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Political economic analysis is the study of the distribution of power and wealth in foreign counties. This area of economics has grown over time to include topics of political history, geography and psychology. A business conducts a political economic analysis to recognize opportunities and to be prepared for potential threats when selling or operating in a foreign market. These businesses are usually interested in understanding the country’s position in areas like family income trends, global warming issues, and international immigration concerns. By conducting a political economic analysis, the business can be better prepared to overcome obstacles or realize in advance that going to such country would be an unprofitable venture.
The definition of political economic analysis now encompasses concerns of globalization and global warming. No longer is political economic analysis just the examination and analyzation of the distribution of wealth and power between individuals or social groups. It instead takes into consideration all aspects of a country's political, environmental and social environments that can affect international trade. A political economic analysis also provides a deeper level of understanding on the government’s power, capabilities, accountability and responsiveness. For instance, the analysis should show how the government would handle issues from copyright concerns to responding to natural disasters.
The purpose of a business conducting a political economic analysis is to see if conducting international trade within a particular country would have certain political or economic risks. This does not necessarily mean it would be an unprofitable investment. The business can use this information to strategically position itself in advance to minimize any perceived risks. It may also want to conduct a cost-benefit analysis to see if the benefits of moving into a particular country are worth continuing if the risks materialize. Another purpose of conducting this type of analysis is to gauge the level of local competition within the foreign marketplace to determine if there are any barriers to entry.
Specific areas of interest for businesses conducting a political economic analysis usually include looking at the income levels of residents, the environmental policies, and the immigration concerns for the foreign country with which it wants to conduct trade. For instance, residents may not approve of foreign companies entering their country and bringing over employees instead of hiring from the local workforce. It may not even be possible for the business to obtain visas to transfer employees in certain fields or positions. Instead, the company may have to hire and train locals to perform the tasks needed.
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