Political Economy - Definition, Components, and Theories

Department of Public Administration
University of Dhaka
Course Name: Political Economy (211)
Assignment Topic: The Role of local government bodies During Covid-19: A
study of Saliyakandi union Parishad from the perspective of political Economy.
Submitted To:
Dr. Aka Firowz Ahmad
Professor
Department of Public Administration
University of Dhaka.
Submitted By:
MD Nezam Uddin Khan
13th batch
2nd year (3rd semester)
Department of Public Administration
University of Dhaka.
Date of Submission: 15 August, 2020

Political Economy:
Political Economy is the study of production and trade with their relations with law, customs
and government; and with the distribution of national income and wealth. Political economy
is the branch of social science and it studies how the economic theories affect different social
economic systems such as socialism and communism, along with the creation and
implementation of public policy. Political economic is a complex field that covers a board
range of political interests. Briefly, political economy means the advice given by economists
to the government on either general economic policies or on certain specific proposals
created by politicians. It also focuses on the interrelationships individuals, governments and
public policies. Political economy also focuses on how economic theories such as socialism
and communism play out in the real world. Political economy thus can be understood as the
study of how a country – the public`s household – is managed or governed, taking into
account both political and economic factors.
Components of Political Economy:
Political economics is divided into two sections:
1. Classical Political Economy
2. Modern Political Economy
Classical Political Economy studies the works of philosophers such as Machiavelli, Adam
Smith, and Karl Marx. Modern Political Economy, on the other hand, studies the work of
modern philosophers, economists, and political scientists such as John Maynard Keynes,
Milton Freidman, and Friedrich Hayek.
The study of political economy is influenced by game theory, because it involves different
groups competing for finite resources and powers that assess which policies will provide the
most beneficial results. It also indicates the capability of the economy to achieve the desired
results.
Political economy is
the study Governance Taking into account
Political
Economic

The study of Political Economy Focuses on Three major areas:
1. Interdisciplinary Study
In the perspective of Interdisciplinary, political economy emphases on economics, sociology
and political science to realize how economic systems, political institutions and the
environment influence and affect each other. The three areas in interdisciplinary study
include economic models of political processes, the international political economy and how
it affects international relations and resource allocation in different economic systems.
2. New Political Economy
In the term of new political economy, economic policies treat as a belief or action that must
be further discussed rather than as a framework that should be analyzed. The ideologies of
classical economics and new advances in the field of politics and economics are integrated by
the new political economy. The approach dismisses old ideals about agencies and the interest
of states and markets and aims to encourage political debates about societal wants and needs.
3. International Political Economy
Also known as global political economy, this approach analyzes the link between economics
and international relations. As it stems from the interdisciplinary approach, it draws from
many academic areas including 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 affect political structures and outcomes.
Political Economy Behavior:
Political economists are very interested in gains and losses incurred with the implementation
of a certain policy. It gives them an idea as to which groups support the policy and which
groups don’t. They also examine how individuals increase their utility by participating in

political activity. Capital and labor are used to influence political processes and generate
policy outcomes with the most benefit. The political behavior in an economy is shaped by:
1. Interests
The interest of individuals and groups who are able to use their power to influence policy is
included here. Individuals in government tend to stimulate their own economic and political
interests that will help them retain power. People outside the government are often more
concerned with the outcome of the economic policies implemented.
2. Ideas
Ideas are regarded as an important influence on policy, in addition to economic and political
interests. It can be anticipated that individuals are self-seeking and rational and that they are
unable to assess the outcomes of all the choices available to them.
To remain consistent with their basic values and beliefs, ideology allows an individual to
decide what they should do. Incorporating ideology into economic models allows some
political action to be guided by factors other than self-interest. Some people want to enter
politics simply because they want to make a change in the world.
3. Institutions
There are political rules that include the Constitution and define how leaders are chosen and
how a new policy can be implemented. Institutions help structure incentives facing
individuals and groups within the economy.
Political Economy Theory:
Modern economist`s theories split into three ideologies:
1) Liberalism
The liberal ideology stems from the concept of labor and exchange and the use of land, labor,
and capital to produce durable goods. Liberal economists believe that economics can benefit