ECONOMIC

DEVELOPMENT
OF NATIONS

Chapter Five
ECONOMIC DEVELOPMENT ECONOMIC
Economic development refers to an increase in the economic
wellbeing quality of life and general welfare of a nation's people.
Economic development includes economic improvements in people's
lives as well as progress on physical health safety life expectancy
education and literacy poverty critical infrastructure environmental
sustainability and support as such the concept incorporates both
quantitative and qualitative features.

Economic development increase in the economic well-being quality of

life and general purpose of a nation's people.

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Yet economic development requires economic growth, which is a
quantifiable increase in the goods and services that a society produces.
Economic growth, in turn,depends on gains in productivity, which is
simply the ratio of outputs (what is created) to inputs (resources used to
create output).

We can speak about the productivity of a business, an industry, or an

entire economy. For a business to boost its productivity it must increase
the quantity of its output using the same amount of inputs or create the
same quantity of output with fewer inputs. Businesses increase
productivity through all forms of entrepreneurial activity and innovation.

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POLITICAL RISK
All companies doing business domestically or internationally confront political
risk—the likelihood of political action that will positively or negatively affect a
business. The longer supply chains and distribution channels of international
production and markets complicate political risk analysis.

Political risk varies from nation to nation and can affect different types of
companies in different ways. It can affect the market of an exporter, the
production facilities of a foreign manufacturer, or the ability of a firm to
extract a profit from a country in which it was earned.

Political risk likelihood of political action that will possibility or negativity affect
a business.
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Two broad categories of political risk reflect the range of companies they affect.
Macro risk threatens the activities of all domestic and international companies
in every industry. Examples include a general threat of violence against
corporate assets in a nation and a rising level of government corruption.
Micro risk threatens companies only within a particular industry or more
narrowly defined group. For example, an international trade war in still affects
the operations of still producers and companies that required still as an input to
their business activities.
The main resources of political risk include;
Conflict and violence
Property seizure
Government policies
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MANAGING POLITICAL RISK
International companies monitor and attempt to predict political
changes that can negatively affect their activities. When an
international business opportunity arises in an environment plagued by
extremely high risk, simply not investing in the location may be the
wisest course of action.

Companies should take a proactive approach to political risk and be

prepared for the possibility of something going wrong. One way to do
this is for companies to develop situational awareness.

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This typically involves setting up warning systems that scan for
political risk information. They can also establish protocols that trigger
automatic responses to specific situations. This creates a plan of
action to follow if a political risk event presents itself. Top global
corporations create in-house threat assessment units that constantly
track developments to stay ahead of potential risks.

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ECONOMIC TRANSITION
Countries with centrally planned economies have been remaking
themselves in the image of market economies for decades. This
process, called economic transition, involves changing a nation’s
fundamental economic organization and creating new free-market
institutions.

The purpose of this transition is to benefit from the efficiencies and

growth opportunities that market-based economies can provide. Yet
transition can be characterized by political and economic uncertainty.
And individuals can suffer from rising inequality, higher unemployment,
and being forced to work in the shadow economy.
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The biggest wave of economic transition occurred when countries across
Central and Eastern Europe turned to market economics.
Today, Cambodia, Laos, and Vietnam are also transitioning to more
market-based economies. And, of course, China, India, and Russia are
undergoing continued economic transition to varying degrees. Some
nations take transition further than others do, but the process typically
involves several key reform measures to promote economic development:
Stabilizing the economy, reducing budget deficits, and expanding
credit availability.
Allowing prices to reflect supply and demand.

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Legalizing private business, selling state-owned companies, and
supporting property rights.
Reducing barriers to trade and investment and allowing currency
convertibility Encouraging innovation through investment and
entrepreneurship.

economic transition process by which a nation changes its

fundamental economic organization and creates new free-market
institutions.

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 THE END

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