International Business 9eChapter 3What Determines A Country’s Level Of Economic Development?How Do Countries Compare On GNI?Slide 5How Do Countries Compare On Growth Rates?Slide 7Slide 8How Do Countries Compare on Economic Development?How Does Political Economy Influence Economic Progress?Slide 11Slide 12Slide 13How Does Geography Influence Economic Development?How Does Education Influence Economic Development?How Is The Political Economy Changing?Slide 17How Free Are Countries Politically?Slide 19Slide 20How Free Are Countries Economically?What Is The Nature Of Economic Transformation?What Does The Changing Economy Mean For Managers?Slide 24What Are The Implications Of Political Economy Differences For Managers?Slide 26Slide 27Slide 28How Can Managers Determine A Market’s Overall Attractiveness?How Can Managers Determine A Market’s Overall Attractiveness?International Business 9eBy Charles W.L. HillMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 3Political Economy and Economic Development3-3What 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)3-4How Do Countries Compare On GNI? Economic Data for Select Countries3-5What 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 world3-6How Do Countries Compare On Growth Rates? Economic Data for Select Countries3-7What 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 voice3-8What 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 country3-9How Do Countries Compare on Economic Development? Economic Data for Select Countries3-10How 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 rates3-11How Does Political Economy Influence Economic Progress?Innovation and entrepreneurship require a market economythere is little incentive to develop new innovations in planned economies because the state owns all means production and therefore, the gainsThere is a strong relationship between economic freedom and economic growththe six countries with the highest ratings of economic freedom from 1975 to 1995 were also among the highest for economic growthHong Kong, Switzerland, Singapore, the United States, Canada, and Germany3-12How Does Political Economy Influence Economic Progress?Innovation and entrepreneurship require strong property rights without strong property rights, individuals and businesses risk having their innovations and potential profits stolenEconomist Hernando de Soto claims that inadequate property protection in many developing nations limits economic growth3-13How 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Taiwan3-14How 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 zones3-15How Does Education Influence Economic Development?Countries that invest in education have higher growth rates because the workforce is more productivecountries in Southeast Asia have offset their geographical disadvantages by investing in educationIndonesia, Malaysia, and Singapore3-16How Is The Political Economy Changing?Since the late 1980s, two trends have emerged1. Democratic revolution (late 1980s and early 1990s)democratically elected governments replaced totalitarian regimesmore committed to free market capitalism2. A move away from centrally planned and mixed economiesmore countries have shifted toward the market-based model3-17How Is The Political Economy Changing?Trend 1: Democracy has spread over the last two decadesmany totalitarian regimes failed to deliver economic progress to the vast bulk of their populationsnew information and communication technologies have broken down the ability of the state to control access to uncensored informationeconomic advances of the last 25 years have led to increasingly prosperous middle and working classes who have pushed for democratic reforms3-18How Free Are