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International Business
Part Two
Comparative Environmental
Frameworks
Chapter Four
The Economic Environments
Facing Businesses
Chapter Objectives
• To understand the importance of economic
analysis of foreign markets
• To identify the major dimensions of international
economic analysis
• To compare and contrast macroeconomic
indicators
• To profile the characteristics of the types of
economic systems
• To discuss the idea of economic freedom
• To profile the idea, drivers, and constraints of
economic transition
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Importance of Economic
Environments
• Company managers study economic
environments to estimate how trends affect their
performance
• A country’s economic policies are a leading
indicator of government’s goals and its planned
use of economic tools and market reforms.
• Economic development directly impacts citizens,
managers, policymakers, and institutions.
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Elements of the Economic
Environment
• Gross national income (GNI): the income
generated both by total domestic
production as well as the international
production activities of national companies
• Gross domestic product (GDP): the total
value of all goods and services produced
within a nation’s borders over one year, no
matter whether domestic or foreign-owned
companies make the product.
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Adjustments to GNI
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Number of people in a country
Growth rate
Local cost of living
Economic sustainability
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Other features of an economy
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Inflation
Unemployment
Debt
Income distribution
Poverty
Labor costs
Productivity
Balance of payments
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Definition of Economic System
• A mechanism that deals with the
production, distribution, and consumption
of goods and services
• Types:
 Market economy
 Command economy
 Mixed economy
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The Economic Freedom Index
• Approximates the extent to which a
government intervenes in the areas of free
choice, free enterprise, and market-driven
prices for reasons that go beyond the
basic need to protect property, liberty,
citizen safety, and market efficiency
• Countries with the freest economies have
had the highest annual growth and a
greater degree of wealth creation.
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Dimensions of The Economic
Freedom Index
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Business freedom
Trade freedom
Monetary freedom
Freedom from government
Fiscal freedom
Property rights
Investment freedom
Financial freedom
Freedom from corruption
Labor freedom
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Transition to a Market Economy
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Liberalizing economic activity
Reforming business activity
Establishing legal and institutional frameworks
Success is linked to how well the government
deals with:
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Privatization
Deregulation
Property right protection
Fiscal and monetary reform
Antitrust legislation
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