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international business lecture 3-formal and informal institutions

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The notes provide one with basic knowledge about the formal and informal institutions. it also gives an insight into the influence about the society and the culture on businesses.

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  • November 15, 2015
  • 4
  • 2015/2016
  • Lecture notes
  • Unknown
  • Lecture 3
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INTERNATIONAL BUSINESS- LECTURE 3

Formal and Informal Institutions

Formal Institutions

 Political Economy Definition
 It is a term that stresses on the political, economic and legal
systems of a country working independently and the way they
interact with each other to affect the level of economic well being.
 Property rights consideration
 Managerial implications

Political Systems
 A political system refers to the rules if the game and how the
country is governed.
o Political risk is the risk which is linked with the changing of the
political government with in a country, which may negatively
impact the foreign and local firms.

 Dimensions according to which Political systems can be assessed-
 Degree to which the political institution emphasizes on
collectivism or individualism.
 Degree to which they are democratic or totalitarian.

Democracy- It is a system in which the people select the representatives
who govern the country on their behalf.

Totalitarianism(dictatorship)- It is a system in which a person or party
executes absolute control on the people.

Economic systems
It is a connection between the political ideology and the economic system
 Free market economic system- A system where the individual goals
of the people are given primacy
 State control of markets- a system where collective goals are given
primacy.


Legal system
 Rules-laws- the regulate behavior
 It is a process through which the laws are enforced and
grievances are redressed.
Three main types of Legal systems

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