Institutional Capital on Trade Marketing and Environmentally-Sustainable Development Policy Making: A Research Model Based on Critical Analysis of NAFTA

Institutional Capital on Trade Marketing and Environmentally-Sustainable Development Policy Making: A Research Model Based on Critical Analysis of NAFTA

José G. Vargas-Hernández
Copyright: © 2020 |Pages: 33
DOI: 10.4018/978-1-7998-0315-7.ch003
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The aim of this study is to critically analyze the implications in terms of the relationship between cooperation, conflict, and institutional capital, as well as their interactions with trade marketing and environmentally sustainable development policy making under the framework of NAFTA. The methodology is based on a literature review aimed to create a relationship between the analytical variables in order to obtain a research construct. This research model is used to critically analyze the implications in terms of cooperation and conflict relationships as institutional capital and their interactions with trade marketing and environmentally sustainable development policy making. It is concluded that, although the existence of NAFTA is severely questioned, its institutional capital has positive effects on the implications of trade-marketing; however, environmentally sustainable development proves to be conflictive and highly contentious, although some positive effects are developing.
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Sustainable development implies the implementation of natural, human, social and institutional capitals. The assets required for sustainable economic development are the different forms of capital. According to Ashby and Carney (1999), these forms of capital are: physical, natural, financial, human, social and institutional. The most tangible forms of capital are physical and natural. Physical capital refers to technical capital such as tools, equipment, etc. that work together with natural capital. Financial capital refers to stocks of money. Social capital is an interactional cooperative potential (Zenou, 2009) based on trust. Institutional capital is the set of institutions that give forms and repeatability to these relations (Bénédique, 2009). Institutional capital is an asset related to the implementation of actions in development processes (Garrabé, 2008).

Institutions play a significant role in the sustainable development of nations (North, 1990). Institutions are defined as the formal and informal rules of the game, and transaction costs influence economic efficiency (North, 1981, 1990; Williamson, 1985; Eggertsson & Thrainn, 1990). Institutional capital is related to institutional cost (Chen, 2008). The transformation of institutional capital into institutional costs creates mobility barriers in different organizational arrangements. Institutions have economic effects on sustainable development which are coined as institutional capital. Institutional capital is the limitations devised by man that shape human interaction, thereby structuring incentives in human exchange, be it political, social or economic (North, 1995, p. 13).

Economic institutions are a form of capital and, as such, are related to institutional capital in terms of the institutional structure of economic production, economic exchange relations and reducing transaction costs. Economic institutions are related to market institutions and are considered as instruments to reduce transaction costs. Institutional economic arrangements drawn by organizations are related to productive and exchange interactions.

The North American Free Trade Agreement (NAFTA) is an economic institution whose existence has been severely questioned by its members, although since its inception it has developed a type of institutional capital formed by relationships of cooperation and conflict. This institutional capital has serious implications in the interactions between free trade and its marketing activities with the environmentally sustainable capital.

Institutional capital from the perspective of ecological and institutional economics is useful to explain theories and strategies of organizations and sustainable economic growth and development (Greenwood and Holt, 2008, p. 446). The new institutional economics (NIE) supports the notions of social capital related to issues of trust (Raiser 1997 and 1999; Raiser et al., 2001) and the informal social processes related to institutional capital to analyze and explain sustainable development (Gatzweiler et al., 2002; Parto, 2003, 2005; Bezanson, 2004; McGranahan and Satterthwaite, 2004).

Institutional capital supports competitive advantage to the organizations and economic institutions. This new theoretical approach provided an explanation of the paths to create a competitive advantage based on characteristics of strategic resources to achieve sustainable development (Huang and Cao, 2016). The presence of institutional capital in the economic production and exchange interaction contexts justifies the economic advantages (Kaji, 1998).

Key Terms in this Chapter

Environment: The environment is a system formed by natural and artificial elements that are interrelated and modified by human action. It is the environment that conditions the way of life of society and that includes natural, social and cultural values that exist in a particular place and time.

NAFTA: Acronymic of North American Free Trade agreement.

Sustainable Development: It is defined as that obtained to meet the needs of the present generation without compromising the ability of future generations to meet their own needs.

Institutional Capital: Institutional capital: it is the capacity of the formal institutions of a territory to concentrate on the solution of the problems, their capacity for action, the speed of the decision process, the degree of information of the organizations and their flexibility and, finally, the type of existing relationship between the different organizations.

Marketing: Set of techniques and studies that aim to improve the marketing of a product. “Marketing studies are essential for the commercial launch of a product”

Regional Trade: It is a freely determined geographical area, which does not necessarily coincide with political boundaries. The meeting and exchange with local producers and artisans in the region, a space to discover quality products and various artisanal productions.

Policy Making: It is a process of successive approximations to a desired objective, where even it is subject to continuous reconsiderations.”

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