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Relationship among property right, corruption, and economic progress

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1. What is the relationship among property right, corruption, and economic progress? How important are anticorruption efforts in the efforts to improve a country’s level of economic development?

Corruption can reduce growth but also how it can increase growth, for example, by avoiding bureaucratic delays. The results of cross-country empirical literature on the effect of corruption on growth are mixed. Since corruption is an incendiary topic that elicits much anger, it is also important to exercise caution and to pursue rational anti-corruption policies. The issue of data collection and accurate detection of corruption is vital again in this case, since sanctioning an entire group of people for corruption when only a subgroup is culpable is counterproductive.

2. You are senior management in a U.S automobile company considering whether to invest in production facilities in China, Russia, or Germany. These facilities will serve local market demand. Evaluate the benefits, costs and risks associated with doing business in each nation. Which country seems the most attractive target for foreign direct investment? Why?

In general, China, Russia and Germany are three big countries; the automobile company will get benefit if it chooses to any country of the three, but it also face some challenges. It is well known in Germany, the automobile industry is very powerful, if the company chooses to invest in Germany, it needs to face numerous competitors. Also, in Russia, the trade barriers will obstacle the entry of automobile company. For China, the economic condition is weaker than Russia and Germany; automobile is a luxury product for lots of people. Therefore, the company needs to comprehensively consider the benefits and risks if it wants to invest in a new market. Therefore I would Invest in Germany the automobile industry is powerful although facing competitors can be resolved my setting a successful strategy.

3. A. What kind of economic system did India operate during 1947-1990?

What kind of system is it moving toward today? What are the impediments to completing this transformation? The economic system that developed in India after 1947 was a mixed economy characterized by a large number of state-owned enterprises, centralized planning, and subsidies. In 1991, India’s government embarked on an ambitious economic reform program. Much of the industrial licensing system was dismantled, and several areas once closed to the private sector were opened. In addition, investment by foreign companies was welcomed, and plans to start privatizing state-owned businesses were announced. India has posted impressive gains since 1991, however there are still impediments to further transformation. Attempts to reduce import tariffs have been stalled by political opposition from employers, employees, and politicians. Moreover, the privatization program has been slowed thanks to actions taken by the Supreme Court.

Finally, extreme poverty continues to plague the country B. How might widespread public ownership of businesses and extensive government regulations have affected (i) the efficacy of state and businesses, and (ii) the rate of new business formation in India during the 1947-1990 time frame? How do you think these factors affected the rate of economic growth in India during this time frame? The mixed economy that developed in India after 1947 was characterized by a large number of state-owned enterprises, centralized planning, and subsidies. This system not only constrained the growth of the private sector, but it also consequently limited the effects of competition that typically promote efficiency and productivity in a free market system. The system even limited the actions of private companies, requiring them to get government approval for routine business activities.

Production quotas and high import tariffs also stunted the development of a healthy private sector, as did restrictive labor laws that made it difficult to fire employees. Foreign exchange restrictions, limitations on foreign investment, controls on land use, and managed prices further exacerbated the situation. It would appear that India’s rate of economic growth was negatively affected during this time frame. By 1994, India’s economy was still smaller than Belgium’s despite having a large population. Both GDP and literacy rates were very low, and some 40 percent of the population lived in poverty. C. How would privatization, deregulation, and the removal of barriers to foreign direct investment affect the efficiency of business formation, and the rate of economic growth in India during the post-1990 time period?

In 1991, India’s government embarked on an ambitious economic reform program. So far, the response to the program has been impressive. The economy expanded at an annual rate of about 6.3 percent from 1994 to 2004. Foreign investment is up from $150 million in 1990 to $6 billion in 2005. Certain sectors of the economy including information technology and pharmaceuticals have done particularly well. Still, problems persist. Actions taken by the government continue to limit efficiency gains for private companies and the country’s high rate of poverty is still a major problem. D. India now has pockets of strengths in key high-technology industries such as software and pharmaceuticals. Why do you think India is developing strength in these areas? How might success in these industries help to generate growth in other sectors of the Indian economy?

India’s gains in information technology and pharmaceuticals are impressive. The country has emerged as a vibrant global center for software development, and India’s pharmaceutical companies have taken a strong global position by selling low cost generic versions of drugs that have come of patent in the developed world. As these industries continue to prosper, other sectors of the economy should also see the benefit of spillover effects. E. Given what is now occurring in the Indian economy, do you think the country represents an attractive target for inward investment by foreign multinationals selling consumer products? Why?

Foreign investment is up in India. In fact, foreign investment rose from $150 million in 1990 to $6 billion in 2005. However, whether India is an attractive destination for foreign multinationals selling consumer products remains to be seen. Certainly, the large population will serve to attract some companies, but the fact that some 40 percent of the population is living in abject poverty will scare other companies away. Moreover, it is still not easy to run a company in India thanks to laws limiting everything from who can be fired to who can which products.

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