Chapter 03 – National Differences in Economic Development
3-1
National Differences in Economic Development
Learning objectives
• Identify the macropolitical
and macroeconomic
changes occurring
worldwide.
• Describe how transition
economies are moving
toward market-based
systems.
This chapter discusses differences in
The global trend toward democratization
and economic liberalization over the past
several decades is explored in detail. The
effect of market-based reforms on economic
development is discussed in terms of gross
national income per capita and purchasing
power parity. The importance of
deregulation, privatization, and the
development of adequate legal systems is
Myanmar (formerly known as Burma).
Today the country is beginning to privatize
industries, restructure the floating rate for
its currency, stabilize elections, and
welcome foreign investors..
3
Chapter 03 – National Differences in Economic Development
3-2
OUTLINE OF CHAPTER 3: NATIONAL DIFFERENCES IN ECONOMIC
DEVELOPMENT
Opening Case: Democracy and Economic Development in Sub-Saharan Africa
Introduction
Differences in Economic Development
Broader Conceptions of Development: Amartya Sen
Political Economy and Economic Progress
Innovation and Entrepreneurship Are the Engines of Growth
States in Transition
The Spread of Democracy
The New World Order and Global Terrorism
The Spread of Market-Based Systems
The Nature of Economic Transformation
Deregulation
Critical Thinking and Discussion Questions
Closing Case: Political and Economic Reform in Myanmar
CLASSROOM DISCUSSION POINT
Chapter 03 – National Differences in Economic Development
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 for
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?
Next, ask students to consider how decisions like theirs could influence new product
development policies at companies. Finally, ask students to consider how a legal system
that protects property rights could change their responses.
OPENING CASE: Democracy and Economic Development in Sub-Saharan
Africa
Summary
The opening case explores the transformation of sub-Saharan Africa from a region
plagued by corrupt military dictatorships to one in which democracy, civil rights, and a
diverse market-based economy are on the rise. Whereas many economies in the region
were overly dependent on the unstable commodities market in the past, manufacturing,
QUESTION 1. How did sub-Saharan Africa’s dependence on commodity exports affect
its past economic performance?
ANSWER 1: Because the commodities market has become globalized, agricultural
producers can no longer rely upon steady prices and regular purchases from neighboring
Chapter 03 – National Differences in Economic Development
3-4
QUESTION 2: How might a shift toward deregulating markets and broadening civil
rights encourage economic development in sub-Saharan Africa?
ANSWER 2: By deregulating markets and strengthening civil rights, countries in sub-
Saharan Africa have begun to develop economies that are more responsive to the needs of
QUESTION 3: Discuss the emergence of banking and telecommunications and
significant drivers in the economies of sub-Saharan Africa. How do these industries
compare to commodities exports in terms of their contribution to regional economic
development?
ANSWER 3: The emergence of banking, telecommunications, and other service
industries in sub-Saharan Africa is an important step toward the establishment of a
Chapter 03 – National Differences in Economic Development
3-5
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The PPT slides include additional notes that can be viewed by
clicking on “view,” then on “notes.” The following provides a brief overview of each
Power Point slide along with teaching tips, and additional perspectives.
Slides 3-3 through 3-10 Determinants of Economic Development
Differences in economic development across countries are often linked to differences in
their political, economic, and legal systems.
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.
Slides 3-11 through 3-14 Political Economy and Economic Progress
A country’s economic development is a function of its economic and political systems.
There is debate on the kind of political system that best achieves a functioning market
economy with strong protection for property rights. People in the West tend to associate a
representative democracy with a market economic system, strong property rights
protection, and economic progress. Building on this, we tend to argue that democracy is
good for growth.
Chapter 03 – National Differences in Economic Development
3-6
Slides 3-15 and 3-16 Geography, Education, and Economic Development
In addition to political and economic systems, geography and education are also
important determinants of economic development
Slides 3-17 through 3-21 States in Transition
These changes were most dramatic in Eastern Europe, where the collapse of communism
brought an end to the Cold War and led to the breakup of the Soviet Union, but similar
changes were occurring throughout the world during the same period. Across much of
Asia, Latin America, and Africa there was a marked shift toward greater democracy.
There are three 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.
Chapter 03 – National Differences in Economic Development
3-7
Slides 3-22 and 3-23 The Nature of Economic Transformation
These changes have involved:
Deregulation – removing legal restrictions to the free play of markets, and allowing the
establishment and operations of private enterprises.
Privatization – transferring the ownership of state property into the hands of private
individuals, frequently by the sale of state assets through an auction.
Slides 3-24 through 3-29 Implications of Changing Political Economy
Just as the potential gains are large, so, too, are the risks. Democracy may not thrive in
some countries.
The long-run benefits of doing business in a country are a function of the size of the
market, the present wealth of consumers in that market, and the likely future wealth of
consumers.
Slide 3-31 How Attractive is your Home Town to Investors?
Chapter 03 – National Differences in Economic Development
3-8
CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: What is the relationship between property rights, corruption, and
economic progress? How important are anticorruption efforts in the effort to improve a
country’s level of economic development?
ANSWER 1: Innovation and entrepreneurship are widely recognized as important to
long-run economic growth. Innovation and entrepreneurship flourish in environments
QUESTION 2: You are a senior manager at a U.S. automobile company with the job of
deciding whether to invest in production facilities in China, Russia, or Germany. These
facilities will serve local market demand. Evaluate the benefits, costs, and risks
associated with doing business in each nation. Given your answer here, which country
seems to be the most attractive target for foreign direct investment? Why?
ANSWER 2: Responses to this question will vary by student. Many will probably
suggest that China’s low cost labor and large potential domestic market make it an
QUESTION 3: Reread the Country Focus feature on India and answer the following
questions:
a. What kind of economic system did India operate during 1947 to 1990? What kind of
system is it moving toward today? What are the impediments to completing this
transformation?
b. How might widespread public ownership of business and extensive government
regulations have impacted (i) the efficiency of state and private businesses, and (ii) the
rate of new business formation in India during the 1947 to 1990 time frame? How do you
think these factors affected the rate of economic growth in India during this time frame?
c. How would privatization, deregulation, and the removal of barriers to foreign direct
investment affect the efficiency of business, new business formation, and the rate of
economic growth in India during the post-1990 time period?
Chapter 03 – National Differences in Economic Development
3-9
d. India now has pockets of strengths in key high-technology industries such as software
and pharmaceuticals. Why do you think India is developing strength in these areas?
How might success in these industries help to generate growth in other sectors of the
Indian economy?
e. Given what is now occurring in the Indian economy, do you think the country
represents an attractive target for inward investment by foreign multinationals selling
consumer products? Why?
ANSWER 3:
a. From 1947 to 1990, India operated under a mixed economy that included several large
state-owned enterprises, central planning, and subsidies. Today, the country is moving
Chapter 03 – National Differences in Economic Development
3-10
CLOSING CASE: Political and Economic Reform in Myanmar
Summary
The closing case explores the recent political and economic changes in the country of Myanmar
(formerly known as Burma). With a new president in place, the government released hundreds of
military prisoners and freed Nobel Peace Prize winner Aung San Suu Kyi from house arrest. The
government also began privatizing state-owned enterprises and changed the official exchange rate
for the country’s currency. A discussion of the case can revolve around the following
questions:
QUESTION 1: What explains the economic stagnation of Myanmar until very
recently?
ANSWER 1: Myanmar has a long history of corrupt military rule that stifled economic
growth by limiting the development of new industries and by siphoning profits from
QUESTION 2: What do you think motivated the government of Myanmar to start
undertaking political and economic reforms from 2010 onward?
Chapter 03 – National Differences in Economic Development
3-11
ANSWER 2: Many of Myanmar’s neighbors in Southeast Asia embarked on a period of
political and economic reform in the second half of the twentieth century. Thus, by the
QUESTION 3: How would you characterize the nature of the economic reforms
now being implemented in Myanmar? What is the government trying to do here?
What do you think the results will be?
ANSWER 3: The government in Myanmar appears to be seeking greater integration with
regional and global economies. By allowing the national currency to decline in value, the
QUESTION 4: What potential impediments do you think might stand in the way of
further improvements in Myanmar?
ANSWER 4: The military still retains control of the political process in Myanmar, and
many observers wonder what its reaction will be to the results of the November 2015
Chapter 03 – National Differences in Economic Development
3-12
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library on Pinterest, which is
updated on a monthly basis. While there be sure to “like” the clips that work well for you,
and add notes that might be helpful to your colleagues.
INCORPORATING globalEDGE™ EXERCISES
Exercise 1
Increased instability in the global marketplace can introduce risks in a company’s daily
transactions which can be unanticipated. As such, your company must evaluate these
Exercise 2
Managers at your firm are very concerned about the influence of terrorism on its long-
term strategy. To counter this issue, the CEO has indicated you must analyze the
Answers to Exercise Questions
Exercise 1
Rankings”. Be sure to click on the Resource Desk link to search this area of the
globalEDGE website.
Chapter 03 – National Differences in Economic Development
Exercise 2
Political Violence Map from the resource’s webpage after free registration. This resource
is found under the globalEDGE category “Research: Rankings”. Be sure to click on the
Resource Desk link to search this area of the globalEDGE website.
Search Phrase: “Terrorism”