NATIONAL DIFFERENCES IN

POLITICAL,
LEGAL
AND
CULTURE AND INTERNATIONAL
TRADE THEORY

SOUMENDRA ROY

NATIONAL
ECONOMY

DIFFERENCES

IN

POLITICAL

POLITICAL SYSTEMS
A political system is the system
of government in a nation
Political systems can be assessed
according to:
the degree to which they
emphasize collectivism as opposed
to individualism
the degree to which they are

NATIONAL DIFFERENCES IN POLITICAL ECONOMY

ECONOMIC SYSTEMS
A free market system is likely in
countries where individual goals
are given primacy over collective
goals
State-owned enterprises and
restricted markets are common in
countries where collective goals
are dominant

NATIONAL DIFFERENCES IN POLITICAL ECONOMY

LEGAL SYSTEMS
The legal system of a country is
the rules, or laws, that regulate
behavior, along with the processes
by which the laws of a country are
enforced
and
through
which
redress for grievances is obtained.

NATIONAL
DIFFERENCES
POLITICAL ECONOMY

IN

Different Legal Systems

Differences in Contract Law
Property Rights and Corruption
The Protection of Intellectual
Property
Product Safety and Product Liability

NATIONAL
DIFFERENCES
POLITICAL ECONOMY

IN

THE
DETERMINANTS
OF
ECONOMIC DEVELOPMENT
Differing political, economic, and legal
systems can have a profound impact
on the level of a country's economic
development, and hence on the
attractiveness of a country as a
possible market and/or production
location for a firm.

NATIONAL
DIFFERENCES
POLITICAL ECONOMY

IN

STATES IN TRANSITION
Since the late 1980s, a wave of
democratic revolutions has swept the
world, and many of the previous
totalitarian regimes collapsed
There has been a move away from
centrally
planned
and
mixed
economies towards free markets

NATIONAL
DIFFERENCES
POLITICAL ECONOMY

IN

STATES IN TRANSITION
The Spread of Democracy
The New World Order and Global Terrorism
The Spread of Market-Based Systems
The Nature of Economic Transformation
Deregulation
Privatization
Legal Systems
Implications of Changing Political Economy

NATIONAL
DIFFERENCES
POLITICAL ECONOMY

IN

IMPLICATIONS FOR MANAGERS

Political, economic, and legal
systems of a country raise important
ethical issues that have implications
for the practice of international
business
The political, economic, and legal
environment of a country clearly
influences the attractiveness of that

DIFFERENCES IN CULTURE
INTRODUCTION
Operating a successful international
business
requires
cross-cultural
literacy (an understanding of how
cultural differences across and within
nations can affect the way in which
business is practiced).
A relationship may exist between
culture and the costs of doing
business in a country or region.

DIFFERENCES IN CULTURE
WHAT IS CULTURE?
The fundamental building blocks of
culture are values (abstract ideas
about what a group believes to be
good, right, and desirable) and norms
(the social rules and guidelines that
prescribe appropriate behavior in
particular situations).
Society refers to a group of people
who share a common set of values

DIFFERENCES IN CULTURE
SOCIAL STRUCTURE
A society's social structure is its
basic social organization.
Two dimensions to consider:
the degree to which the basic unit of
social organization is the individual,
as opposed to the group
the degree to which a society is
stratified into classes or castes

DIFFERENCES IN CULTURE
RELIGIOUS AND ETHICAL SYSTEMS
Religion can be defined as a system
of shared beliefs and rituals that are
concerned with the realm of the
sacred.
Ethical systems refer to a set of
moral principles, or values, that are
used to guide and shape behavior.

DIFFERENCES IN CULTURE
EDUCATION
Formal education is the medium
through which individuals learn many of
the
language,
conceptual,
and
mathematical
skills
that
are
indispensable in a modern society
The knowledge base, training, and
educational opportunities available to a
country's citizens can also give it a
competitive advantage in the market
and make it a more or less attractive

DIFFERENCES IN CULTURE
Hofstedes four dimensions of
culture:
Power Distance
Individualism Versus Collectivism
Uncertainty Avoidance
Masculinity Versus Femininity

DIFFERENCES IN
CULTURAL CULTURE
CHANGE

Culture
evolves
over
time,
although
changes
in
value
systems can be slow and painful
for a society. Social turmoil is an
inevitable outcome of cultural
change.
As
countries
become
economically stronger, cultural

INTERNATIONAL TRADE
AN OVERVIEW
OF TRADE THEORY
THEORY
Free trade refers to a situation where
a government does not attempt to
influence through quotas or duties
what its citizens can buy from another
country or what they can produce and
sell to another country.

INTERNATIONAL TRADE THEORY

MERCANTILISM
Mercantilism, which emerged in
England in the mid-16th century,
asserted that it is in a countrys
best interest to maintain a trade
surplus-- to export more than it
imports.

INTERNATIONAL TRADE THEORY

ABSOLUTE ADVANTAGE
In 1776, Adam Smith attacked the
mercantilist assumption that trade is a
zero-sum game and argued that
countries differ in their ability to
produce goods efficiently, and that a
country has an absolute advantage
in the production of a product when it
is more efficient than any other
country in producing it.

INTERNATIONAL TRADE THEORY

COMPARATIVE ADVANTAGE
In 1817, David Ricardo argued that it
makes sense for a country to
specialize in the production of those
goods that it produces most efficiently
and to buy the goods that it produces
less efficiently from other countries,
even if this means buying goods from
other countries that it could produce
more efficiently itself.

INTERNATIONAL TRADE THEORY

HECKSCHER-OHLIN THEORY
Hecksher and Ohlin argued that
that countries will export goods
that make intensive use of those
factors that are locally abundant,
while importing goods that make
intensive use of factors that are
locally scarce.

INTERNATIONAL TRADE THEORY

THE PRODUCT LIFE CYCLE
THEORY
In
the
mid-1960s,
Raymond
Vernon proposed the product
life-cycle theory that suggested
that as products mature both the
location of sales and the optimal
production location will change
affecting the flow and direction of

INTERNATIONAL TRADE THEORY

NEW TRADE THEORY
New trade theory suggests that
because of economies of scale
(unit cost reductions associated
with a large scale of output) and
increasing returns to specialization,
in some industries there are likely to
be only a few profitable firms

INTERNATIONAL TRADE THEORY

NATIONAL
COMPETITIVE
ADVANTAGE:
PORTERS
DIAMOND
Porters 1990 study tried to
explain why a nation achieves
international
success
in
a
particular industry and identified
attributes that promote or impede
the
creation
of
competitive

INTERNATIONAL TRADE THEORY

Factor Endowments
Demand Conditions
Related and Supporting
Industries
Firm Strategy, Structure, Rivalry

INTERNATIONAL TRADE
FOCUS ON MANAGERIAL
THEORY
IMPLICATIONS
There are at least three main implications
for international businesses:
Location
First-Mover Advantages
Government Policy

THE POLITICAL ECONOMY

OF INTERNATIONAL TRADE
INTRODUCTION
Free trade refers to a situation where
a government does not attempt to
restrict what its citizens can buy from
another country or what they can sell
to another country.
While many nations are nominally
committed to free trade, they tend to
intervene in international trade to

THE POLITICAL ECONOMY OF

INTERNATIONAL TRADE
INSTRUMENTS OF TRADE POLICY
There are seven main instruments of trade
policy:
Tariffs
Subsidies
Import Quotas
Voluntary Export Restraints
Local Content Requirements
Administrative Polices
Antidumping Policies

THE POLITICAL ECONOMY

OF INTERNATIONAL TRADE
THE CASE FOR GOVERNMENT INTERVENTION
There are two types of arguments for government
intervention: political and economic.

Political arguments are concerned with

protecting the interests of certain groups within a
nation (normally producers), often at the expense
of other groups (normally consumers)
Economic arguments are typically concerned
with boosting the overall wealth of a nation (to
the benefit of all, both producers and consumers)

THE POLITICAL ECONOMY OF

INTERNATIONAL TRADE

1947-1979: GATT, Trade

Liberalization,
and
Economic
Growth
The World Trade Organization
(WTO), Experience to Date