Political and Legal Systems Flashcards
What is country risk?
potential loss or other effects due to country’s political, legal, and/or economic environments
Similarities between political and legal systems
Always present
Always dynamic and subject to change
Political system = set of formal institutions that constitute a government; legislative bodies, political parties, lobbying groups and trade unions
Legal system = interprets and enforce laws; incorporates institutions and procedures
Differences between political and legal systems
Types of country risks produced by political systems
macro-political [civil unrest]
micro-political
Types of country risk produced by legal systems
risks associated with the legal system; contractual and property rights
Risk mitigation
research target market
build political support
leverage international trade and investment agreements
have a strong business proposition
Types of Political Systems
(1) Totalitarianism
(2) Theocratic or secular
(3) Socialism
(4) Democracy
Ideologies
(1) Conservatism = aim for stable and orderly society
(2) Liberalism = aim for liberty and quality of opportunity
(3) Socialism = equality of outcomes, collectivism, social justice
Collectivism
focus on collective goals over individual ones
Individualism
individuals should have freedom in economic or political decisions
Basic tenets:
guarantee individual freedom
society gains by allowing people to pursue their own economic self-interest
Economic Systems
(1) Planned/Command Economy
(2) Free/Free Market Economy
(3) Mixed Economy
Why the middle class feels squeezed
(1) stagnant income
(2) policy changes and decisions
Legal Systems
(1) Civil law = statutes & comprehensive codes
(2) Common law = reliance on judges to resolve disputes and precedents from earlier judicial decisions
(3) Religious law
(4) Hybrid
Free trade vs. protectionism
free trade = goods and services can flow across national borders with impunity
protectionism = government restrict free trade through laws and policies
Mechanisms
(1) Tariffs = imposed on goods importaed into a country [specific tariff (fixed) or ad valorem (based on value)]
(2) Subsidies =
(3) Import quotas = restricts amount of imports; aimed to protect local industries; [tariff rate (lower tariff within quota) & voluntary export restraint (exporting country agrees to quota)]
(4) Administrative policies = more difficult for imports to enter
(5) Anti-dumping policies = dumping - selling goods in a foreign market below cost of production or hair market value; offload excess goods; predatory behavior
others:
exchange rate manipulation
employment-based immigration restrictions
‘buy local’ campaigns
