Political Economy and Economic Development

1. How does geography influence economic development?

1.1. Favorable geography → more engaging in trade & open to market-based economic systems & economic growth - Jeffrey Sachs studied that landlocked countries’ growth is slower than coastal economies, landlocked countries have their growth rate reduced by 0.7%/year, & tropical countries’ growth is slower than ones with temperate zones How does education influence economic development? - More investment in education → higher growth rates (more productive workforce) - Geographical disadvantages can be offset by investment in education (e.g., Indonesia, Malaysia, & Singapore)

2. How Is The Political Economy Changing?

2.1. 1. Democratic revolution (late 1980s and early 1990s) 2. A move away from centrally planned and mixed economies

3. How Free Are Countries Politically?

3.1. Freedom in the World in 2015: Mostly America, Europe, Australia Distribution of Economic Freedom, 2015: 2 biggest: Mostly Free and Mostly Unfree

4. What Is The Nature Of Economic Transformation?

4.1. The shift toward a market-based system involves → deregulation (bãi bỏ quy định) Today, the role of government is getting bigger after financial crisis and COVID-19. → privatization (tư nhân hóa) → legal system (hệ thống pháp lý)

5. What Determines A Country’s Level Of Economic Development?

5.1. The United Nations used 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

6. What Are The Implications Of Political Economy Differences For Managers?

6.1. More likely to have higher sustained rates of economic growth: Countries with democratic regimes, market based economic policies, and strong property rights protection Benefits of doing business in a country: function of 1, market’s size 2, purchasing power of consumers 3, future wealth Able to gain first mover advantages by identifying and investing early in potential future economic stars Costs of doing business in a country ~ function of +political system: necessary to pay bribes to get market access? +economic level: necessary supporting business and infrastructure in place? +legal system: more costly to do business with dramatically different product, workplace, and pollution standards, or where there is poor legal protection for property rights Risks of doing business in a country ~ function of Political risk Economic risk Legal risk

7. What Determines A Country’s Level Of Economic Development?

7.1. Different political, economic, and legal systems Democratic forms of government, market-based economic reforms and adoption

8. How Do Countries Compare On GNI?

8.1. GNI: value of all final goods and services produced in the country a year. PPP: djustment provides a more direct comparison of living standards in different countries GNI calculates an economy's total income, both income is domestic earned or from foreign. Gross National Income (GNI) is the total amount of money earned by a nation's people and businesses. It is used to measure and track a nation's wealth from year to year. The number includes the nation's gross domestic product (GDP) plus the income it receives from overseas sources.

9. How Do Countries Compare On Growth Rates?

9.1. Since GDP is measured in a country's currency, in order to compare different countries' GDPs, we need to convert them to a common currency. One way to compare different countries' GDPs is with an exchange rate, the price of one country's currency in terms of another. GDP per capita is GDP divided by population.

10. How do countries compare on economic development?

10.1. The Nobel Prize–winning economist Amartya Sen’s view of development → emphasis on basic health care, especially for children, and basic education, especially for women is also a way to measure economic development

11. How does political economy influence economic progress?

11.1. Innovation & entrepreneurship play vital roles Are engines of long-run economic growth Help increase economic activity (= creating new markets & products) → more productive labor & capital → boostign economic growth rates Require a market economy - little incentive to new innovations (states owns all means production & even the gains) Require strong property rights → individuals & business do not risk having innovations & potential profits stolen - Strong relationship between economic freedom & economic growth (e.g., 1975-1995, 6 countries with highest ratings of economic freedom were also among the highest for economic growth) - Economist Hernando de Soto claims inadequate property pretection in many developing nations limits economic growth - 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 (e.g., South Korea & Taiwan)

12. What Does The Changing Economy Mean For Managers?

12.1. Markets formerly off-limits to Western business are now open => firms need to explore opportunities in these markets Some markets have huge potential >< despite underdeveloped and poor China -1.3 billion people India – 1.2 billion people Latin America – 600 million potential consumers ( The potential of huge population and huge demand) Potential risks democracy thrive especially in difficult economic times totalitarian regimes return multi-polar world of different civilizations emerge stable China’s financial system