CHAP 3.

National Differences in Economic Development

1. What Determines A Country’s Level Of Economic Development?
Gross national income (GNI) per person measures the total annual income received by residents of a
nation.
GNI can be misleading because it does not consider differences in the cost of living
 need to adjust GNI figures using purchasing power parity (PPP)
Official figures can also be misleading because they do not account for black economy transactions
GNI and PPP data are static and do not consider economic growth rates
The United Nations used Sen’s ideas to develop the Human Development Index (HDI) which is based
on:
 life expectancy at birth
 educational attainment
 whether average incomes are sufficient to meet the basic needs of life in a country
2. How Does Political Economy Influence Economic Progress?
Innovation and entrepreneurship are the engines of long-run economic growth
 innovation includes new products, new processes, new organizations, new management
practices, and new strategies
 entrepreneurs commercialize innovative new products and processes
Innovation and entrepreneurship help increase economic activity by creating new markets and products
that did not previously exist
Innovation and entrepreneurship require a market economy
 there is little incentive to develop new innovations in planned economies because the state
owns all means production and therefore, the gains
Innovation and entrepreneurship require strong property rights
3. How Does Geography Influence Economic Development?
Countries with favorable geography are more likely to engage in trade, and so, be more open to market-
based economic systems, and the economic growth they promote.
4. What Is The Nature Of Economic Transformation?
 The shift toward a market-based system involves
5. What Are The Implications Of Political Economy Differences For Managers?
Countries with democratic regimes, market based economic policies, and strong property rights protection
are more likely to have higher sustained rates of economic growth.
The benefits of doing business in a country are a function of
 the market’s size
 the purchasing power of its consumers
 their likely future wealth
By identifying and investing early in potential future economic stars, firms may be able to gain first
mover advantages (advantages that accrue to early entrants into a market) and establish loyalty and
experience in a country
The risks of doing business in a country are a function of its
 political risks

 economic risks

 legal risks
6. How Can Managers Determine A Market’s Overall Attractiveness?