Question

Discuss the three main political economic systems and their impact on trade. Then describe the economic imperatives of the government in each system and explain how these are manifested in international trade.

Answer 1

The first political economic system is the capitalist economic system or market based economic system. Here, the  role of the government is of a facilitator or moderator and government also encourages private property rights. Hence, it has an encouraging, promotional and positive impact upon the trade activities and economy flourishes on its own. Due to this reason, this type of economic system is controlled by the market forces. The second political economic system is socialist or command economic system where the economy is controlled by the state of government. It has the discouraging impact upon the trade as government is the single entity to control the authority and private ownership of property is not allowed. So, economy is dependent upon the initiatives taken by the government. The third political economic system is a mixed economic system where the government allows people and firm to hold private ownership, but brings regulations to control the economic activities. This system also makes a positive impact upon the trade, but it is done under the influence of government regulations.

In market based system, role of the government is of moderator or policy maker for the well being of the economy along with the consumer protection and free & fair trade. It facilitates the international trade. In a socialist system, government has the full control and strongly intervenes the international trade. In mixed economic system, government intervenes with the regulations and gradually opens up the economy for international trade. Here, the government opts for the populist policies and come up with policies that regulate the international trade.