Democracy, political parties and their roles, types of government, bureaucratic system, human rights, law a rid order situation, rd at ions between the treasury and the opposition, and internal stability or instability constitute political environment of a country.
The economy of a country hinges upon political stability and different types of laws. This environment consists of the following factors:
1. Political situation
2. Legal rights of different parties
3. Different types of laws
These are explained below:
Political situation has a great bearing on the economy of a country. A country may have either of two situations:
(1) Political instability
(2) Political stability.
Political instability refers to dictatorship, military rules, frequent change of governments, abrogation of the constitution, ban on writing and speech, excess of holding elections and unwillingness to hear each other’s, points of view and public opinions, intolerance, agitation.
The instability has the following impact:
i) Frequent Restlessness and violence take place badly affecting business environment.
ii) Uncertainty comes into existence bringing down investment in the economy.
iii) Long-term planning is ignored and short term planning is emphasized.
iv) Poverty and inflation increase rampantly (freely).
v) Foreign investment is threatened.
vi) Production goes down.
vii) Foreign trade is hampered.
viii) Exports decrease and imports increase.
ix) Conflicts between employers and employees, buyers and sellers, producers and consumers become frequent.
x) National reputation is damaged.
Political stability, on the other hand, produces positive results as against the above evils.