International Business - Assignment

Added on - 28 May 2020

  • 4

    pages

  • 1172

    words

  • 5

    views

  • 0

    downloads

Showing pages 1 to 2 of 4 pages
1.IntroductionInternational business often requires making crucial decisions regarding where to invest, how toinvest and when to invest. The current scenario of the world economy presents an increasingdilemma on whether investment in emerging and developing countries is preferable toinvestment in advanced economies.[ CITATION Man16 \l 1033 ]Advanced economies offer developed markets and “have highly developed capital markets withhigh levels of liquidity, meaningful regulatory bodies, large market capitalization, and highlevels of per capita income” and are generally considered as safe bets for investment.[ CITATIONNAS12 \l 1033 ]. On the other hand, “emerging markets” also often referred to as developingcountries are countries that are growing at a fast pace but have “less mature markets”.[ CITATIONNAS12 \l 1033 ]Emerging markets offer opportunities for the future but tend to be volatile due tounder-development of economic and political structures.[ CITATION Wad17 \l 1033 ]The “differentiated” levels of advancement country could be due to many reasons.[ CITATIONSam04 \l 1033 ]havedescribed four major aspects of development, Human Resources or HumanCapital, Natural Resources, Capital Formation, and technological development that determinethe level of advancement of a country or whether a country can be called as an advanced countryor a developing country. Advanced economies score well on most aspects of development, whileemerging or low income could score low on several or all aspects of development.[ CITATIONSam04 \l 1033 ]However, the actual classification of countries as advanced, emerging markets or low incomedeveloping countries is by and large based on per capita income and their market structures.2.Categorization of Economies Based on Level of DevelopmentThe International Monetary Fund uses the following criteria to classify countries into Advanced,emerging markets and developing economies. These criteria area)Income Per Capita or the average individual income b) Diversification of Exports c) thelevel of integration of the country into the global financial systems.[ CITATION Int175 \l1033 ]
The World Bank simply classifies economies based on their Gross National Income Per Capitaand these classifications are used by the International Monetary Fund to decide whether acountry 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 mostcommon ones is Gross National Income (GNI) per capita. According to World Bank ,“GNI percapita is the gross national income, converted to U.S. dollars using the World Bank Atlasmethod, divided by the midyear population.”[ CITATION The2 \l 1033 ]In 2016, Low IncomeDeveloping 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”.[CITATION The16 \l 1033 ]The IMF classifies 39 countries as advanced economies. These countries do not include somecountries like Saudi Arabia that have high per capita income but lack diversity in export whilesome countries which do not necessarily have the highest levels of individual income areclassified 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 theEuro. Advanced economies are economies in the stages of post industrialization.[ CITATIONInt175 \l 1033 ]The term “emerging markets” was first coined by Antoine van Agtmael in late 1980s to refer tothe so called “third world countries” that were relatively poor but offered opportunities toinvestors as their stock markets were developing.[ CITATION Int174 \l 1033 ]Since then, the termhas been evolved and been loosely used without any formal criterion for definition.[ CITATIONWad17 \l 1033 ]However, the International Monetary Fund publishes a list of “emerging marketand developing economies” (including Low Income Developing Countries) that contains allthose countries that are not classified as advanced economy countries. According to the WorldEconomic Outlook of 2016, 152 countries were classified as emerging market and developingcountries.[ CITATION Int16 \l 1033 ]The “emerging market and developing countries” are often referred to as “Low IncomeDeveloping Countries” (LIDCs). Low Income Developing countries are countries that would
desklib-logo
You’re reading a preview
card-image

To View Complete Document

Become a Desklib Library Member.
Subscribe to our plans

Unlock This Document