81.
What is gross national income? Is it related to purchasing power parity?
A common measure of economic development is a country’s gross national
income (GNI) per head of population. GNI is regarded as a yardstick for the
economic activity of a country; it measures the total annual income received
by residents of a nation. GNI per person figures can be misleading because
they don’t consider differences in the cost of living. To account for
differences in the cost of living, one can adjust GNI per capita by
purchasing power. Referred to as a purchasing power parity (PPP)
adjustment, it allows for a more direct comparison of living standards in
different countries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
82.
What is the philosophy of Amartya Sen?
Amartya Sen is a Nobel Prize-winning economist who has argued that
economic development should be assessed less by material output
measures such as GNI per capita and more by the capabilities and
opportunities that people enjoy. According to Sen, development should be
seen as a process of expanding the real freedoms that people experience.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Differences in Economic Development
83.
What are the conditions required to encourage innovation and
entrepreneurship?
It has been argued that the economic freedom associated with a market
economy creates greater incentives for innovation and entrepreneurship
than either a planned or a mixed economy.
In a market economy, any individual who has an innovative idea is free to try
to make money out of that idea by starting a business (by engaging in
entrepreneurial activity). Similarly, existing businesses are free to improve
their operations through innovation. To the extent that they are successful,
both individual entrepreneurs and established businesses can reap rewards
in the form of high profits. Thus, market economies contain enormous
incentives to develop innovations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
84.
Why are democratic regimes more conducive to economic growth than
dictatorships?
Some totalitarian regimes have fostered a market economy and strong
property rights protection and have experienced rapid economic growth.
However, there is no guarantee that a dictatorship will continue to pursue
such progressive policies. Dictators are rarely benevolent. Many are
tempted to use the apparatus of the state to further their own private ends,
violating property rights and stalling economic growth. Totalitarian states,
by limiting human freedom, also suppress human development and
therefore are detrimental to progress. Given this, it seems likely that
democratic regimes are far more conducive to long-term economic growth
than are dictatorships, even benevolent ones.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
85.
Explain how geography of a nation influences its economic development.
The influential Harvard University economist Jeffrey Sachs argues that by
virtue of favorable geography, certain societies are more likely to engage in
trade than others and are thus more likely to be open to and develop
market-based economic systems, which in turn promotes faster economic
growth. He also argues that, irrespective of the economic and political
institutions a country adopts, adverse geographical conditions, such as the
high rate of disease, poor soils, and hostile climate that afflict many tropical
countries, can have a negative impact on development.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
86.
Why does education lead to economic development?
Nations that invest more in education will have higher growth rates because
an educated population is a more productive population. A survey of 14
statistical studies that looked at the relationship between a country’s
investment in education and its subsequent growth rates concluded
investment in education did have a positive and statistically significant
impact on a country’s rate of economic growth.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain what determines the level of economic development in a nation
Topic: Political Economy and Economic Progress
87.
Discuss the three main reasons for the spread of democracy.
There are three main reasons for the spread of democracy. First, many
totalitarian regimes failed to deliver economic progress to the vast bulk of
their populations. Second, new information and communication
technologies have broken down the ability of the state to control access to
uncensored information. Third, in many countries the economic advances of
the past quarter-century have led to the emergence of increasingly
prosperous middle and working classes who have pushed for democratic
reforms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition
88.
Discuss Samuel Huntington’s views on Islamic fundamentalism.
According to Samuel Huntington’s thesis, global terrorism is a product of
the tension between civilizations and the clash of value systems and
ideology. He maintains that while many societies may be modernizing, they
are not becoming more Western. Huntington theorizes that modernization in
non-Western societies can result in a retreat toward the traditional, such as
the resurgence of Islam in many traditionally Muslim societies. According to
him, the rise of Islamic fundamentalism is a response to the alienation
produced by modernization.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition
89.
Since the 1980s, there has been a transformation from centrally planned
command economies to market-based economies. What is the rationale for
this transformation?
The rationale for economic transformation has been the same the world
over. In general, command and mixed economies failed to deliver the kind of
sustained economic performance that was achieved by countries adopting
market-based systems, such as the United States, Switzerland, Hong Kong,
and Taiwan. As a consequence, even more states have gravitated toward
the market-based model.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify the macro-political and economic changes occuring worldwide
Topic: States in Transition
90.
What is deregulation? What are the steps involved in the deregulation of a
command economy?
Deregulation involves removing legal restrictions to the free play of markets,
the establishment of private enterprises, and the manner in which private
enterprises operate. Deregulation in command economies involved
removing price controls, thereby allowing prices to be set by the interplay
between demand and supply; abolishing laws regulating the establishment
and operation of private enterprises; and relaxing or removing restrictions
on direct investment by foreign enterprises and international trade.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
91.
Is privatization by itself enough to guarantee economic growth? Why?
Explain using an example.
As privatization has proceeded around the world, it has become clear that
simply selling state-owned assets to private investors is not enough to
guarantee economic growth. If the newly privatized firms continue to
receive subsidies from the state and if they are protected from foreign
competition by barriers to international trade and foreign direct investment,
they will have little incentive to restructure their operations to become more
efficient. For privatization to work, it must also be accompanied by a more
general deregulation and opening of the economy. For example, when Brazil
decided to privatize the state-owned telephone monopoly, Telebras Brazil,
the government also split the company into four independent units that
were to compete with each other and removed barriers to foreign direct
investment in telecommunications services. This action ensured that the
newly privatized entities would face significant competition and thus would
have to improve their operating efficiency to survive.
92.
How does the ownership structure of newly privatized firms affect its
functioning?
Many former command economies lack the legal regulations regarding
corporate governance that are found in advanced Western economies. In
such cases, managers with a small ownership stake can often gain control
over the newly privatized entity and run it for their own benefit, while
ignoring the interests of other shareholders.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
93.
Explain why a well-functioning market economy requires strong legal
systems?
A well-functioning market economy requires laws protecting private
property rights and providing mechanisms for contract enforcement.
Without a legal system that protects property rights, and without the
machinery to enforce that system, the incentive to engage in economic
activity can be reduced substantially. Private and public entities, including
organized crime, can expropriate the profits generated by the efforts of
private-sector entrepreneurs.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Describe how trasition economies are moving toward market-based systems
Topic: The Nature of Economic Transformation
94.
What are the factors that determine the long-run monetary benefits of doing
business in a country?
The long-run monetary benefits of doing business in a country are a
function of the size of the market, the present wealth (purchasing power) of
consumers in that market, and the likely future wealth of consumers. While
some markets are very large when measured by number of consumers (e.g.,
China and India), low living standards may imply limited purchasing power
and therefore a relatively small market when measured in economic terms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
95.
What are first-mover advantages? Explain with an example.
First-mover advantages are the advantages that accrue to early entrants
into a market. By identifying and investing early in a country with high
potential for future growth, international firms may build brand loyalty and
gain experience in that country’s business practices. These will pay back
substantial dividends if that country achieves sustained high economic
growth rates. For example, eBay was the first company to take the auction
process online. Coca-Cola was the first cola producer, and began selling its
product to the public in 1886; this has given it considerable advantage over
competitors.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
96.
What are late-mover disadvantages?
Late-mover disadvantages are the handicaps that late entrants might
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
97.
What are the factors that determine the costs of doing business in a
country?
A number of political, economic, and legal factors determine the costs of
doing business in a country. With regard to political factors, a company may
have to pay off politically powerful entities in a country before the
government allows it to do business there. With regard to economic factors,
one of the most important variables is the sophistication of a country’s
economy. As for legal factors, it can be more costly to do business in a
country where local laws and regulations set strict standards with regard to
product safety, safety in the workplace, environmental pollution, and the
like (since adhering to such regulations is costly).
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
98.
Why does doing business in a country with a relatively unsophisticated
economy result in increased costs?
One of the most important economic variables is the sophistication of a
country’s economy. It may be more costly to do business in relatively
primitive or undeveloped economies because of the lack of infrastructure
and supporting businesses. At the extreme, an international firm may have
to provide its own infrastructure and supporting business, which obviously
raises costs. When McDonald’s decided to open its first restaurant in
Moscow, it found that to serve food and drink indistinguishable from that
served in McDonald’s restaurants elsewhere, it had to vertically integrate
backward to supply its own needs.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
99.
Describe how overinvestment led to the 1997-98 financial crises in
Southeast Asia.
In Asian states such as Indonesia, Thailand, and South Korea, businesses
increased their debt rapidly during the 1990s, often at the behest of the
government. The result was overinvestment. Many of these investments
turned out to be uneconomic. The borrowers failed to generate the profits
necessary to service their debt payment obligations. In turn, the banks that
had lent money to these businesses suddenly found that they had rapid
increases in nonperforming loans on their books. Foreign investors,
believing that many local companies and banks might go bankrupt, pulled
their money out of these countries, selling local stock, bonds, and currency.
This action precipitated the 1997-98 financial crises in Southeast Asia.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers
100.
What are the factors that contribute to the risks of doing business in a
country?
The risks of doing business in a country are determined by a number of
political, economic, and legal factors. Political risk has been defined as the
likelihood that political forces will cause drastic changes in a country’s
business environment that adversely affect the profit and other goals of a
business enterprise. An economic risk can be defined as the likelihood that
economic mismanagement will cause drastic changes in a country’s
business environment that hurt the profit and other goals of a particular
business enterprise. A legal risk can be defined as the likelihood that a
trading partner will opportunistically break a contract or expropriate
property rights.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Explain the implications for management practice of national differences in political economy.
Topic: Implications for Managers