland, UK, U.S,
New Zealand.

Civil Law

Detailed set of laws organized into codes

commercial, civil, criminal - applied
Japan, Russia, S. Korea, most Latin
American countries.

Religious
Law

Based on religious beliefs as mandated

by supreme being
Islam, Jewish, Hindu laws

Country Risks

Political Risks
Government Takeover
expropriation, confiscation,
domestication
Embargo/Sanctions
Boycotts against firms/nations
War/violence
Terrorism

Country Risks

Legal Risks
Foreign Investment Laws
Marketing and Distribution Laws
Environmental Laws
Intellectual Property Law
Product Safety

Managing Country Risks

Proactive Environmental Scanning
Strict Ethical Standards
Alliance with Qualified Local
Partners
Protection through Legal Contracts
Risk Insurance

Malaysia Country Risk

Report (AMB Country Risk Report , 2014)
Political
Risk

Moderate Risk
Increased foreign participation, increased transparency, less
government involvement, subsidies and price controls.

Moderate Risk
Dependent on exports vulnerable to economic uncertainties
Economic Outlook remains strong sought to boost domestic demand

Risk

Financial
Risk

Low Risk
Conservative and proactive supervision and prudent lending
practices by banking sector
Progress continues on liberalizing capital markets.