How Thinking and Working Politically Through Applied Political Economy Analysis is Critical to Market Systems

In recent years, USAID has embraced a systems approach to deepen its understanding of how local context affects development outcomes. This brief demonstrates how the use of applied political economy analysis (PEA) — the methodology used to systematically collect and analyze why things work the way they do in a country or sector or for an issue or problem — is critical to the effective design and execution of inclusive market systems activities.

While market systems activities always operate with a view to relationships and incentives, it can be useful for them to be more explicit about understanding the political economy. The PEA methodology and Thinking and Working Politically mindset explain how the political economy of a country or sector influences and potentially helps explain market system dynamics. They achieve this by unpacking political barriers and identifying opportunities necessary to align the incentives of key decision-makers in the political system to enable the market system to become competitive, inclusive, and resilient.