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Chapter 03 – National Differences in Economic Development
3-1
National Differences in Economic Development
Learning objectives
• Explain the implications for
management practice of national
This chapter discusses differences in national
political, economic, and legal systems,
highlighting the ways in which managers in
privatization, and the development of adequate
legal systems is discussed in terms of states
1990s. Bangladesh, once considered one of
the poorest countries in the world, is now the
second-largest exporter of ready-made
garments in the world. However, numerous
3
Chapter 03 – National Differences in Economic Development
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OUTLINE OF CHAPTER 3: NATIONAL DIFFERENCES IN ECONOMIC
DEVELOPMENT
Innovation and Entrepreneurship Are the Engines of Growth
Innovation and Entrepreneurship Require a Market Economy
Innovation and Entrepreneurship Require Strong Property Rights
Country Focus: Emerging Property Rights in China
The Required Political System
The Spread of Market-Based Systems
The Nature of Economic Transformation
Deregulation
Privatization
Country Focus: India’s Economic Transformation
Risks
Overall Attractiveness
Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: The Political and Economic Evolution of Indonesia
Chapter 03 – National Differences in Economic Development
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CLASSROOM DISCUSSION POINT
Ask students if they have ever knowingly purchased a counterfeit product—perhaps a purse
or a wallet, or maybe a watch. Then ask students to discuss the implications of their
purchase decision for the real company as well as for the entrepreneur selling the counterfeit
product.
Topics to consider include:
Why is there a market for counterfeit goods?
How does this market benefit sellers?
What does it mean for the company producing the real product?
Where was the counterfeit product likely to have been made?
How do counterfeit products help an economy? How do they hurt it?
Next, ask students to consider how decisions like theirs could influence new product
development policies within companies. Finally, ask students to consider how a legal system
that protects property rights could change their responses.
OPENING CASE: Economic Development in Bangladesh
Summary
The opening case explores the transformation of Bangladesh from a deeply impoverished
country to one where the economy is growing at around 6 percent annually and poverty has
more than halved. The transformation began after socialist policies, which had been put in
place following the country’s independence from Pakistan in 1971, were abandoned in the
1980s in favor of more democratic market-based policies. Food and agricultural subsidies
were eliminated, and state-owned companies were privatized. In addition, financial
liberalization allowed for the transition to a convertible currency and greater inward
financial investment. Today, despite continued corruption and a poor infrastructure,
Bangladesh is the second largest exporter of ready-made garments in the world.
Additionally, a microfinance movement is facilitating a surge in entrepreneurship.
Discussion of the case can begin with the following questions:
QUESTION 1: In the space of just a few decades, Bangladesh has transitioned from being
one of the world’s poorest nations to a country with a thriving textile industry and a
microfinance movement that is paving the way for entrepreneurship. What contributed to
the transformation of Bangladesh?
ANSWER 1: After gaining independence from Pakistan in 1971, Bangladesh embarked on a
series of ineffective social reforms. These were abandoned in the 1980s in favor of more
foreign investment flows, favorable trade agreements were negotiated, and duties on the raw
Chapter 03 – National Differences in Economic Development
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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
materials needed for the textile industry were removed. As a result of these reforms,
Bangladesh has been growing at about 6 percent annually and its poverty rate has
plummeted from 44.2 percent in 1991 to 18.5 percent in 2010.
QUESTION 2: Discuss the challenges still facing Bangladesh. How can continued political
reform help the country?
ANSWER 2: Despite recent improvements in Bangladesh many challenges still remain.
Poverty continues to dominate, the country’s infrastructure needs to improve greatly,
corruption continues to be an issue, and there are questions about how to sustain current
QUESTION 3: Discuss the availability of microfinance in Bangladesh. How can the
availability of small loans help the country move to a higher level of economic development
and continue to reduce poverty levels?
ANSWER 3: One of the reforms that has proved to be quite effective in Bangladesh has
been the introduction of microfinance. The program allows individuals to take out tiny loans
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
on “view,” then on “notes.” The following provides a brief overview of each Power Point
slide along with teaching tips and additional perspectives.
Slide 3-3 Determinants of Economic Development
Differences in economic development across countries are often linked to differences in
their political, economic, and legal systems.
Chapter 03 – National Differences in Economic Development
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Slides 3-4 – 3-8 Differences in Economic Development
Economic development can be measured by gross national income per head of population
GNI per capita/GDP per capita and more by the capabilities and opportunities that people
enjoy.
Sen’s influential thesis has been picked up by the United Nations, which has developed the
Human Development Index (HDI) to measure the quality of human life in different
nations.
rights protection, businesses and individuals run the risk that the profits from their
innovative efforts will be expropriated, either by criminal elements or by the state.
There is debate on the kind of political system that best achieves a functioning market
economy with strong protection of property rights. People in the West tend to associate a
representative democracy with a market economic system, strong property rights protection,
one thing in common at the start of their economic growth: undemocratic governments!
While it is possible to argue that democracy is not a necessary precondition for a free market
economy in which property rights are protected, subsequent economic growth often leads to
establishment of a democratic regime.
In addition to political and economic systems, geography and education are also important
Chapter 03 – National Differences in Economic Development
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Two trends are evident: first, during the late 1980s and early 1990s, a wave of democratic
revolutions swept the world; second, totalitarian governments collapsed and were replaced
Latin America, and Africa there was a marked shift toward greater democracy.
Another Perspective: To explore the recent changes and ongoing economic and political
challenges in the Middle East, consider {http://knowledge.insead.edu/world/middle-east/the-
middle-east-challenge-in-2013-2370}.
There are three reasons for the spread of democracy:
increasingly prosperous middle- and working classes who have pushed for democratic
reforms.
Despite progress toward greater democracy, there are recent signs that authoritarianism is
taking hold in some countries.
Another Perspective: The U.S. State Department produces a number of reports that are
societies could mean a move toward traditional society.
Paralleling the spread of democracy since the 1980s has been the transformation from
centrally planned command economies to market-based economies.
Slides 3-23 – 3-26 The Nature of Economic Transformation
These changes have involved:
