Chapter 3 Differences in Economic Development

International Business

What is economic development concerned with?

Attractive differences among nations for doing business.

What trends foster greater economic development?

Democratic forms of government; Market‑based economic reforms; Legal systems that better enforce property rights.

What is Gross Domestic Product (GDP)?

Measures the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

What is Purchasing Power Parity (PPP)?

An adjustment in gross domestic product per capita to direct comparison of living standards in different countries.

What is a limitation of GDP and PPP data?

GDP and PPP data are static and do not consider economic growth rates.

What is true about China and India’s economic growth?

China and India are currently relatively poor, but their economies are growing more rapidly than many advanced nations.

What does Amartya Sen say development requires?

Removing major impediments to freedom: poverty, tyranny, poor economic opportunities, systematic social deprivation, neglect of public facilities, and intolerance of repressive states.

What is the Human Development Index (HDI)?

HDI is based on three measures: Life expectancy at birth; Educational attainment; Whether average incomes are sufficient to meet the basic needs of life.

Why are strong property rights important?

Without strong property rights, individuals and businesses risk having innovations and potential profits stolen.

What happens when property rights are weak?

This reduces the incentive for innovation and entrepreneurism.

How do totalitarian states affect progress?

Totalitarian states are detrimental to progress. They limit freedom and suppress human development.

What does economic growth often lead to?

Establishment of democratic regimes.

Which countries experienced this?

South Korea, Taiwan, and Indonesia.

How does education affect economic development?

Nations that invest more in education will have higher growth rates.

How does population growth affect development?

A growing population increases the supply of labor.

How do larger populations affect innovation?

Larger populations drive more inventors, fostering greater technological innovation and faster economic growth.

What political trend has occurred since 2005?

Since 2005, there has been a drift back toward more authoritarian modes of government in many nations.

What are examples of this authoritarian drift?

Turkey, Russia, Indonesia, Ecuador, and Venezuela.

How many countries have changed economic systems?

More than 30 countries in the former Soviet Union and Eastern European communist bloc have changed economic systems.

Where else is change occurring?

Change also occurring in Asian and African states.

Does economic freedom guarantee political freedom?

Economic freedom does not necessarily equate with political freedom.

What does the shift toward a market‑based system involve?

Deregulation; Privatization; A legal system to safeguard property rights.

What is deregulation?

Removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate.

What is privatization?

Transfers ownership of state property to private individuals.

What does a well‑functioning market economy require?

Laws; Need to protect property rights; Mechanisms for contract enforcement.

What is overall attractiveness based on?

Balancing the benefits, costs, and risks associated with doing business in that country.