Professional Documents
Culture Documents
Development
What Determines A Country’s Level
Of Economic Development?
➢ Gross national income (GNI) per person
measures the total annual income
received by residents of a nation
➢ Japan, Sweden, Switzerland, and the U.S.
have high GNI
➢ China and India have low GNI
➢ GNI can be misleading because it does
not consider differences in the cost of
living
➢ need to adjust GNI figures using purchasing
power parity (PPP)
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How Do Countries
Compare On GNI?
Economic Data for Select Countries
3
What Determines A Country’s Level
Of Economic Development?
➢ Official figures can also be misleading
because they do not account for black
economy transactions
➢ In addition, GNI and PPP data are static
and do not consider economic growth
rates
➢ So, while China and India are currently
categorized as being poor they are growing
more rapidly than many developed nations
and are expected to become among the
largest economies in the world
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How Do Countries
Compare On Growth Rates?
Economic Data for Select Countries
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8
What Determines A Country’s Level
Of Economic Development?
➢ Nobel-prize winner Amartya Sen argues
economic development should be seen as a
process of expanding the real freedoms that
people experience
➢ the removal of major impediments to freedom like
poverty, tyranny, and neglect of public facilities
➢ the presence of basic health care and basic
education
➢ Amartya Sen also claims that economic
progress requires the democratization of
political communities to give citizens a voice
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What Determines A Country’s Level
Of Economic Development?
➢ The United Nations used Sen’s ideas to
develop the Human Development Index
(HDI) which is based on
➢ life expectancy at birth
➢ educational attainment
➢ whether average incomes are sufficient to
meet the basic needs of life in a country
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How Does Political Economy Influence
Economic Progress?
➢ Innovation and entrepreneurship are the engines
of long-run economic growth
➢ innovation includes new products, new processes,
new organizations, new management practices, and
new strategies
➢ entrepreneurs commercialize innovative new products
and processes
➢ Innovation and entrepreneurship help increase
economic activity by creating new markets and
products that did not previously exist
➢ innovation in production and business processes
result in more productive labor and capital further
boosting economic growth rates
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How Does Political Economy Influence
Economic Progress?
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How Does Political Economy Influence
Economic Progress?
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How Does Political Economy Influence
Economic Progress?
➢ Democratic regimes are probably more
conducive to long-term economic growth than
dictatorships, even the benevolent kind
➢ property rights are only secure in well-functioning,
mature democracies
➢ Subsequent economic growth leads to the
establishment of democratic regimes
➢ South Korea
➢ Taiwan
15
How Does Geography Influence Economic
Development?
➢ Countries with favorable geography are more
likely to engage in trade, and so, be more open
to market-based economic systems, and the
economic growth they promote
➢ Jeffrey Sachs studied economic growth rates
between 1965 and 1990 and found that
➢ landlocked countries grew more slowly than coastal
economies
➢ being totally landlocked reduced a country’s growth
rate by 0.7% per year
➢ tropical countries grew more slowly than countries in
temperate zones
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How Does Education Influence Economic
Development?
17
How Is The Political
Economy Changing?
18
How Is The Political
Economy Changing?
19
How Free Are
Countries Politically?
Political Freedom in 2012
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How Is The Political
Economy Changing?
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How Is The Political
Economy Changing?
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How Free Are
Countries Economically?
Economic Freedom in 2013
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What Is The Nature Of
Economic Transformation?
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What Does The Changing
Economy Mean For Managers?
➢ Markets that were formerly off-limits to Western
business are now open
➢ firms need to explore opportunities in these markets
➢ Despite being underdeveloped and poor, some
markets have huge potential
➢ China -1.3 billion people
➢ India – 1.2 billion people
➢ Latin America – 600 million potential consumers
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What Does The Changing
Economy Mean For Managers?
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What Are The Implications Of Political
Economy Differences For Managers?
➢ Countries with democratic regimes, market
based economic policies, and strong property
rights protection are more likely to have higher
sustained rates of economic growth
➢ these markets are more attractive to international
businesses
➢ the benefits, costs, and risks of doing business in a
country are a function of the country’s political,
economic, and legal systems
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What Are The Implications Of Political
Economy Differences For Managers?
➢ The benefits of doing business in a country are a
function of
➢ the market’s size
➢ the purchasing power of its consumers
➢ their likely future wealth
➢ By identifying and investing early in potential
future economic stars, firms may be able to gain
first mover advantages (advantages that accrue
to early entrants into a market) and establish
loyalty and experience in a country
➢ China
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What Are The Implications Of Political
Economy Differences For Managers?
➢The costs of doing business in a country
are a function of its
➢ political system
➢ is it necessary to pay bribes to get market access?
➢ economic level
➢ are the necessary supporting business and
infrastructure in place?
➢ legal system
➢ it can be more costly to do business in countries
with dramatically different product, workplace, and
pollution standards, or where there is poor legal
protection for property rights
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What Are The Implications Of Political
Economy Differences For Managers?
➢ The risks of doing business in a country are a
function of
➢ Political risk - the likelihood that political forces will
cause drastic changes in a country's business
environment that adversely affects the profit and other
goals of a business enterprise
➢ Economic risk - the likelihood that economic
mismanagement will cause drastic changes in a
country's business environment that adversely affects
the profit and other goals of a business enterprise
➢ Legal risk - the likelihood that a trading partner will
opportunistically break a contract or expropriate
property rights
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How Can Managers Determine A Market’s
Overall Attractiveness?
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How Can Managers Determine A Market’s
Overall Attractiveness?
Country Attractiveness
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