WORLD ECONOMIES

Chapter
4
 Learning Objectives

1. Understand how economies are classified.

Evaluate the statistics used in classifications: GNP, GDP, PPP as well as HDI, HPI, GDI, and GEM
2. Understand what the developing world is.
3. Understand what the developed world is.
4. Identify the major developed economies.
5. Understand what the developing world is.
6. Identify the major developing economies and regions.
7. Understand what the emerging markets and BRIC countries are.
8. Identify key emerging markets.
CLASSIFICATION
of
ECONOMIES
When evaluating a country, a manager is assessing:

 The country’s income and the purchasing power of its

people.
 The legal, regulatory, and commercial infrastructure,
including communication, transportation, and energy.
 The overall sophistication of the business environment.
 Statistics Used in Classifications
• Gross Domestics Products (GDP)
- The value of all the goods and services produced
by a country in a single year.
• Per Capita GDP
- The value of the GDP divided by the population of
the country.
 This is referred to as to as the nominal per capita GDP.
• GDP per person
- The value of the GDP adjusted for purchasing power.
 Helps managers understand how much income local
residents have.
• Purchasing Power Parity (PPP)
- An economic theory that adjusts the exchange rate
between countries to ensure that a good is purchased for
the same price in the same currency.
Figure 1: Per Capita GDP (Nominal) versus Per Capita GDP (PPP) of Select
Countries (2010)
Human Development Index (HDI)

A summary composite index that measures a country’s

average achievements in three basic aspects of human
development:
1. Health
 measured by life expectancy.
2. Knowledge
 measured by a combination of the adult literacy rate and
the combined primary, secondary, and tertiary gross
enrollment ratio.
3. A decent standard of living.
 by (income as measured by) GDP per capita (PPP US$).
 Human Poverty Index (HPI)

A composite index that uses indicators of the most

basic dimensions of deprivation: a short life (i.e., longevity),
a lack of basic education (i.e., knowledge), and a lack of
access to public and private resources (i.e.g., decent
standard of living).
UNDERSTANDING
THE

DEVELOPED
WORLD
 Developed Economies

Also known as advanced economies,

are characterized as post-industrial
countries—typically with a high per
capita income, competitive industries,
transparent legal and regulatory
environments, and well developed
commercial infrastructure.
 The United States

• The United States is the fourth-largest country in the world—after Russia,

China, and Canada.
• The United States is the world's largest single-country economy and
accounts for nearly 25% of the global domestic product (GDP).
• The strength of the U.S. economy is due in large part to its diversity.
• The U.S. has a service-based country. In 2009, industry accounted for
21.9% of the GDP.
• Services (including finance, insurance, and real estate) for 76.9%; and
agriculture for 1.2%.
 The United States

• Bull market: A market in which

prices rise for a prolonged period
of time.
• Bear market: A market in which
prices steadily drop in a downward
cycle.
 Germany

• Germany, member of the EU (European Union) has the fifth-largest economy

in the world.
• The country is a leading exporter of machinery, vehicles, chemicals, and
household equipment and benefits from a highly skilled labor force.
• It is the largest and strongest economy in Europe.
• Services drive the economy, representing 72.3 percent (in 2009) of the total
GDP.
• Industry accounts for 26.8 percent of the economy, and agriculture
represents 0.9 percent.
 Japan
• Japan’s post–World War II success has been the result of a well-crafted
economic policy that is closely administered by the government in alliance with
large businesses.
• It also benefits from its highly skilled workplace.
• Japan has very few mineral and energy resources and relies heavily on imports
to bring in almost all of its oil, iron ore, lead, wool, and cotton. It’s the world’s
largest importer of numerous raw materials including coal, copper, zinc, and
lumber.
• As with other developed nations, services lead the economy, representing 76.5
percent of the national GDP while Industry accounts for 21.9 percent of the
country’s output.
DEVELOPING
WORLD
Developing world

Countries that rank lower on various

classifications including GDP and the
HDI.
- These countries tend to have economies
focused on one or more key industries and tend to
have poor commercial infrastructure.
- The local business environment tends not to
be transparent, and there is usually a weal
competitive industry.
Developing world

• Developing countries sometimes find that their

economies improve and gradually they become
emerging markets.
• Focusing only on today’s political, economic, and
social condition distorts the picture of what these
countries have been and what they might become
again.
• Developing economies typically have poor,
inadequate, or equal access to infrastructure.
Major Developing Economies and Regions

• The Middle East

• Africa
• Nigeria
 How Do Developing Countries Become
Emerging Markets?

• A developing country, in order to evolve into an

emerging market, must:

- Seek to implement transparency in the government as

well as in the political and economic institutions help inspire
business confidence in their countries.

- Developing the local commercial infrastructure and

reducing trade barriers attract foreign businesses.
How Do Developing Countries Become
Emerging Markets?

- Educating the population equally and creating a

healthy domestic workforce that is both skilled and
relatively cheap is another incentive for global business
investment.

• First-mover advantage - The benefit that a company

gains by entering into a market first or introducing a new
product or service before its competitors.
EMERGING
MARKETS
What Exactly Is an Emerging Market?

Emerging Markets
 An evolving definition that is currently viewed as a country that can be
defined as a society transitioning from a centrally managed economy to a
free market-oriented-economy, with increasing economic freedom;
 Gradual integration within the global marketplace
 An expanding middle class
 Improving standards of living, social stability, and tolerance
 an increase in cooperation with multilateral institutions
Characteristics of Emerging Markets
1. Rapid Growth
2. High Productivity Levels
3. Increase in Middle Class
4. Instability and volatility
5. Transition from a closed economy to an open economy
6. Attraction of foreign and local investments
Countries with an Emerging
Market Economy

1. BRICS
 The BRICS countries is an acronym that refers to Brazil, Russia, India, China,
and South America.
2. NEXT ELEVEN
 Refers to countries that can potentially become like the BRICS with positive
growth prospects. The countries are Bangladesh, Egypt, Indonesia, Iran,
Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam.
3. MINT
 New term to distinguish Mexico, Indonesia, Nigeria, and Turkey.
 GROUP C
Sales Makayao
Senio Laurino
Dioso Baluran
Seloterio Cielo