International Economic Analysis

International Economic Analysis

• Objective measures are important to help systematize evaluation in economics
• Several factors are significant including understanding Economic Systems, Cost-Benefit Analysis, Opportunity Cost, Early Project Cycle, and Global Economic Forecasts
• Economic Analysis optimizes economic systems and ensures efficient resource utilization

Economic Freedom

• Economic freedom is the right to work, produce, consume, save, and invest as one prefers
• The Economic Freedom Index shows how how government constrains free choice and free enterprise beyond protecting property, liberty, safety, and efficiency
• Property ownership, freedom of movement for labor, capital, and goods, and the absence of coercion are components
• Economic freedom is protected and regulated by the state
• Higher rates of growth and productivity are associated with economic freedom
• Average income is more than double the worldwide average in economically free countries
• Inflation and employment do better in economically free economies

Types of Economic Systems

• Market economy is an economic system where individuals instead of the government make the most decisions
• Components of Market Economy include:
  • Privatization: The state sells and transfers government-owned resources to private interests
  • Deregulation: Government regulations reduce individual choice
  • Property Rights: Entrepreneurs have ownership of their idea, effort, and risk
  • Antitrust Legislation: Monopolies are prevented from exploiting consumers and restraining market growth
• Mixed Economy: Combines elements of market and command economies where both government and private enterprise influence production, consumption, investment, and savings
• Command Economy: The state supersedes the market
• Communism champions state ownership of resources

Performance and Potential Indicators

• Expanding data spurs managers to streamline market evaluation
• Anchor analysis is used in comprehensive single-item measures to indicate if an economy:
  • Is expanding or contracting
  • Needs a boost or should be constrained
  • Is threatened by recession or inflation
• Gross National Income (GNI) is the broadest measure of a country’s economy
• GNI measures the value of all production in the domestic economy and income that it receives from other countries, less payments it has made to other countries
• Gross National Product (GNP) is the value of goods and services produced within a nation, plus income earned by its citizens abroad, minus the income earned by foreigners from domestic production
• World GNP and world GNI are equal
• Gross Domestic Product (GDP) is the total market value of all output produced within a nation’s borders
• GDP is commonly used to estimate the true performance of an economy given that it measures income, not wealth
• GDP estimates the flow of economic activity within a country

Alternative Interpretations

• Green economics holds that countries are components of the natural world
• Greenifying GNI, GNP, or GDP lacks consensus
• Current candidates include Net National Product, Genuine Progress Indicator, and Human Development Index
• Sustainable Development means meeting the needs of the present without compromising future generations
• Happynomics calls for moving from financial prosperity to emotional prosperity
• Rich countries are not significantly happier than poor countries
• Estimators Of Economic Progress: Your Better Life Index, Gross National Happiness and Happy Planet Index

Economic Analysis

• Inflation: A sustained rise in prices measured against a standard level of purchasing power
• Deflation: Prices for products decline. It occurs when the annual inflation rate is less than zero
• Reflation: Increase the money supply and reduce taxes to accelerate economic activity to combat deflation
• Unemployment rate the share of out-of-work citizens seeking employment relative to the total civilian labor force
• Misery index is the sum of a country’s inflation and unemployment rates
• The higher the sum, the greater the economic misery
• Debt is the total of a government’s financial obligations
• Internal debt: Portion of the government debt that is denominated in the country’s own currency and held by domestic residents
• External debt: Debt owed to foreign creditors and denominated in foreign currency
• Growing public debt is an indicator of tax increases, reduced growth, rising inflation, and increasing austerity
• Income distribution estimates the proportion of the population that earns various levels of income
• A growing gap exists between the rich and poor across the world
• Gini coefficient estimates the degree of inequality in a country’s income distribution
• Poverty: A multidimensional condition where a person or community lacks essentials for a minimum standard of well-being and life
• Poverty is the state of having little or no money, few or no material possessions, and limited access to education, health, and living standards

Balance of Payments

• A country’s balance of payments (BOP), the Statement of International Transactions, reports trade and financial with the world
• Two kinds of transactions:
  • Current account: Tracks cross-border payments for goods and services (i.e., exports and imports)
  • Capital account: Tracks loans for cross-border payments for assets