Loading the player...

What is 'Political Economy'

Political economy is the study of production and trade and their links with custom, government and law. It is the study and use of how economic theory and methods influence and develop different social and economic systems, such as capitalism, socialism and communism; it also analyzes how public policy is created and implemented. Since various individuals and groups have different interests in how a country or economy is to develop, political economy as a discipline is a complex field, covering a broad array of potentially competing interests.

BREAKING DOWN 'Political Economy'

Political economy also involves the use of game theory, since groups competing for finite resources and power must determine which courses of action will give the most beneficial results, and what the probability of those results being reached are.

In the contemporary setting, political economy talks about the different but linked approaches to defining and studying economics and other related behaviors. Political economy may be approached in three different ways.

1. Interdisciplinary Studies

Political economy approached from an interdisciplinary angle draws upon sociology, economics and political science to define how political institutions, the economic system and the political environment affect and influence each other. With an interdisciplinary approach, political economy is associated with three subareas: economic models of political processes and the links of different factors to each other; international political economy and the impact of international relations; and the role of the government in resource allocation for each kind of economic system.

2. New Political Economy

The new political economy approach treats economic ideologies not as frameworks that must be analyzed, but as actions and beliefs that must be explained and discussed further. This approach combines the ideals of classical political economists and new, analytical advances in the field of economics and politics. This approach rejects old ideas about agencies, structures, material interests, states and markets. It seeks to make normative and explicit assumptions that encourage progressive political debates about societal preferences. The new political economy approach encourages the discussion of real-world political economy that is grounded on cultural, social and historical details.

3. International Political Economy

International political economy, also known as global political economy, stems from an interdisciplinary approach. It analyzes the link between economics and international relations. As it stems from an interdisciplinary approach, it draws from many different academic areas such as political science, economics, sociology, cultural studies and history.

International political economy is ultimately concerned with how political forces like states, individual actors, and institutions shape systems through global economic interactions and how such actions effect political structures and outcomes.

RELATED TERMS
  1. Political Risk

    Political risk is the risk that an investment's returns could ...
  2. Economy

    An economy is the large set of interrelated economic production ...
  3. Development Economics

    Development economics is a branch of economic study that focuses ...
  4. Mature Economy

    A mature economy is the economy of a nation with a stable population ...
  5. Advanced Economies

    Advanced economies, as described by the International Monetary ...
  6. Constitutional Economics - CE

    Constitutional Economics is a branch of economics focusing on ...
Related Articles
  1. Insights

    Money And Politics

    Learn about the progression of events and legislation that shaped and influenced today's political environment.
  2. Insights

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  3. Investing

    Wall Street and Washington: Do Politics Move Markets?

    Unless it's a major world crisis, the U.S. stock market seems remarkably immune to political turmoil at the top. So far, anyway.
  4. Trading

    How global events affect the forex market

    Learn how politics, war and natural disasters move currency prices in the forex market, and how you should respond.
  5. Investing

    What Was the Fastest Growing Developed Economy for 2016?

    In spite of the Brexit debacle, the U.K. was actually the fastest growing developed economy in 2016.
  6. Investing

    Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
  7. Investing

    The difference between finance and economics

    Learn the differences between these closely related disciplines and how they inform and influence each other.
  8. Insights

    How Economic Reality Influences The Market

    The market is confusing enough. But when you consider how economic reality can influence market prices, it's downright baffling.
RELATED FAQS
  1. Is the United States a Market Economy or a Mixed Economy?

    The United States is a mixed economy, combining elements of a true free market economy with governmental, economic controls. Read Answer >>
  2. Is economics a science?

    Learn how economics fits into the category of social sciences, and discover the arguments critics make against this classification. Read Answer >>
  3. What are some examples of "pork barrel politics" in the United States?

    Learn the meaning of the term "pork barrel politics" and explore examples of the practice throughout American politics since ... Read Answer >>
  4. How does economics study human action and behavior?

    Find out why economics can be considered a deductive social science, like sociology, and how human action and behavior informs ... Read Answer >>
  5. The risks businesses face in international finance

    When an organization engages in international financing activities, it takes on additional risk, including foreign exchange ... Read Answer >>
  6. How do you calculate GDP with the Income Approach?

    There are generally two ways to calculate GDP: the expenditures approach and the income approach. Find out the factors that ... Read Answer >>
Trading Center