Effect of Politics on Economy

Topics: Kenya, Investment, Economic system Pages: 4 (2434 words) Published: November 3, 2014

Effect of Politics on Economy
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QI. Effect of Politics on Economy
The relationships between political system and economic systems have been a subject of discussion over the last years. As the opponents argue that these two entities are independent, the proponents say that they are strongly interconnected. Due to globalization, governments and societies throughout the globe are increasingly interconnected. The encouragement of liberal trade has furthered the relationship between economics and politics. The countries are fighting for strong economies to operate successfully. The international political economy explicitly studies the link between economics and politics and their interactions. The study finds that economic issues have been interrelated with political issues such as wars. There is also several evidence that trades between different states have increased the interdependence of the countries thus minimizes the incentive for war. For example, before 1700 century, similar dynamics of Smithian growth worked through different political and economic institutions in China and Europe. The key reasons for economic divergence were political and these increased the likelihood that modern economic development would take place in Europe before China. Therefore, following the above evidence, there is a strong relationship between politics and economics since the performance of one economy is the major political battlegrounds. This paper presents a critical analysis, citing from relevant examples how changes of new political regime influence the economy. A new political power might stabilize or destabilize the country which in turn affects the choice of investors. The investors are important pillars of the development of a country. In most cases, investors prefer stable states to politically chaotic states. Other than investors, industry such tourism will be affected due to sanctions A 2014 study carried by Fouskas reveals that the most...

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