The Effect of Political Processes on Economic Performance

International Business
Student’s Name
Institutional Affiliation
International Business
With globalization becoming the norm of business, countries are exporting their products to foreign markets. Consequently, outsourcing has become easy than before. Countries are able to get what they need without incurring much costs. However, although globalization has resulted in making things easy, it is affected by various factors such as political factors and processes. Consequently, it is not easy to assess the impact of political processes on economic performance considering the fact that the current national institutions and economies have been shaped by the long-standing bureaucratic controls. Given the same political processes set in two different nations can produce totally different results. Consequently, different political processes set in two different countries can produce the same economic results. From this inconsistency, one question stands out, what can account for this and what is the effect of political processes on economic performance?
There is enough evidence from the various studies that have been conducted throughout history that demonstrates that economic institutions such as regulatory, conflict management, property rights and macroeconomic stabilization are the primary influencers of economic growth (Rodrik, 2008). Consequently, economic institutions have a critical impact on investments in industrial production, human and physical capital, and technology. Most importantly, besides playing a significant role in economic growth, they also have a decisive influence on resource distribution.
As result, some groups are able to gain more than others from the existing economic and resource allocation conditions. According to Acemoglu and Robinson (2006), economic institutions are endogenous and they reflect the unending conflict of interests in the society. Therefore, the nature of the existing economic institutions is dependent on the allocation of political power among the elites. This means that political processes either formal or informal are the determinants of the constraints and incentives available to economic institutions. Provided the endogenous characteristic of political institutions and their strategic allocation of power to some groups, well chosen institutions can result in credible mechanisms that have the potential of creating an environment that does not favor opportunistic political and economic behaviors. This implies that political institutions must create incentives that encourage politicians to abide by them.
Various questions arise when assessing the impact of political institutions or processes on economic development. Some of the questions that are asked by carious scholars are: what form of political processes facilitate economic development? Do political institutions or processes have an impact on economic development regardless of the preexisting conditions or economic development phase? In general, does the type of democracy new or consolidated produce the same results in different countries if they have distinct political institutions/processes?
As an attempt to establish the impact of political institutions/ processes on economic development, this paper analyzes the...