The World Economy – An Overview

The new realities continued:

– 75-year struggle between capitalism and
socialism has almost ended
– E-Commerce diminishes the importance of
national barriers and forces companies to re-
evaluate business models

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The World Economy – An Overview

The new realities:

– Capital movements have replaced trade as the
driving force of the world economy
– Production has become uncoupled from
employment
– The world economy, not individual countries, is
the dominating factor

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Economic Systems
4 main types of economic systems
– Market Capitalism
– Centrally planned socialism
– Centrally planned capitalism
– Market socialism

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Economic Systems
Resource Allocation

Market Command

Private Centrally
Market Planned
Capitalism Capitalism
Resource
Ownership
Centrally
Market Planned
State Socialism Socialism

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Market Capitalism
Individuals and firms allocate resources
Production resources are privately owned
Driven by consumers
Government should promote competition
among firms and ensure consumer
protection

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Centrally Planned Socialism
Opposite of market capitalism
State holds broad powers to serve the public
interest; decides what goods and services are
produced and in what quantities
Consumers can spend on what is available
Government owns entire industries
Demand typically exceeds supply
Little reliance on product differentiation,
advertising, pricing strategy
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Centrally-Planned Capitalism
Economic system in which command
resource allocation is used extensively in an
environment of private resource ownership
Examples:
– Sweden
– Japan

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Market Socialism
Economic system in which market
allocation policies are permitted within an
overall environment of state ownership
Examples:
– China
– India

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Economic Freedom
Rankings of economic freedom among countries
– Ranges from “free” to “repressed”
Variables considered include such things as:
– Trade policy
– Taxation policy
– Banking policy
– Wage and price controls
– Property rights

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Index of Economic Freedom
In practice, the index measures:
– Size of Government: Expenditures, Taxes, and
Enterprises
– Legal Structure and Security of Property Rights
– Access to Sound Money
– Freedom to Trade Internationally
– Regulation of Credit, Labor, and Business

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Big Emerging Markets
China
India
Indonesia
South Korea
Brazil
Mexico
Argentina
South Africa
Poland
Turkey ██ Emerging markets██ Developed markets

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Rapidly Developing Economies
The term "rapidly developing economies" is
now being used to denote emerging markets
such as
– The United Arab Emirates,
– Chile and
– Malaysia
that are undergoing rapid growth.

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Marketing Opportunities in LDCs
Characterized by a shortage of goods and
services
Long-term opportunities must be nurtured
in these countries
– Look beyond per capita GNP
– Consider the LDCs collectively rather than
individually
– Consider first mover advantage
– Set realistic Deadlines

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Influencing the World Economy
Group of Seven (G-7)
Organization for Economic Cooperation an
d Development
The Triad

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BRIC
BRIC or BRICs are terms used to refer to the
combination of Brazil, Russia, India, and China.
The economies of the BRICs are rapidly
developing and by the year 2050 will eclipse most
of the current richest countries of the world.

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Market Characteristics
• Population demographics
- Age distribution, life expectancy, household size, urbanisation
• Income
- Low, Medium and High
- GDP per capita
- Purchasing Power Parity (PPP)
• Consumption Patterns
- Income spent on necessities and luxuries
- Product saturation and diffusion
- Product form differences

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Market Characteristics
Availability and quality of infrastructure
- Distribution networks (road, rail)
- Communication systems for marketing
- Supply and use of energy
Foreign involvement in the economy
- Degree of FDI (foreign direct investments) and the industries
- Investment rules and guidelines
Impact of economic environment on social development
- urbanisation, life expectancy, literary rates, physical quality of life
index (PQLI)

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Balance of Payments
The balance of payments (or BOP)
measures the payments that flow between
any individual country and all other
countries.

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Gini coefficient
The Gini coefficient is a measure of statistical dispersion most
prominently used as a measure of inequality of income distribution or
inequality of wealth distribution. It is defined as a ratio with values
between 0 and 1: A low Gini coefficient indicates more equal income
or wealth distribution, while a high Gini coefficient indicates more
unequal distribution. 0 corresponds to perfect equality (everyone
having exactly the same income) and 1 corresponds to perfect
inequality (where one person has all the income, while everyone else
has zero income). The Gini coefficient requires that no one have a
negative net income or wealth. Worldwide, Gini coefficients range
from approximately 0.232 in Denmark to 0.707 in Namibia although
not every country has been assessed.
The Gini index is the Gini coefficient expressed as a percentage. Thus
Denmark's Gini index is 23.2%.

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Human Development Index
The Human Development Index (HDI) is an index
combining normalized measures of life expectancy,
literacy, educational attainment, and GDP per capita for
countries worldwide. It is claimed as a standard means of
measuring human development—a concept that, according
to the United Nations Development Program (UNDP),
refers to the process of widening the options of persons,
giving them greater opportunities for education, health
care, income, employment, etc. The basic use of HDI is to
rank countries by level of "human development", which
usually also implies to determine whether a country is a
developed, developing, or underdeveloped country.

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Group of Seven (G-8)
Leaders from these high income countries work to
establish prosperity and ensure monetary stability

World
Development
Report 2006

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Organization for Economic
Cooperation and Development

36 nations each with market-allocation

economic systems
Mission: to enable its members to achieve
the highest sustainable economic growth
and improve the economic and social well-
being of their populations

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