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Assignment Part 1
The goal of this Assignment is to provide opportunities for you to learn about other countries while also improving your written and oral communication skills. This Assignment is intended to prepare you for the challenges of their chosen professions in business, government, non-profits, and academics. Having an understanding of business etiquette in America is essential for anyone seeking a career in business. Having an understanding of business etiquette in other countries gives a competitive advantage, which is essential in Macroeconomics.
Your company has a product that it is interested in marketing in a foreign country. Conduct Internet research on a country of your choice to learn about etiquette, customs, and protocol for the chosen country. Summarize your findings in a 1–2 page report that your colleagues and management would find beneficial.
In addition, enclose a memo that includes at least 5 etiquette tips unique to the selected country. Use complete sentences. Be sure to paraphrase the information collected and use appropriate citations. Also discuss how knowing about global business etiquette practices would be beneficial for topics in Macroeconomics.
Required Format:
Correct citations within answers
Standard English with no spelling or punctuation errors
Correct references at the bottom of the last page
Part 2 at least 150 word and use references
Suppose that the economy is currently at potential output. Also, suppose that you are an economic policy maker and that a college economics student asks you to rank, if possible, your most preferred to least preferred type of shock: positive demand shock, negative demand shock, positive supply shock, and negative supply shock. How would you rank them and why?
Unit Assignment
There are 2 parts to this Assignment:
PART 1:
Comparing Growth Rates
First, prepare yourself for the Assignment by reading the following three articles or webpages:
Professor Dave Alber’s Lecture can be found in the Doc Sharing area of the course.
Abler, D. (n.d.) Notes for a Lecture on Economic conditions in developing countries. Copyright permission granted September 25, 2010.
Khan’s (2001) article by going to the International Monetary Fund Website (see the Webliography).
Khan, M. H. (2001). Rural poverty in developing countries: Implications for public policy. Economic Issues NO. 26. International Monetary Fund. Retrieved July 6, 2012.
You can find the most up-to-date report on the World Bank website. (See Webliography).
The World Bank Group. (2012). Prospects for the Global Economy. Washington D.C.
After you have read the items listed above, access the “Data & Research” tab in the World Bank Website and compare growth rates between two countries of your choice. Specifically, select one developed country (such as U.S., England, Canada, Germany, etc.), and select one developing country (such as Angola, Bangladesh, Chad, Nigeria, etc.).
Find and transfer their 2007–2011 GDP growth (annual %) data into your Assignment. Identify and explain possible factors that may be adding to the differences between their GDP growth rates.
PART 2:
Loanable Funds Market
Answer questions 1a and 1b:
1. Analyze each of the following changes in the market for loanable funds. Explain what happens to private savings, private investment spending, and the rate of interest if the following events occur. Assume the economy is closed (no transactions are made with foreign countries).
a. The government reduces the size of its deficit to zero.
b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero.
Economic Conditions in Developing Countries
An economics lecture by Professor Dave Abler of Penn State University retrieved from:
http://450.aers.psu.edu/economic_conditions.cfm
This lecture provides a broad overview of economic conditions in developing countries.
Specific topics covered include:
Daily life in developing countries
Some terminology to get us started
Economic growth vs. economic development
Selected socioeconomic statistics
Common socioeconomic characteristics of developing countries
Key socioeconomic differences among developing countries
Daily Life in Developing Countries
The differences between day-to-day life in developing countries and the U.S. are huge and
can be very difficult for us to comprehend. Virtually everything – what people own, what
they do for a living, what they do in their leisure time, what they expect out of life for
themselves and their children, the way they think about themselves and others, the things
they take for granted, and more – differs dramatically.
According to the World Bank, nearly 1 billion people live below the international poverty line
of $1.08 in consumption expenditures per person per day in 1993 purchasing power parity
(PPP) adjusted U.S. dollars. (Purchasing power parity is defined below.) That’s about $1.53
per person per day in today’s dollars. Another 1.5 billion are only a little better off, living on
less than $2.15 per day in 1993 PPP adjusted U.S. dollars. These are commonly referred to
as the “$1-a-day” and “$2-a-day” poverty lines.
So what would it be like living on $1.53 per day? An article from USA Today may be helpful
in putting things into perspective.
Get rid of your car and all of your furniture and appliances except one chair and one
table – no TV, stereo, refrigerator, dishwasher, clothes washer, dryer, or even
lamps.
Get rid of all your clothing except your oldest, most beaten-up shirt and pair of
jeans. If you’re the head of the family, you can keep one pair of shoes. If not, get rid
of them too.
Remove the food from the kitchen. You can keep one small bag of flour, some sugar
and salt, and a few potatoes, onions, cabbages or dry beans. You’ll cook with
firewood or dried cow dung.
Shut off the water, gas and electricity. While you’re at it, dismantle the bathroom.
Your new bathroom will be the local stream or pond. You’ll get your drinking water
from there too.
Move out of the house and into the toolshed. Your neighborhood will be a small
village or shantytown.
http://450.aers.psu.edu/economic_conditions.cfm
Don’t waste any time on newspapers, books and magazines. They’ll be meaningless
to you because you’ll give up literacy.
Hold $10 in case of emergency – no bank account, pension plan or insurance
policies.
Cultivate three acres as a tenant farmer. If the weather’s good, you can expect $300
to $500 per year in cash crops. You’ll pay one third of that to the landlord and
another tenth to the moneylender.
No need to worry about keeping yourself busy in retirement, because you’ll be lucky
if you live past 55 or 60.
Terminology
How should we define the countries we’re studying in this course? A lot of terms have
sprung up over the years, some better than others.
Third World. This term is based on an old division of the globe into the first world (North
America, Western Europe, Japan), second world (communist countries), and third world (all
other countries). This division is outdated. Communism as an economic system is dead,
even in countries such as China that still call themselves communist.
Developing Countries. This term, and the term less-developed countries, are the two
most popular. For this reason they’ll be the terms we use most often in this course.
However, we need to bear in mind that they can be misleading. Many of the developing
countries aren’t developing at all in economic terms. Per capita income (which is just total
income divided by total population, or average income per person) usually rises over time,
but there are developing countries where it’s actually falling. For example, per capita
income in the Haiti fell by about a third between 1990 and 2005.
This terminology can also be misleading because the so-called developed countries such as
the U.S. continue to grow economically. In fact, the U.S. of 50 years ago, which was by far
the wealthiest country in the world at that time, would be considered a relatively poor
country today. The developing vs. developed country terminology doesn’t imply that all
developing countries are experiencing similar development or that developed countries have
reached a preferred or final stage of development.
Low-Income Countries and Middle-Income Countries. Technically speaking, these
terms are the most accurate and the least subject to confusion about what they actually
mean. They refer to countries that have relatively low levels of per capita income. The
World Bank divides countries into three groups based on their per capita incomes: low-
income, middle-income, and high-income. The cutoffs in U.S. dollars as of 2005 were: low-
income, $875 or less; middle-income, $876 to $10,725; high-income, $10,726 or more. The
middle-income group is sometimes split up into lower-middle ($876 to $3,465) and upper-
middle ($3,466 to $10,725). These cutoffs are updated annually.
For the purposes of this course, a developing country or less-developed country is defined
as a low-income or middle-income country.
As a caveat, per capita income is one useful indicator of economic performance but it by no
means is the entire story. Per capita income doesn’t tell us whether income is evenly or
unevenly distributed among the people of a country. A country with a high per capita
income could still have a lot of very poor people. It also doesn’t deal adequately with
environmental or natural resource degradation.
The low-income and middle-income country groups include the countries of eastern Europe
and the former Soviet Union that lived under communism until the late 1980s or early
1990s. I won’t be talking about these countries in any of the lectures in this course. It’s not
that they’re unimportant – far from it. Rather, it’s because the economic problems and
adjustments facing these countries as they move toward a market economy are much
different from those facing other low-income and middle-income countries. However, term
papers on these countries are welcome.
Other Terms. People sometimes talk about the north vs. south. The north refers to
developed countries, which for the most part lie north of the equator. The south refers to
developing countries, which for the most part lie south of the equator. Other terms, such as
rich and poor, are used at times as well.
Economic Growth vs. Economic Development
People sometimes use the terms economic growth and economic development
interchangeably. To economists and others working on economic development, however,
they mean different things. Economic growth refers to a rise either in total national income
or in per capita income. Of these two, per capita income is much better because per capita
income can only go up if total income is rising faster than population. There are some
countries where total income is growing but per capita is falling because population is
growing even faster.
For the purposes of this course, economic growth means a rise in per capita income.
Economic development is a much broader concept than economic growth. It implies an
improvement in the quality of human life, which is much more than increasing per capita
income. It also entails reducing poverty and enhancing individual economic opportunities.
Some economists take the concept of economic development even farther, extending it to
include better education, improved health and nutrition, conservation of natural resources, a
cleaner environment, and a richer cultural life.
Selected Socioeconomic Statistics
To give us some feel for socioeconomic conditions in developing countries vs. developed
countries, here are some basic statistics for the ten largest developing countries in terms of
population (China, India, Indonesia, Brazil, Pakistan, Bangladesh, Nigeria, Mexico,
Philippines, Vietnam). Also shown for purposes of comparison are statistics for the three
largest developed countries in terms of population (U.S., Japan, Germany).
Country
Population
(millions),
2005
Population
Growth Rate,
1990-2005
(%/year)
Per Capita
Income,
U.S. $,
2005
Per Capita
Growth Rate,
1990-2005
(%/year)*
PPP-Adjusted
Per Capita
Income, U.S.
$, 2005
China 1305 1.4 1740 8.9 8610
India 1095 1.7 730 4.6 3460
Indonesia 221 1.4 1280 3.0 3720
Brazil 186 1.5 3550 1.2 8230
Pakistan 156 2.4 690 1.7 2350
Bangladesh 142 2.1 470 2.9 2090
Nigeria 132 2.5 560 1.1 1040
Mexico 103 1.4 7310 1.3 10030
Philippines 83 2.0 1320 1.8 5300
Vietnam 83 1.5 620 6.3 3010
U.S. 296 1.1 43560 2.1 41950
Japan 128 0.2 38950 1.0 31410
Germany 82 0.3 34870 1.1 29210
*Growth rate in inflation-adjusted per capita income
Source: World Bank, World Development Indicators 2007
In the table above, PPP refers to purchasing power parity. One major problem when
comparing incomes across countries is that the cost of living can differ significantly from one
country to another. Some things such as housing tend to be less expensive in developing
countries than in developed countries. Other things, such as imported consumer goods,
tend to be more expensive. On the whole, taking into account all goods and services, the
cost of living tends to be lower in developing countries than in developed countries. The cost
of living can also differ substantially within countries, which you should know yourselves
from living in State College if you’re from a rural area (where costs tend to be lower) or a
large city (where costs tend to be higher).
The usual per capita income figures don’t take into account cost-of-living differences
between countries and for this reason can lead to misleading conclusions about differences
across countries in standards of living. The PPP estimates of per capita income adjust the
usual figures for a country for cost-of-living differences that country and a benchmark
country (roughly the U.S.). In other words, roughly speaking, the U.S. is the “reference”
country for comparison purposes.
A short example might help illustrate the logic behind the PPP procedure. Suppose per
capita income in country ABC is $5000, and that the cost of living in the U.S. is on average
200% higher than in ABC (in other words, it’s 3 times greater in the U.S. than in ABC). If
someone who was making $10000 per year in ABC moved to the U.S., she or he would need
to earn $30000 (= 3 x $10000) in the U.S. to have the same standard of living as before.
Again, it should be noted that the countries of the former Soviet Union are not included
here. Russia, for example, had 143 million people in 2005. Ukraine, the second most
populous country of the former Soviet Union, had 47 million people in 2005.
http://www.worldbank.org/data/wdi2007/
The table below presents some statistics on poverty and human welfare for our ten
developing countries and three developed countries.
Country
% Population Below
International Poverty
Line, 2000-2004
% Population
Undernourished,
2002-2004
Infant Morality
Rate (per 1000
live births),
2005
Life Expectancy
at Birth (years),
2005
China 10 12 23 72
India 33 20 56 64
Indonesia 7 6 28 68
Brazil 8 7 31 71
Pakistan 17 24 79 65
Bangladesh 41 30 54 64
Nigeria 71 9 100 44
Mexico 3 5 22 75
Philippines 15 18 25 71
Vietnam 2 16 16 71
U.S. 0 ** 6 78
Japan 0 ** 3 82
Germany 0 ** 4 79
**Less than 1%
Source: World Bank, World Development Indicators 2007
As noted above, the international poverty line is defined as consumption expenditures of
less than $1.08 per person per day in 1993 purchasing power parity (PPP) adjusted U.S.
dollars, or about $1.53 per person per day in today’s dollars. This is a much more stringent
definition of poverty than the one we use in the U.S. (which is currently $20,650 for a 4-
person household). That’s low, but this is much, much lower.
Common Socioeconomic Characteristics of Developing Countries
As the figures in the tables above indicate, developing countries can differ dramatically from
each other. Nevertheless, they do have many socioeconomic characteristics in common.
Low Standards of Living. Standards of living tend to be low in developing countries, not
only in comparison to developed countries but also in comparison to small, elite groups
within developing countries. Low standards of living manifest themselves in many ways,
including low incomes, high rates of poverty, inadequate housing, poor health, malnutrition,
limited or no education, high infant mortality rates, and low life expectancy.
http://www.worldbank.org/data/wdi2007/
Low Levels of Productivity. The productivity with which capital, labor, land and other
inputs into production are used varies significantly from one country to another. Productivity
depends on the technologies used by producers, the human capital of the labor force, and
the quality and quantity of the country’s infrastructure. In general, all these things are
scarce in developing countries, which largely explains their low standards of living. More
about this later in the course.
Relatively High Rates of Population Growth. Both age-adjusted birth rates and age-
adjusted death rates tend to be high in developing countries, with birth rates significantly
higher than death rates. The result is relatively high rates of population growth in most
developing countries, particularly African countries.
One result of high birth rates in developing countries is that children under the age of 15
make up over one-third of the total population in low-income countries, compared with
about one-sixth in high-income countries. This means that, in low-income countries, the
average adult worker has to support about twice as many children as the average adult
worker in a high-income country, and on a substantially lower income. (The U.S. and other
high-income countries have their own concerns in the form of an “old age” dependency
burden.)
Dependence on Agriculture. Most people in developing countries live and work in rural
areas. About two-thirds of people in low-income countries live in rural areas, compared to
about one-third in middle-income countries and one-fourth or less in developed countries.
Nearly two-thirds of the labor force in low-income countries is employed in production
agriculture, while the corresponding figure for middle-income countries is over one-fourth.
In high-income countries, less than 5% of the labor force is in production agriculture (in the
U.S. it’s only about 1%).
Large Percentage of Income Spent on Food. Families and households have much less
income in developing countries than their counterparts in developed countries, and a high
percentage of what they do have is spent on food. In low-income countries, households on
average spend 47% of their income on food. In middle-income countries, it’s 29% and in
high-income countries it’s only 13%. For the U.S. the figure is 10%, split between food
consumed at home (6%) and dining out (4%).
Dependence on Primary Exports. To a much greater degree than developed countries,
the economies of developing countries are oriented toward the production of primary
products (agriculture, fuel, forestry, raw materials) rather than secondary activities
(manufacturing) or tertiary activities (services). For developing countries as a whole about
45-50% of all exports are from primary commodities. Another 10-15% are from textiles and
clothing, which are labor-intensive products. Among developed countries, less than 20% of
all exports are from primary commodities, and only 5% are from textiles and clothing.
The result is that prices of primary commodities are of great importance to developing
countries. Primary commodity prices tend to be quite volatile. The general trend in inflation-
adjusted primary commodity prices over the last 50 years has been downward.
Rapid Urbanization. The predominance of agriculture, rural areas, and primary
commodities is diminishing rapidly in most developing countries as people move in large
numbers from rural areas to cities. As much as 90% of population growth and economic
growth in developing countries will be concentrated in cities in the future. A large
percentage of these people will live in poverty, without access to adequate water or
sanitation facilities. By 2010 developing countries will contain eight of the planet’s ten
megacities (cities with ten million or more inhabitants), with Mexico City, São Paulo,
Mumbai, Delhi, Kolkata, and Shanghai at the top of the list. According to World Bank
projections there will be 27 megacities by 2015, and the urban population of developing
countries will exceed four billion. That’s more than the total world population 25 years ago.
Key Socioeconomic Differences among Developing Countries
In each of the common characteristics listed above we could also find key differences
among developing countries. There are other differences as well.
Standards of Living. Standards of living, while low in comparison to developed countries,
do vary tremendously among developing countries. The PPP per capita income column in
the table above gives you some flavor of these differences. In 2005, PPP estimated per
capita income in developing countries ranged from $640 in Burundi to $13,920 in Argentina.
Levels of Productivity. While levels of productivity tend to be low on the whole, there are
many companies in developing countries that are as technologically sophisticated as their
developed country counterparts. Autos, computers, consumer electronics, financial services
and oil and gas are but a few of the many sectors where a number of developing countries
employ state-of-the-art technology.
What makes developing countries interesting and different from countries such as the U.S.
50 or 100 years ago is this coexistence of traditional and modern technologies. Outside of a
state-of-the-art automobile plant, people may be digging a new sewer line by hand. In
many countries, you can go 20 or 30 miles outside of a city and go back 100 years.
Population Growth Rates. Although developing countries as a whole have relatively high
rates of population growth, there are significant differences from one country to another.
China’s population growth rate, for example, is actually less than the U.S. rate. On the other
hand, Nigeria and many other African countries have very high rates of population growth.
Size. Over 80 developing countries have fewer than 5 million people. At the other end of
the scale, we have China with over 1.3 billion people and India with now over 1 billion.
Geographic size also varies. Leaving aside Russia, China (9.6 million square kilometers) and
Brazil (8.5 million square kilometers) are the two largest developing countries. At the
opposite end are some extremely small countries such as Swaziland (17000 square
kilometers).
Is population size or geographic size an economic plus or minus? Statistical studies
generally don’t turn up too many major differences in economic performance between small
and large countries (after accounting for other factors that affect performance).
Historical Background. Most African and Asian countries were at one point colonies of
western European countries. Slavery had a devastating impact on many parts of Africa.
Colonization introduced western institutions not indigenous to many areas of Asia and Africa
(such as private property, personal taxation, and monetary transactions). These institutions
would in most cases have been introduced sooner or later anyway, but their premature
introduction did have many disruptive effects. Colonialists generally failed to invest in the
human capital and physical capital of their colonies. They also tended to draw national
boundaries more for their own ease of administration than on the basis of local social,
political and economic conditions.
Latin America has a longer history of political independence than most of Asia or Africa.
However, Spanish and Portuguese colonization definitely left its mark. For example,
indigenous peoples were typically thrown off the land by colonialists and were isolated both
socially and economically. The effects of this continue to be felt. Being indigenous in Latin
America is still almost synonymous with being poor. Land distribution continues to be a
politically volatile issue. The poor treatment of indigenous peoples has led to political
instability in countries and regions where a large percentage of the population is indigenous
– for example, Bolivia, Guatemala, Peru, and the Mexican state of Chiapas.
One caveat: while no one should deny the importance of historical background, this in no
way excuses, justifies, or minimizes the importance of a number of serious economic policy
mistakes made in many developing countries in the last few decades.
Natural and Physical Resources. Developing countries vary tremendously in terms of
natural resources, human capital, and physical capital. The Persian Gulf oil states represent
one extreme in terms of a favorable resource endowment. Some developing countries lie in
tropical forest regions, others in arid or semi-arid regions. Large developing countries like
China and India encompass many different ecosystems.
Summary
The six key points in this lecture are:
1. The differences between day-to-day life in developing countries and the U.S. are
huge. What people own, what they do for a living, what they do in their leisure time,
what they expect out of life for themselves and their children, the way they think
about themselves and others, and the things they take for granted all differ
dramatically.
2. A lot of differing terminology is used to describe the countries we’re studying in this
course – developing countries, less-developed countries, low-income or middle-
income countries, and the south. These are all countries with relatively low levels of
per capita income.
3. Economic growth and economic development are two different concepts. Economic
growth means a rise in per capita income. Economic development is a much broader
concept. It implies an improvement in the quality of human life, which entails not
only increasing per capita income but also reducing poverty and enhancing individual
economic opportunities.
4. In order to make accurate comparisons across countries, statistics on income and
expenditures should be adjusted for cross-country differences in the cost of living. In
other words, they should be corrected for purchasing power parity (PPP).
5. Compared to developed countries, most developing countries share several
characteristics in common: low standards of living, low levels of productivity,
relatively high rates of population growth, a large percentage of consumer income
spent on food, dependence on primary exports, and rapid rates of urban growth.
6. Developing countries differ among themselves in their standards of living, levels of
productivity, geographic size, population, population growth rates, historical
background, industrial structure, and natural and physical resources.
Professor Dave Abler
Penn State University
207 Armsby Building
University Park, PA 16802
USA
Email: dave@btnumbers.com
© 2002-2010 Dave Abler except where noted. All rights reserved worldwide
Copyright Permission to use in course granted 9/25/2010
mailto:dave@btnumbers.com
