Advanced Economics of International business - Myassignmenthelp.Com

Question: Discuss about the Advanced Economics of International business. Answer: Introduction International business often requires making crucial decisions regarding where to invest, how to invest and when to invest. The current scenario of the world economy presents an increasing dilemma on whether investment in emerging and developing countries is preferable to investment in advanced economies.(Chakravarty 2016) Advanced economies offer developed markets and have highly developed capital markets with high levels of liquidity, meaningful regulatory bodies, large market capitalization, and high levels of per capita income and are generally considered as safe bets for investment.(NASDAQ, USA 2012). On the other hand, emerging markets also often referred to as developing countries are countries that are growing at a fast pace but have less mature markets. (NASDAQ, USA 2012) Emerging markets offer opportunities for the future but tend to be volatile due to under-development of economic and political structures.(Balliet 2017) The differentiated levels of advancement country could be due to many reasons. (Samuelson and NordHaus 2004)have described four major aspects of development, Human Resources or Human Capital, Natural Resources, Capital Formation, and technological development that determine the level of advancement of a country or whether a country can be called as an advanced country or a developing country. Advanced economies score well on most aspects of development, while emerging or low income could score low on several or all aspects of development.(Samuelson and NordHaus 2004) However, the actual classification of countries as advanced, emerging markets or low income developing countries is by and large based on per capita income and their market structures. Categorization of Economies Based on Level of Development The International Monetary Fund uses the following criteria to classify countries into Advanced, emerging markets and developing economies. These criteria are Income Per Capita or the average individual income b) Diversification of Exports c) the level of integration of the country into the global financial systems.(International Monetary Fund 2017) The World Bank simply classifies economies based on their Gross National Income Per Capita and these classifications are used by the International Monetary Fund to decide whether a country is a advanced economies or emerging market and low income developing countries. There are several methods to calculate the average individual income. However, one of the most common ones is Gross National Income (GNI) per capita. According to World Bank ,GNI per capita is the gross national income, converted to U.S. dollars using the World Bank Atlas method, divided by the midyear population.(The World Bank 2017) In 2016, Low Income Developing Countries were defined as Countries with a Gross National Income Per Capita of $1025 or less, lower middle income countries were those with GNI per capita of $1026 and $4035, upper middle income countries were those with a GNI per capita between $4036 and $12, 475 , and high income countries were countries with GNI per capita of 12, 476 or more. (The World Ba nk 2016) The IMF classifies 39 countries as advanced economies. These countries do not include some countries like Saudi Arabia that have high per capita income but lack diversity in export while some countries which do not necessarily have the highest levels of individual income are classified as advanced economies simply due to their advanced and integrated market structures. For example, Lithuania is included in the list of advanced economies due to its adoption of the Euro. Advanced economies are economies in the stages of post industrialization. (International Monetary Fund 2017) The term emerging markets was first coined by Antoine van Agtmael in late 1980s to refer to the so called third world countries that were relatively poor but offered opportunities to investors as their stock markets were developing.(International Finance Corporation 2017) Since then, the term has been evolved and been loosely used without any formal criterion for definition.(Balliet 2017) However, the International Monetary Fund publishes a list of emerging market and developing economies (including Low Income Developing Countries) that contains all those countries that are not classified as advanced economy countries. According to the World Economic Outlook of 2016, 152 countries were classified as emerging market and developing countries.(International Monetary Fund 2013) The emerging market and developing countries are often referred to as Low Income Developing Countries (LIDCs). Low Income Developing countries are countries that would generally have a low per capita income. However, market structures are also an important characteristic to classify a country as an LIDC According to the International Monetary Fund, LIDCs have structural features complete with limited development and structural transformation, and insufficiently close to external financial linkages to be widely seen as emerging market economies.(International Monetary Fund 2013). According to the World Economic Outlook published by the IMF in 2016, the threshold of income set by the International Monetary Fund for a country to be classified as Low Income Developing Country was $2700.(International Monetary Fund 2017) Bibliography Balliet, Wade (2017). Emerging market complexities. [online]. Last updated 6th January. https://www.worldfinance.com/banking/emerging-market-complexities Chakravarty, Manas (2016). Advanced economies vs emerging markets. [online]. Last updated 26 October. https://www.livemint.com/Opinion/ck1EMSGaPQvksrMeC45QsI/Advanced-economies-vs-emerging-markets.html International Finance Corporation(2017). Establishing 'Emerging Markets' [online]. https://www.ifc.org/wps/wcm/connect/corp_ext_content/ifc_external_corporate_site/about+ifc_new/ifc+history/establishing-emerging-markets International Monetary Fund (2017). Frequently Asked Questions: World Economic Outlook (WEO). [online]. Last updated 10 October. https://www.imf.org/external/pubs/ft/weo/faq.htm#q4b2 International Monetary Fund (2013). Statistical Appendix. [online]. https://www.imf.org/~/media/Websites/IMF/imported-flagship./_statapppdf.ashx NASDAQ, USA (2012). https://www.nasdaq.com/article/what-is-the-difference-between-a-developed-emerging-and-frontier-market-cm140649. [online]. Last updated 11 May. https://www.nasdaq.com/article/what-is-the-difference-between-a-developed-emerging-and-frontier-market-cm140649 Samuelson, Paul A and NORDHAUS, William R. (2004). Economics: Seventeenth Edition. 2002 ed., New Delhi, Tata- McGraw Hill Publishing Company. ISBN0-07-048645-X, The World Bank (2017). GNI per capita, Atlas method (current US$). [online]. Last updated 15 September. https://data.worldbank.org/indicator/NY.GNP.PCAP.CD The World Bank (2016). New country classifications by income level. [online]. Last updated 01 July. https://blogs.worldbank.org/opendata/new-country-classifications-2016