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Questions and Answers

Explain how a high Ease of Doing Business (EODB) ranking can lead to reduced start-up costs for a company.

A high EODB ranking indicates fewer bureaucratic hurdles and faster processes for starting a business. This efficiency reduces delays and associated expenses, such as permit fees and administrative costs.

Describe a situation where a company might choose a location with a lower EODB ranking over one with a higher ranking.

A company might choose a location with a lower EODB ranking if that location offers unique access to essential raw materials, highly skilled labor, or well-developed infrastructure critical to their specific production needs.

Explain the potential risks associated with a country offering significant tax incentives to attract foreign businesses.

Offering substantial tax incentives can strain the government's budget, potentially leading to reduced public services or increased taxes on domestic businesses and citizens. Additionally, it may create a race to the bottom, where countries continuously lower taxes to compete for investment, without guaranteed long-term economic benefits.

A country wants to improve its EODB ranking. What are two specific policy changes it could implement to achieve this goal?

<p>The country could streamline the process for obtaining construction permits by establishing a one-stop online portal and reduce the time required to resolve contract disputes by implementing specialized commercial courts.</p> Signup and view all the answers

Discuss how government incentives and EODB rankings might interact to influence a business's decision on where to locate its manufacturing operations. Provide an example.

<p>A business might be drawn to a country offering tax incentives, but also consider its EODB ranking to assess the ease and cost of setting up and running operations. For example, a company may choose South Korea due to its tax benefits package and relatively high EODB, ensuring both financial advantages and operational efficiency.</p> Signup and view all the answers

Flashcards

Government incentives

Incentives offered by a country's government to attract businesses.

Tax incentives

Tax reductions or exemptions given to companies to encourage foreign investment, economic development, and job creation.

Ease of Doing Business (EODB)

An index published by the World Bank that measures the ease of doing business in 190 countries.

EODB Indicators

Indicators include labour regulations, construction permits, land availability, and time to build a warehouse.

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Importance of EODB Rank

A higher EODB ranking suggests quicker business start-up, lower costs, and potentially a better location choice.

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Study Notes

Government Incentives

Governments may offer incentives for businesses to establish operations within their country.
Tax incentives are provided to attract foreign investment.
The goal of tax incentives is to support economic development and generate local employment.
The African continent provides $2 billion annually in tax exemptions for international businesses.
South Korea and Mexico have specific government tax benefits packages.
The UK government provides venture capital schemes with generous tax reliefs for investors
These schemes are designed to make the UK the top location to start, finance, and expand businesses in Europe.
The UK offers four venture capital schemes.
They include Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), Social Investment Tax Relief (SITR), and Venture Capital Trust (VCT).
Research and Development (R&D) tax reliefs offer incentives of up to 230% for businesses investing in UK R&D projects.
Patent Box offers a 10% Corporation Tax on profits from inventions patented in the UK (reduced from the usual 19%).

Ease of Doing Business

The Ease of Doing Business (EODB) is an index created by the World Bank.
The EODB index is based on 11 indicators, including labour regulations, construction permits, land availability, and the time required to build a warehouse.
The EODB assesses 190 countries with the objective of encouraging lower-ranked countries to reform business practices.
EODB rankings show the time needed to start a business and the amount of bureaucracy involved.
A higher EODB ranking implies that a business can start quickly, which lowers start-up costs and may be a good reason to choose a location.
EODB is note the only factor to consider when choosing where to manufacture goods.
A location may depend on access to raw materials.
High labor skills and strong infrastructure may be important to a business instead of cheap labor.

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Description

Governments provide incentives such as tax exemptions to attract businesses and foreign investment. These incentives aim to support economic development and generate local employment opportunities. The UK government offers venture capital schemes and R&D tax reliefs to encourage business growth and investment.