Countries' Economic Development and Global Risk

Question 1

What are the different economic measures of economic development?

Answer 1

GDP per capita - total annual income produced within a country

GNI per capita - total annual income received by the citizens of a country

GDP/GNI at purchasing power parity - considers living standards and inflation of countries

Economic growth rates

Question 2

What do graphs on GNI per capita show?

Answer 2

Disparities in economic development, most developed countries with highest levels of income

Question 3

What do economic growth charts show?

Answer 3

That some developing and transition economies have faster rates of growth than developed economies

Question 4

What does 2015 poverty data show?

Answer 4

Half of the world’s population lived on more than $5.50 per day

Question 5

What does Human Development Index (HDI) show?

Answer 5

• Life expectancy at birth
• Educational attainment
• Whether incomes meet basic needs

Very high 0.8-1
High 0.7-0.79
Medium 0.5-0.699
Low 0.5

Question 6

What HDI disparities in 2015 show?

Answer 6

Norway, Switzerland and Australia very high

South Sudan, Central African Republic and Niger very low (0.354)

Question 7

What do HDI groupings show 1990-2017?

Answer 7

Low –> medium = sub-Saharan Africa, South Asia

Medium –> high = Europe and Central Asia, Latin America and the Caribbean, East Asia and the Pacific, Arab states

High –> very high = OECD

Question 8

How are there still inequalities in human development around the world (2017)?

Answer 8

Life expectancy - Hong Kong 1.6x longer than Sierra Leone

Expected school years - Aus 4.7x longer than South Sudan

Mean schooling years - Germany 9.4x greater than Burkina Faso

Gross national income - Qatar 176x Central African Republic

Question 9

How do political economies link to economic development?

Answer 9

Innovation and entrepreneurship enabled through strong property rights and free market ideologies

Question 10

Is democracy necessary for innovation and entrepreneurship?

Answer 10

• Authoritarian Govs can introduce free market systems
• Democratic Govs not necessary but better for long term growth than dictatorships
• Economic progress can lead to more democratic governments
• Role of geography and education in economic development

Question 11

How did countries’ political economies evolve from the 1980s?

Answer 11

Spread of democracy - variations in degrees of political freedom

Spread of market based systems - deregulation, privatisation, legal system to safeguard property rights

Significant business opportunities for MNCs

Question 12

What challenges to western democracies face?

Answer 12

• Social and economic inequalities
• Immigration
• Divisions among population
• Erosion of people trust in democratic institutions
• Emergence of populist and far right movements
• Erosion of democratic principles in the US and withdrawal of the US as a defender of democratic values
• Some states return to authoritarian tendencies: Turkey, Hungary, Poland
• Countries showing promise have returned to regressive regimes
  Myanmar
• Increasingly assertive autocracies - Russia and China

Question 13

What % of the world are considered free in terms of political rights and civil liberties (2019)?

Answer 13

39% free

24% partly free

37% not free

Question 14

How has the freedom of the world changed since 1988-2018?

Answer 14

Decline in 2018 due to limit of political freedoms: extra id, redrawing constituency boundaries to favour certain parties - partly due to illegal immigrants voting

Question 15

What is political risk?

Answer 15

Likelihood that political forces will cause drastic changes in a country’s business environment that adversely affect the profit and other goals of business enterprise

e.g changes in government policy, political assassinations, riots, effects of nationalism on business, protectionism

Question 16

What is economic risk?

Answer 16

Likelihood that economic mismanagement can cause drastic changes in a country’s business environment that hurt the profit or other goals of a particular enterprise

e.g inflation, high levels of gov debt, economic mismanagement, wealth inequities, unemployment

Question 17

What is legal risk?

Answer 17

Likelihood that a trading partner will opportunistically break a contract or expropriate property rights

Question 18

What is socio-cultural risk?

Answer 18

Likelihood that socio-cultural developments can cause instability that will affect business e.g public opinion, changes in social trends

Question 19

What is an example of socio-cultural risk?

Answer 19

Egyptian gov making a liberal country more restrictive by imposing a strict view of Islam causing social unrest amongst younger population

Question 20

How can you map levels of risk?

Answer 20

Venn diagram of macro (unemployment, corruption) and micro (business risk/industry risk)

Question 21

What strategies do MNCs use to mitigate risk?

Answer 21

• Insurance against political risk
• Enter markets early in privatisation cycle
• Structuring project finance
• Increase economic benefits to host country state
• Establish local presence
• Lobby Govs for changes
• Pursue pre-emptive stakeholder management strategies
• Safeguard IPRs
• Diversification
• Exit strategies