The political economy of countries can be considered interdependent, as they influence each other and experience change simultaneously. This interdependency affects the level of economic wellbeing of countries, including the economic conditions and stability of a country. The political economy of a country encompasses the political, legal and economic systems influencing the country’s economy. Jevons (1880) described political economy as the wealth of a country and the reasons contributing to differences in wealth between countries (p. 7). The political system of a country heavily influences the way in which a country operates, and often affects other countries that it actively deals with. Differing legal systems, laws and regulations of countries can also impact other countries. Similarly, the economic systems and changes in a country’s economic position can impact other countries, and at times, their economic wellbeing. Whilst the political, legal and economic systems of some countries are interdependent, disruptions to interdependency must also be considered when assessing those countries’ reliance on each other. Several factors can hinder their interdependency, including comparative advantage not being followed, a strong focus on regionalism and inefficient free trade agreements.
Political decisions imposed by Governments can affect the political economy and often the wellbeing of countries. Government decisions, including laws and policies, affect society as a whole (Hill, Cronk, & Wickramasekera, 2011, p. 236). There are two main forms of political systems: democracy and totalitarianism. Democracy is a system where the citizens govern the country through their elected representatives (Hill et al., 2011, p. 245). Examples of democratic countries in the Asia Pacific business region include Australia and Thailand (Department of Foreign Affairs and Trade, 2008) (U.S Department of State, n.d.). Totalitarianism refers to a system where one person or political party has control over all citizens, restricting political freedom (Hill et al., 2011, p. 245). Totalitarianism is seen in China and North Korea (Jianming, 2010, p. 2) (Lim, 2009, p. 110-114). These differing political systems can affect economic relations between countries. An example of this is the view that democratic countries are more willing to trade and participate in international business with other democracies, than with totalitarianism countries. Democracies share similar values and laws on intellectual property rights. It is also believed that peace is more prevalent in democracies, enabling a higher ease of trade (Rosendorff, P. 2000). We see this in Australia’s preference for trade with the US rather than with China. In September 2010, the Department of Foreign Affairs and Trade reported that Australia had an ‘economic relationship’ (measured on trade in commodities, services and two-way investment) with the US worth over AUD$860 billion, compared to less than AUD$100 billion with China. The strength of the economic relationship between Australia and the US is believed to relate to each countries’ strong democratic values and from the US and Australia being strong allies, due to similar political practices (Sheridan, 2011). The varying political decisions and policies made by Governments can also impact other countries. With globalisation being so prominent today, the interdependency of a country’s political decisions is apparent. Globalisation dramatically increased after World War II, with many of the worlds’ major trading countries lowering trade barriers, including tariffs and quotas, after years of favoring local industries (Griffin & Pustay, 2010, p. 38). According to Friedman (2000) globalisation is defined as ‘the inexorable integration of markets, nation-states, and technologies…in a way that enables individuals, corporations and nation-states to reach around the world farther, faster, deeper, and cheaper than ever before’ (p. 9)....
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