Week 3OL development NEW ag. Spring 2025

Week 30: Development

Differences in Institutions

• Seoul, North Korea: Represents centrally planned government with strict control.

• Pyongyang, South Korea: Characterizes a more open economic and political system.

Key Insights for Business Analysis

• Objective: To analyze a country for business viability using previous week's content on political economy and this week's focus on economic development and PEST analysis.

• Inequality in Development: Notable disparities in global development; dysfunctional systems hinder growth.

  • Corruption is detrimental to economic progress.

  • Protection of intellectual property encourages innovation.

  • Essential factors: Fair court systems and rule of law.

• PEST Analysis:

  • Political, Economic, Social, and Technological aspects to evaluate investment opportunities.

  • Recommended sources: BBC country profiles and CIA World Factbook for insightful data.

Institutions: Effects and Causes

• Critical Institutions:

  • Property rights, rule of law, freedom of press, honest governance, open markets, trust.

• Diversity of Institutions: Influenced by:

  • History, Geography, Culture.

Corruption

• Impact on Legal Systems: Untrustworthy legal systems in highly corrupt countries hinder business.

  • Dysfunctional Economies: The firms that succeed are often those who are well-connected rather than efficient.

  • Investment Deterrence: High corruption leads to asset seizures and increased risks, causing low investment attraction.

Corruption Around the World (2013)

• Corruption is measured on a scale from highly corrupt (0-9) to very clean (90-100).

  • Visual representation of corruption indexes highlights global disparities.

Discussion Case: India

• Review of India’s economic landscape through videos focusing on:

  • Social and economic costs of bribery

  • Role of agents in corrupt economies

  • Challenges posed to international businesses by endemic corruption.

Development Defined

• Economic Measures:

  • Per-capita GDP (Gross Domestic Product) and GNI (Gross National Income).

Human Development

• Outcomes Evaluated:

  • Health, life expectancy, literacy, women’s rights, education, and standard of living.

  • Human Development Index (HDI): Measures broader socio-economic variables beyond just income.

Human Development Index (HDI)

• Dimensions:

  • Life expectancy, education, and standard of living (GNI per capita).

• Indicators:

  • Life expectancy at birth, average years of schooling, GNI per capita (PPP).

HDI Sample Data

• Countries with Very High Human Development:

  • Norway: 0.944; Australia: 0.935; Switzerland: 0.930.

• Countries with Low Human Development:

  • Kenya: 0.548; Nepal: 0.548; Pakistan: 0.538.

Inequality Adjusted HDI

• This index provides a clearer understanding of a nation’s development by accounting for income distribution discrepancies.

Gender Development Index

• Gender equality is crucial; restricting women limits overall national development prospects.

Corruption and Development

• Relationship: Corruption engenders a cycle of underdevelopment, poor tax revenue, and inadequate infrastructure.

2010 Per Capita GDP vs. Corruption

• Inversely correlated: Countries with lower GDP tend to have higher corruption levels; e.g., Democratic Republic of Congo.

Corruption and Entrepreneurship

• Corruption undermines property rights, thus reducing entrepreneurial motivations and innovation.

Most Innovative Economies

• Leading countries in innovation: South Korea, Sweden, Germany; new entrants to the top ranks include Israel.

Economic Development Factors

• Geographical: Favorable geography promotes trade and growth.

• Education Levels: Investment in education correlates with economic development success.

Additional Economic Development Factors

• Influence of historical, infrastructural, and capital availability on economic growth.

Thematic Synthesis

• Concluded thematic review of political economy and development.

• Next discussion topic: The role of culture in business attractiveness.

PEST Analysis Framework

• A structured approach to assess political, economic, social, and technological factors affecting business decisions.

• Strengths and Weaknesses: Analytical benefits vs. high risks, corruption, and lack of infrastructure that can impact business decisions.

Specific Risks in Business

• Political Risk: Changes in government affecting business.

• Economic Risk: Economic mismanagement impacts business viability.

• Legal Risk: Contracts being violated or property rights not protected.

Cost Implications

• Political Costs: Bribes and lobbying expenses.

• Economic Costs: Infrastructure deficiencies affecting overall costs.

• Legal Costs: Higher costs from varying standards across jurisdictions.

Detailed PEST Analysis Guidelines

• Steps to evaluate each factor (Political, Economic, Social, Technological) and gather strategic insights.

Focus on India’s PEST Analysis

• Assess prospect for Apple’s manufacturing presence in India.

Conclusion

• Variability in development levels (GNI, GDP, and HDI) corresponds to political, economic, and legal risks.

• Fast-growing economies may bear higher risks, necessitating thorough risk assessment for business ventures.