Economic Growth

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The university provides a great deal of resources to help students understand their responsibilities. Information about these services is available at the LASS workshop site. If there are any specific issues relating to plagiarism and or Turning please contact the relevant Module Leader or your Personal Academic Tutor. Executive summary The purpose of this report is to prepare an analytical review of the financial position of BP Billion, using the ratio analysis as a financial instrument.

This review is Sistine to the stakeholders (investors), based on the latest available annual financial statement, to identify and reconcile the group’s profit position and identify trends in the business performance. The company’s performance is analyzed more deeply using ratio analysis. In addition, we will compare the group main indicators with the respective figures of close competitors such as ROI Tint, Vale S. A. And Alcoa Inc. As well as Mining Industry and Energy Sector average coefficients (Scimitars 2014).

Background Information BP Billion was set up in 2001 as a result of a Dual Listed Company (DEL) merger twine Broken Hill Proprietary Company known as BP Limited, an Australian-listed company, and Billion Pl, a I-J-Existed company (BP Billion 2013). Although the companies have preserved their separate ownership structures both are run by the almost identical committees of directors and one managing body. It is a leading global resource company and its major business units are: Copper; Iron Ore; Manganese and Nickel; Coal; and Aluminum, Petroleum and Potash.

The aim of the group is to provide long-term shareholder value through the development, acquisition and marketing of natural resources. Despite the continuing recession the group has continued to retain its market position with capitalization US $147 billion at 30 June 2013, revenue US $66 billion and net profit US $11 billion for 2013 financial year and there are now 128 thousand employees and contractors working in 140 subdivisions in 26 countries (BP Billion 2013). This year the group announced the appointment of Andrew Mackenzie as CEO who replaced Marcus Slippers.

The company being a participant of the Voluntary Principles on Security and Human Rights (2014) conducts the corporate procedures and policies in concordance with hose principles to provide security for its operations. The recent study suggested that the 90 fossil fuel marketers (Goldenberg 2013) are in charge of two-thirds of the greenhouse gas emissions produced in the industrial age and BP is in this list. According to the management’s statement Just the tenth of the emissions are from direct operations, while the rest are from outsourced goods (Hannah 2013).

In 2011 BP Billion initiated with University College London the foundation of two energy institutions aimed at teaching and research of sustainable use of the environment and resources (CUL 2011). Basis of preparation The financial information for the year ended 30 June 2013 has been prepared on a going concern basis in accordance with Australian Accounting Standards that is an Australian equivalent of International Financial Reporting Standards (FIRS) and FIRS and their interpretations as adopted by European Union effective as the reporting date.

The principles of accounting for DEL merger were adopted under I-J and Australian Generally Accepted Accounting Practice (GAP) and the consolidated financial statement is compiled as follows: Assets and liabilities of the BP Billion PL and BP Billion Limited Group were consolidated at the date of the merger at their book value; Results for the period ended 30 June 2013 comprise the consolidated data of the both entities.

A number of new standards and interpretations have not yet entered into force, and their demands are not taken into account in preparing the consolidated financial statements: FIRS 11 В«Joint ArrangementsВ» modifications were not applied but will have an impact on financial years commencing from 1 July 2013. The company will recognize its share on a single line in entities where it does not meet with the revised definition of Joint control. AFRICA 20 В«Striping Costs in the Production Phase of a Surface MineВ» modifies the policies for production striping and applies to annual periods starting on 1 January 2013.

The company disclosed the effect of adjustments at the transitional date of 1 July 2011. Ratio Analysis External factors and trends affecting to the group’s financial outcomes The major external trends and factors have had a considerable impact on the company financial position and ratios and the next section disclosures them. Commodity prices. Metal commodity prices were decreased in comparison with the previous year as a result of apply growing faster than demand. For instance the average price of Iron Ore decreased 16% from IIS$1 51 /DMS to IIS$127/DMS, Aluminum decreased from IIS$334/ DMS to US$327/DMS according to the Note 3. . 1 of the Financial Statement (BP Billion 2013). Metal products share in aggregate revenues exceeded 63% whereas crude oil and gas totaled 20%. Metallurgical coal price decreased 31% from IIS$239/t to IIS$1 59/t mostly driven by low growth rates of global pig iron production. Conversely energy commodities’ price were affected positively namely crude oil price increased by 8% driven by Chinese demand growth in the first half of the year followed by moderate improvements in macroeconomics in the United States later. In whole the price effect reduced underlying BIT by IIS$8. Billion but partially offset by increased sales volumes. Exchange rate. Other substantial risk influencing profitability ratio is exchange rate as majority of sales are denominated in US dollars as well as this currency plays major part in the group financial activities. Operating costs are primordially influenced by changes in local currencies such as South African rand, Chilean peso and Australian dollar. Overall the Australian dollar, Brazilian real and South African rand ended the financial year weaker against the US dollar, while the Chilean peso strengthened.

Product demand and supply. Global demand and supply for the products is a crucial factor of market prices, and fluctuations in commodity supply and demand influence the group performances, including asset values and cash flow. The company forecast relatively balanced growth over the long term as large developed economies, such as the US, grow despite fiscal challenges and China also shows the development of its economy. Operating costs. As the product prices are regulated by the global commodity markets controlling production costs is a key task of the management.

The company could reduce external services by IIS$2 billion and third party purchases by IIS$O. 7 billion, government royalties by IIS$O. 4 billion and exploration and evaluation expenses by IIS$O. 6 billion. But these reductions were offset by higher impairment charges of IIS$I . 9 billion, additional depreciation charges of IIS$O. 5 billion, decrease in foreign exchange incomes of IIS$O. 2 billion as it was shown in Note 3. 4. 4 of the annual report (BP Billion 2013). Capital and exploration expenditures.

This item increased almost 77% in the previous 2012 year from IIS$13 billion in 2011 to IIS$23 billion. It related to investments in project pipeline, especially in Petroleum, Iron Ore and Coal divisions. The management concentrated on monitoring capital and exploration expenses in the reporting year and it reduced by IIS$O. 7 billion. Interest rates. The company financial performances are sensitive to alterations of interest rates as the majority of company borrowings are based on floating interest rates (see the Note 29 of the financial statement).

Based on the net debt position as at 30 June 2013, taking into account interest rate swaps, cross currency interest rate swaps and captions, it is estimated that a one percentage point increase in the US LABOR interest rate will decrease the company’s equity and profit after taxation by US $136 million. Profitability ratio In this year Return of capital fell by 26% as against 2012 year and equaled 17% (see Appendix 3). Firstly, it associates with the reduction of Gross profit by 19% or almost IIS$4. Billion as the income fell by 9% (see Appendix 1), namely Coal unit’s revenue reduced by IIS$2. Billion, Iron Ore income by IIS$2. 4 billion (see the section В«Commodity pricesВ»). In any case it should be noted that this figure is considerably high than the close competitors’ results: Vale S. E. (2014) showed 14%, ROI Tint (2014) 5% (see Appendix 3). The details of calculations are given in the Appendix 4. Gross profit margin ratio equaled 29% although that is less by 11% as compared to 2012 (see Appendix 3).

This can be explained by disproportionate decrease of production costs by 4% billion (see the section В«operating costsВ») with respect to revenues (see the section В«Commodity pricesВ»). But it corresponds with the respective average ratio of Metal Mining Industry (Scimitars 2014). Vale S. E. ‘s figure exceeded with 30% Gross margin (see Appendix 2) but its Net profit margin totaled Just 1% due to extremely high interest expenses (see Appendix 2) whereas BP Billion demonstrated consistent performances with 17% Net profit margin.

Net profit margin for 2013 totaled 17% as against 22% for previous year chiefly due to decrease of the amount of Gross profit (see the previous paragraph) and increase of financial expenses by 60% (see the section В«lintiest ratesВ»). In spite of this the company’s result is outstanding in comparison with the industry index (2%) as well as immediate rivals (ROI Tint – 2%, Vale S. A. – 1%). Efficiency ratios Asset turnover ratio of the last year decreased by 17% and totaled 0. 6.

This is due to the fact that the amount of total assets were increased as additional construction expenses were capitalized to the sum of IIS$20 billion, and decrease of total revenue of the group for reasons described earlier (see the section В«Commodity pricesВ»). At the same time the group continues to use its assets efficiently in comparison with lose rivals 0. 5 for ROI Tint (2014) and Vale (2014) 0. 4 (see Appendix 3) as well as the average industry figure (0. 4). The details of calculations are given in the Appendix 5.

With respect to Receivable turnover ratio it has not been changed and equaled 9 that is in the middle of ROI Tint and Vale’s coefficients (10 and 7 respectively). The decrease in Trade and other receivables correlated with the same trend in the revenues of the last two years (see the section В«Commodity pricesВ»). Interestingly, the industry average ratio did reach 12 (see Appendix 3). Inventory turnover has slightly en decreased by 6% and totaled 11 that is twice better than industry figure (5) and close rivals (8 and 10 respectively).

The number of employees increased by 7% and totaled almost 50 thousand. It together with the revenue reduction resulted to Revenue per Employee ratio that decreased by 14% and equaled IIS$I ,332 thousand per employee. At the same time this performance significantly exceeded the industry average ratio (IIS$486 thousand) as well as close competitors (ROI Tint with IIS$775 thousand and Vale S. E. With IIS$583 thousand). It can be explained by diversified cuisines structure of the group as the average Energy sector Revenue per Employee totals US$1,896 thousand at the same period of time (see Appendix 3).

Liquidity ratio The current ratio totals 1 that indicates that the group has enough short-term assets to cover its short-term debt. It is advisable to improve this performance further (0. 9 for previous 2012 year) as for instance the industry (1. 9) and major market players (ROI Tint 1. 4, Vale S. E. 2. 5) demonstrated better short-term financial health. The details of calculations are given in the Appendix 6. Quick ratio also remains worse Han competitors. But it corresponded with the industry average figure 0. 6 and seemed enough (see Appendix 3).

Financial gearing The Gearing ratio has slightly been changed and totaled 39% and it indicates relatively prudent attitude of the management and low degree of creditor’s funds (see Appendix 1). For example the same coefficient for both of close rivals’ equaled 44% whereas the industry average figure exceeded 150%. The details of calculations are given in the Appendix 7. The performance of interest cover ratio was felt by 56% due to impact of interest rates (see the section В«lintiest ratesВ»). Even so it showed due to low gearing and high gross profit of the group (see the respective analyses).

Investment ratio Price per earning for 2013 equaled as 12 and became worse as against 8. 8 for previous period. It associates with the reduction of earning per share by almost 30% (see Appendix 1). But dividend yield with 8% is positive as compared to rivals (ROI Tint 4%, Vale S. E. 1%) and average industry ratio (2%). Conclusion Based on the review above we can see that BP Billion is a highly profitable company that provided consistently strong operating performance during the analyzed period of time. The total dividend for 2013 was increased by 4% to IIS$116 cents per share (BP Billion 2013).

The low gearing ratio in comparison with rivals indicates the group’s financial strength and invulnerability to downturns in the business cycle that is important particularly in the last years. The high efficiency ratios witnessed how well the group used its assets and liabilities internally relative to the others. Also we saw its importance because an improvement in these ratios translated to improved profitability. Though the current ratio is relatively lower than he industry average likely the group will not experience any difficulty meeting current obligations.

INTRODUCTION According to Collin dictionary government is the group of people who are responsible to govern country. Christian council of Tanzania and Tanzania Episcopal conference define government as the chief agency for organizing and in the end of controlling both development and order in the society. Also it is an organized body of persons and institutions that form an agency or machinery of the state which formulates, expresses and realizes the will of state. Therefore, government consists of the activities, methods and principles involved in the governing a country or other political unit.

Government failure is the public sector analogy to market failure and occurs when a government intervention causes a more inefficient allocation of goods and resources than would occur without that intervention. Likewise, the government’s failure to intervene in a market failure that would result in socially preferable mix of output is referred to as passive government failure (Weimer and Vining, 2004). The failure is an outcome of policies enacted to regulate trade which create systemic inefficiencies and economic cost that adversely affect a product‘s manufacture and sales.

This arises when government has created some inefficiency because it would not have solved a given problem or a set of problems more efficiently. The government supply side failures largely result from principal/agent problems. Market failure – occurs when the supply of a good or service insufficient to meet a demand. A market failure result when prices cannot achieve equilibrium because of some distortions for example, the limits on specific goods and services.

In other words, government regulations implemented to promote social wellbeing inevitably result in a degree of market failure. Structural Adjustment Programme are economic policies which countries must follow in order to qualify for new World Bank (WB) and International Monetary Fund (IMF) loans and help them make debts repayments on the older dept owed to commercial banks, governments and World Bank, (Whirled Bank Group, 2003). THE CONDITION OF THE COUNTRY BEFORE STRUCTURAL ADJUSTMENT After independence in 1961, the new government adopted the colonial style of economic structure.

Between 1960 and 1962, for example agriculture contributed more than 50% to gross national product (GNP), and sisal, coffee, cotton and tea contributed 60% to the total foreign exchange earnings (Taube 1992). Tanzania neglected not only to satisfy its own national food requirements, but also to diversify its export products and promote light manufacturing. Politicians were soon overtaken by the reality of severe deficiencies in the supply of food products, energy, housing, manufactured goods, health and educational services, as well as intermediate inputs and implement for the agricultural sector.

Between 1961and 1966 Tanzania economy operated primarily under free market conditions and the government adopted the World Bank’s transformation approach to agricultural development as a component of its first five year plan (Wenzel and Wiedemann 1989). In 1963 Tanzania implemented the Agriculture Product Board Act, which was the government’s marketing board for scheduled crops. This board managed maize, wheat, rice, cashew nuts and oil seeds through market purchase, price regulation, and regulation of storage, transport and processing (Bryceson 1993).

DURING ARUSHA DECLARATION In 1967, the ruling party (TANU) which nowadays is Chama Cha Mapinduzi (CCM) passed the first national economic declaration establishing Tanzania’s era of economic socialism. This was the Arusha Declaration. This clearly meant to address the deficiencies in Tanzania’s economic development, but it explicitly enclosed socialism and a planned economy, which the country’s new leaders thought appropriate at the time. Ujamaa (familyhood and relationship) became the expression for Tanzanian‘s social economic system and a synonym for Tanzania socialism.

Through this self reliance approach, Tanzania forced its own withdrawal from international market. GOVERNMENT FAILURE Although Tanzania experienced reasonable macroeconomic performance until the mid – 1970s, unfavorable external conditions wiped out the previous economic achievements and led to the crisis period of 1980 – 1985 (Ndulu 1994). The justification for nationalization of private firms and extensive involvement of the state in productive activities was the ability of the state to control negative externalities, exploit economies of scale and operate firms at officially optimal level, the outcome proved otherwise for Tanzania.

The government failure occurred in the following ways; The state owned cooperation turned out to be inefficient in almost all areas of their operations. For example many supply companies operated below standard such as National Milling Cooperation which was supplying food stuffs like maize, packed maize flour, rice and wheat causing higher demand in urban areas. Another company was Regional Trading Company (RTC) for supplying commodities like sugar, soaps, wine from Dodoma, and these caused shortages of the commodities.

Due to lack of fund from central government health services, water, education (especially primary schools) remained a big problem in both urban and rural areas. The government operation in providing these social services was highly contributed by among other things inadequate foreign exchange as the country relied much on agricultural products which did not competed strongly with the same crops from other countries in the international market such as coffee from Brazil, cotton from Egypt and India. There was also the Tanzania – Uganda war of 1978 – 1979 as much as national earnings was directed to the war.

There was extreme weather conditions (drought or too much rainfall) leading to falling of local production in key food crops and high domestic inflation. These conditions contributed to severe poverty to most of the people since they depended on agriculture for their survivor. R. E. Stren adds that Tanzania faced a severe balance of payments originally caused by the rising prices of imported oil. The rise of oil price resulted to the rise of prices of products as well as provision of social and economic services.

Due to this the majority could not afford to access these services. Young (2003) argues that the government had been adamant that the buses she owned retain their monopoly status, but the desperate economic situation and the existence of informal sources of transport forced the government to legalized the “daladala” in 1986. The owners of trucks and pickups were allowed to carry passengers for a fee if they obtain a contract from the public transport authority and met various safety requirements.

These situations led to Tanzania try her own economic reforms in early 1980s. These include Nation Economic Survival Program (NESP) in 1981 -1982, Structural Adjustment Program (SAP) in 1983 – 1985. Due to these homegrown reforms, Tanzania adopted a series of donor supported reform programs starting in 1986. The first was Economic Recovery Program (ERPI), followed by the ERPII in 1989 – 1992. Despite all these efforts by 1980s Tanzania was the world’s second poorest country in Gross Domestic

Product (GDP). It is these economic crises and poor services delivery which forced most of sub-Saharan African countries to implement the Structural Adjustment Program (SAP) as a precondition to aids and loans from the International Monetary Fund (IMF), the World Bank (WB) and other donor agencies. In order to solve the persistent severe economic crisis which has been confronting Tanzania since the late 1970s, Tanzania signed an agreement with WB and IMF in 1986 to adopt SAP. SAP WITH MARKET FAILURE

Structural adjustment program by World Bank and International Monetary Fund gave a new limited role for governments. No longer should the government supply services itself, instead the ultimate goal would be for the central government to serve in the role mainly educator, promoter and regulator and communities in league with the private sector in that of provider. Structural adjustment program failed also in many countries including Tanzania because many stakeholders (countries) had little or no participation in making its policy.

This means, these reforms had been imposed on countries that were neither ready nor had the capacity to implement them. According to Lugalla, Structural Adjustment Programmes had the following principles which had to be adopted: There was devaluation of the local currency. That is the dollar gained more value than the Tanzanian shilling. Due to this the foreigners who bought raw materials such as cotton benefited much as their currency was high. Also the government ended up in importing manufactured goods in higher prices resulting to low profits.

The introduction of cost sharing in education and health. Before the introduction of these reforms the government used to provide these services freely, but now the people were forces to contribute. Due to this, many people could not access these services because they were not able to contribute. There was a policy of trade liberalization. This policy aimed that the government should allow free trade where the price of commodities was controlled by donor countries. There were frequent price changes which aimed at benefiting the foreigners and not the producers.

Creation for conducive environment for foreign investments. The government had to put easy, friendly and flexible conditions that were more beneficial to the investors than the country. Introduction of democratization which is understood as multipartism. The government was under one party rule but it was forced to adopt multiparty system as a condition to receive loans and grants. By 1992 Tanzania became a democratic state where different political parties such as Tanzania Labor Party (TLP), NCCR-Mageuzi, CHADEMA, Civil United Front (CUF) and others were introduced.

Although the aim of Structural Adjustment Programme was said as to improve the socio-economic problems of the country, it proved failure. Failure of the program in Africa is also basing on the fact that there’s assumption that a uniform set of principles can yield successful policies for all countries irrespective of their differences. Failure of Structural Adjustment Program in Tanzania can be seen in; Since Tanzania has been implementing social and economic reforms prescribed by SAP, social services are still a problem both in quantity and quality.

The urban areas (cities and towns) has witnessed the problems multiplying rather than decreasing. People have difficulties in accessing clean water, adequate shelter, better health care etc. Let us take Dar Es Salaam as example, there’s frequent water cut which sometimes leave areas dry up to a week, electricity problem in the whole country, overflowing sewage and hospitals without medicine especially public hospitals,( Lugalla). SAP emphasized on reducing government expenditure on the unproductive sectors social development in urban areas in Tanzania.

Lack of sufficient budget has made it difficult to finance a variety of urban development projects including the provision of adequate housing. As a result seventy percent of the urban populations live in poor houses without necessities such as sanitation and adequate garbage collection. For example areas like Vingunguti and Hananasif in Dar es Salaam are composed of slum settlement without proper sewage systems. SAP has reduced the health budget significantly. The state allocation budget for health is now estimated at less than five percent of the government’s recurrent budget.

Information from the ministry of finance shows that, every Tanzanian is currently spending five US Dollar a year to service foreign debts but spends only two US Dollars for his or her own health. A research from Dzodzi Tsikata from university of Ghana Legon, shows that SAP has much effect on women in Africa. SAP has exacerbated gender issue in, for example work places, wage differences between men and women are growing. For example in Tanzania and Nigeria, poor and middle class women are giving up formal employment for informal sector work because it pays more.

SAP also due to its export promotion policy, has increased extractive activities such as logging and mining leading to deforestation and mining pollution and the reduction of ordinary people. These failure of SAP in Tanzania and Africa in general has posed critic from individuals and leaders like the late J. K. Nyerere the first president of Tanzania who tried to resist this program saying it was just for the Washington consensus. Another critic was made by the United Nations economic commission for Africa that SAPs are too narrow, rely mainly on fiscal and monetary instruments and have little relevance to long-term development goals.

Another failure is seen in agricultural sector following the devaluation of Tanzanian shilling. For example in 1986, the rate was 192 shillings per dollar; this situation raised the price of imported inputs. This has resulted to poverty implication to the livelihood of farmers in the country. The removal of fertilizer subsidies had the effect of raising the price of fertilizers and therefore reducing profit. The removal of subsidies on maize meal is likely to have negatively affected urban consumers.

However, under Structural Adjustment Programmes there was sound macroeconomic substantial growth in economy. The overall economic growth has been rising consistently from almost one percent in the mid 1980s to 6. 7 percent in 2004 (URT, 2005). A substantial improvement has been achieved due to adoption of various expenditure measures and processes including Public Expenditure Review (PER), Medium term Expenditure Framework (MTF) and Integrated Financial Management System (IFMS). Conclusively; Despite the setbacks, Tanzania has made tremendous progress on many fronts.

However the remaining central challenge is making growth deliver more efficiently in terms of poverty reduction. The focus on this should be on accelerating growth of agriculture and rural sector development, to engender economic opportunities in rural areas where poverty remains pervasive. Equally important is the need to sustain robust growth, a necessary element to achieving the millennium development goals. Also since the inception of economic reforms in 1986, a promising number of Tanzania’s population has benefited from gradual poverty reduction.

Understanding of the issues by wider segment of society through debates and participatory approaches engenders broad ownership of the reforms. The government should insist on the various homegrown programs to ensure sustainability and credibility to citizens as they will feel accountable and responsible for their development. BIBLIOGRAPHY: Bidyut Chakrabary and Mohit Battacharya(2003); Public Administration: A Reader; Oxford University Press. David Reed (1992); Structural adjustment and the environment.

Economist Intelligence Unit (1995). Tanzania and the Comoros Gibbon, Peter and P. Raikes (1995). Structural Adjustment in Tanzania, 1986-1994. Center for Development Research: Copenhagen. Joe L. P. Lugalla; Online Journal for African Studies; University of New Hampshire; Available at www. africa. ufl. edu ; Sited on 16/12/2011. J. K. Nyerere (1973); Freedom and Development; Dar Es Salaam; Tanzania Printers. L. A. Msambichaka and A. Naho (1995). “Agricultural Sector Performance Under SAP in Tanzania: Promising or Frustrating Situation? in Beyond Structural Adjustment Programmes in Tanzania: Successes, Failures and New Perspectives. M. Bagachwa, F. Shechambo, H. Sosovele, K. Kulindwa, A. Naho and E. Cromwell (1995). Structural Adjustment and Sustainable Development in Tanzania. World Wildlife Fund and Economic Research Bureau: University of Dar es Salaam. Moshi, H. P. B. (1995). “Reforms and Economic Performance”. Paper presented at the World Bank Conference “Socio-Economic Growth and Poverty Alleviation in Tanzania”, Arusha May 14-20 1995. Mshana, Rogate (1996). Structural Adjustment and Food Security in Tanzania”. Paper presented at the Danida Food Security Workshop, Arusha, 18-19 November 1996. Richard E. Stren ; Ujamaa Vijijini and Bureaucracy in Tanzania; Canadian Association of African Studies. Tom Young (2003); In-African Politics; Indiana University Press. United Republic Of Tanzania (2002); Country Overview; Available at www. novelguide. com; Sited on 15/12/2011. Whirled Bank Group (2003); Structural Adjustment Programme; Available at www. whirledbank. org/development/sap. html; Sited on 16/12/2011. .

Economic growth From Wisped, the free encyclopedia This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsounded material may be challenged and removed. (April 2011) GAP real growth rates, 1990-1998 and 1990-2006, in selected countries. Rate of change of Gross domestic product, world and COED, since 1961 Economic growth caused the production-possibility frontier to shift outward. Economic growth is the increase in the amount of the goods and services produced by an economy over time.

It is conventionally measured as the percent rate of increase in real gross domestic product, or real GAP. [I] Growth is usually calculated in real terms – I. E. , inflation-adjusted terms – to eliminate the distorting effect of inflation on the price of goods produced. In economics, “economic growth” or “economic growth theory” typically refers to growth of potential output, I. E. , production at “full employment”. As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies.

The latter is the study of the economic aspects of the development process in low-income countries. See also Economic development. Since economic growth is measured as the annual percent change of gross domestic product (GAP), it has all the advantages and drawbacks of that measure. Contents [hide] 1 Definitions and history 1. 1 Economic growth versus the business cycle 1. 2 Historical sources of economic growth 1. 3 Economic growth per capita 1. 4 Measuring economic growth 1. 5 The power of annual growth 2 Theories of economic growth 2. Classical growth theory 2. 2 The neoclassical growth model 2. 3 Salter cycle 2. 4 Endogenous growth theory 2. 5 Energy and energy efficiency theories 2. 6 Unified growth theory . 7 The big push 2 8 Centenarians gar 3 Institutions and growth 4 Human capital and growth 5 Inequality and economic growth 5. 1 Evidence 6 Quality of life 7 Negative effects of economic growth 7. 1 Resource depletion 7. 2 Environmental impact 7. 3 Equitable growth 7. 4 Implications of global warming 8 See also 9 References 10 Further reading 11 External links 11. Articles and lectures 11. 2 Data Definitions and history[edit source I editable] Economic growth versus the business cycle[edit source I editable] Economists distinguish between short-run economic changes in production and long-run economic growth. Short-run variation in economic growth is termed the business cycle. The business cycle is made up of booms and drops in production that occur over a period of months or years. Generally, economists attribute the ups and downs in the business cycle to fluctuations in aggregate demand.

In contrast, the topic of economic growth is concerned with the long-run trend in production due to structural causes such as technological growth and factor accumulation. The business cycle moves up and down, creating fluctuations around the long-run trend in economic growth. Historical sources of economic growth[edit source I editable] Main article: Productivity improving technologies (historical) Economic growth has traditionally been attributed to the accumulation of human and physical capital, and increased productivity arising from technological innovation. 2] Economic growth was also the result of developing new products and services, which have been described as “demand creating” . [3] Before industrialization technological progress resulted in an increase in population, which was kept in check by food supply and other resources, which acted to limit per capita income, a condition known as the Malthusian trap. 4] The rapid economic growth that occurred during the Industrial Revolution was remarkable because it was in excess of population growth, providing an escape from the Malthusian trap. 5] Countries that industrialized eventually saw their population growth slow, a condition called demographic transition. Increases in productivity are a major factor responsible for per capita economic growth – this has been especially evident since the mid-19th century. Most of the economic growth in the 20th century was due to reduced inputs of labor, materials, energy, and land per unit of economic output (less input per widget). The balance of growth has come from using more inputs overall because of the growth in output (more widgets or alternately more value added), including new kinds to goods and services (innovations). 6] During colonial times, what ultimately mattered for economic growth were the institutions and systems of government imported through colonization. There is a clear reversal of fortune between poor and wealthy countries, which is evident when comparing the method of colonialism in a region. Geography and endowments of natural resources are not the sole determinants of GAP. In fact, those blessed with good factor endowments experienced colonial extraction that provided only limited rapid growth – whereas colonized countries that were less fortunate in their original endowments experienced relative equality and demand for the rule of law.

These initially poor colonies end up developing an open franchise, equality, and broad public education, which helps them experience greater economic growth than the colonies that had exploited their economies of scale. [citation needed] During the Industrial Revolution, mechanization began to replace hand methods in manufacturing, and new processes streamlined production of chemicals, iron, steel, and other products. [7] Machine tools made the economical production of metal parts possible, so that parts could be interchangeable. [8] See: Interchangeable parts.

During the Second Industrial Revolution, a major factor of productivity growth was the substitution of inanimate power for human and animal labor, to water and wind power with electrification and internal combustion. [7] Since that replacement, the great expansion of total power was driven by continuous improvements in energy conversion efficiency. 9] Other major historical sources of productivity were automation, transportation infrastructures (canals, railroads, and highways),[10][11] new materials (steel) and power, which includes steam and internal combustion engines and electricity.

Other productivity improvements included mechanized agriculture and scientific agriculture including chemical fertilizers and livestock and poultry management, and the Green Revolution. Interchangeable parts made with machine tools powered by electric motors evolved into mass production, which is universally used today. [8] Productivity lowered the cost of most items in terms of work time required to arches. Real food prices fell due to improvements in transportation and trade, mechanized agriculture, fertilizers, scientific farming and the Green Revolution.

Great sources of productivity improvement in the late 19th century were railroads, steam ships, horse-pulled reapers and combine harvesters, and steam-powered factories. [1 The invention of processes for making cheap steel were important for many forms of mechanization and transportation. By the late 19th century prices, as well as weekly work hours, fell because less labor, materials, and energy were required to produce and transport goods. However, real wages rose, allowing workers to improve their diet, buy consumer goods and afford better housing. 12] Mass production of the asses created overproduction, which was arguably one of several causes of the Great Depression of the asses. [14] Following the Great Depression, economic growth resumed, aided in part by demand for entirely new goods and services, such as telephones, radio, television, automobiles, and household appliances, air conditioning, and commercial aviation (after 1950), creating enough new demand to stabilize the work week. [1 5] The building to highway understructures also contributed o post World War II growth, as did capital investments in manufacturing and chemical industries.

The post World War II economy also benefited from the discovery of vast amounts of oil around the world, particularly in the Middle East. Economic growth in Western nations slowed down after 1973. In contrast growth in Asia has been strong since then, starting with Japan and spreading to Korea, China, the Indian subcontinent and other parts of Asia. In 1957 South Korea had a lower per capita GAP than Ghana,[16] and by 2008 it was 17 times as high as Shania’s. [17] The Japanese economic growth has slackened considerably since the late asses.

Economic growth per capita[edit source I editable] The concern about economic growth often focuses on the desire to improve a country’s standard of living – the level of goods and services that, on average, individuals purchase or otherwise gain access to. It should be noted that if the population grows along with economic production, increases in GAP do not necessarily result in an improvement in the standard of living. When the focus is on standard of living, economic growth is expressed on a per capita basis.

A high savings rate is also linked to the standard of living. Increased saving, in the long run, dead to a permanently higher output (income) per capita, as capital accumulation per individual also increases. [citation needed] Measuring economic growth[edit source I editable] Question book-new. SVGA This section does not cite any references or sources. Please help improve this section removed. (March 2013) Economic growth is measured as a percentage change in the Gross Domestic Product (GAP) or Gross National Product (GNP).

These two measures, which are calculated slightly differently, total the amounts paid for the goods and services that a country produced. As an example of measuring economic growth, a entry that creates $9,000,000,000 in goods and services in 2010 and then creates $9,090,000,000 in 2011, has a nominal economic growth rate of 1% for 2011. To compare per capita economic growth among countries, the total sales of the respected countries may be quoted in a single currency.

This requires converting the value of currencies of various countries into a selected currency, for example U. S. Dollars. One way to do this conversion is to rely on exchange rates among currencies, for example how many Mexican pesos buy a single U. S. Dollar? Another approach is to use the purchasing power parity method. This method is based on how much consumers must pay for the same “basket of goods” in each country. Inflation or deflation can make it difficult to measure economic growth.

If GAP, for example, goes up in a country by 1% in a year, was this due solely to rising prices (inflation), or because more goods and services were produced and saved? To express real growth rather than changes in prices for the same goods, statistics on economic growth are often adjusted for inflation or deflation. For example, a table may show changes in GAP in the period from 1990 to 2000, as expressed in 1990 U. S. Dollars. This means hat the single currency being used is the U. S. Dollar with the purchasing power it had in the U. S. In 1990.

The table might mention that the fugues are “inflation- adjusted” or real. If no adjustment were made for inflation, the table might make no mention to initiation-ad]students or might mention that the prices are nominal. T power of annual growth[edit source I editable] Over long periods of time even small rates of growth, like a 2% annual increase, have large effects. For example, the United Kingdom experienced a 1. 97% average annual increase in its inflation-adjusted GAP between 1830 and 2008. 18] In 1830, the GAP was 41,373 million pounds.

It grew to million pounds by 2008. (Figures are adjusted for inflation and stated in 2005 values for the pound. ) A growth rate that averaged 1. 97% over 178 years resulted in a 32-fold increase in GAP by 2008. The large impact of a relatively small growth rate over a long period of time is due to the power of compounding (also see exponential growth). A growth rate of 2. 5% per annum leads to a doubling of the GAP within 29 years, whilst a growth rate of 8% per annum (an average exceeded by China between 2000 and 2010) leads to a doubling f GAP within 10 years.

Thus, a small difference in economic growth rates between countries can result in very different standards of living for their populations if this small difference continues for many years. Theories of economic growth [edit source I editable] Classical growth theory[edit source I editable] Adam Smith wrote The Wealth of Nations The modern conception of economic growth began with the critique of Mercantilism, especially by the physiographic and with the Scottish Enlightenment thinkers such as David Home and Adam Smith, and the foundation of the discipline of modern lattice economy.

Adam Smith noted the huge gains in productivity achieved by the division of labor in the famous example of the pin factory. [19] David Richard argues that trade benefits a country, because if one can buy an imported good more cheaply, it means there is more profitable work to be done here. This theory of comparative advantage would be the central basis for arguments in favor of free trade as an essential component of growth. [20] The neoclassical growth model[edit source I The notion of growth as increased stocks of capital goods was codified as the Slow-

Swan Growth Model, which involved a series of equations that showed the relationship between labor-time, capital goods, output, and investment. According to this view, the role of technological change became crucial, even more important than the accumulation of capital. This model, developed by Robert Slow[21] and Tremor Swan[22] in the asses, was the first attempt to model long-run growth analytically. This model assumes that countries use their resources efficiently and that there are diminishing returns to capital and labor increases.

From these two premises, the neoclassical model makes three important predictions. First, increasing capital relative to labor creates economic growth, since people can be more productive given more capital. Second, poor countries with less capital per person grow faster because each investment in capital produces a higher return than rich countries with ample capital. Third, because of diminishing returns to capital, economies eventually reach a point where any increase in capital no longer creates economic growth. This point is called a steady state.

The model also notes that countries can overcome this steady state and continue growing by inventing new technology. In the long run, output per pita depends on the rate of saving, but the rate of output growth should be equal for any saving rate. In this model, the process by which countries continue growing despite the diminishing returns is “exogenous” and represents the creation of new technology that allows production with fewer resources. Technology improves, the steady state level of capital increases, and the country invests and grows.

The data does not support some of this model’s predictions, in particular, that all countries grow at the same rate in the long run, or that poorer countries should grow faster until they reach their steady state. Also, the data suggests the world has slowly increased its rate of growth. Salter cycle[edit source I editable] According to the Salter cycle, economic growth is enabled by increases in productivity, which lowers the inputs (labor, capital, material, energy, etc. ) for a given amount of product (output). 23] Lowered cost increases demand for goods and services, which also results in capital investment to increase capacity. New capacity is more efficient because of new technology, improved methods and economies of scale. This leads to further price reductions, which further increases demand, until arrest become saturated due to diminishing marginal Endogenous growth theory[edit source I editable] Main article: Endogenous growth theory World map of the 2008-2009 Global Competitiveness Index. Growth theory advanced again with theories of economist Paul Roomer and Robert Lucas, Jar. N the late asses and early asses. Unsatisfied with Solo’s explanation, economists worked to “endogenous” technology in the asses. They developed the endogenous growth theory that includes a mathematical explanation of technological advancement. [26][27] This model also incorporated a new concept of human capital, he skills and knowledge that make workers productive. Unlike physical capital, human capital has increasing rates of return. Therefore, overall there are constant returns to capital, and economies never reach a steady state.

Growth does not slow as capital accumulates, but the rate of growth depends on the types of capital a country invests in. Research done in this area has focused on what increases human capital (e. G. Education) or technological change (e. G. Innovation). [28] Energy and energy efficiency theories[edit source I editable] The importance of energy to economic growth was emphasized by William Stanley Sevens in The Coal Question in which he described the rebound effect based on the observation that increasing energy efficiency resulted in more use of energy. See: Sevens paradox) In the asses, the economists Daniel Shampoo and Leonard Brooked independently put forward ideas about energy consumption and behavior that argue that increased energy efficiency paradoxically tends to lead to increased energy consumption. In 1992, the US economist Harry Saunders dubbed this hypothesis the Shampoo-Brooked postulate, and showed that it was true under neo-classical growth theory over a wide angel of assumptions. 29] The importance of electricity to economic growth has been recognized by economists, prominent businessmen,[30] economic historians[31] and various engineering, technical and science organizations[32 and government agencies. Conclusions of a report prepared for Los Alamos National Laboratory for the United States Department of Energy and the National Academy of Sciences stated: “Electricity use and gross national product have been, and probably will be, strongly correlated” . [33] The report’s conclusion went on to say that the energy intensity of the U.

S. Economy (electricity consumed per dollar of GAP) had been declining for a number of years. All approaches to the inclusion energy into the theory of production are known as the energy theory of value, which, nevertheless, does not have an accurate and complete formulation. For example, Ares and War have presented a model that aims to address deficiencies in the neo-classical and endogenous growth models. It claims that physical and chemical work performed by energy, or more correctly Gerry, has historically been a very important driver of economic growth. 9] [34] Key support for this theory is a mathematical model wowing that the efficiency of a composite indicator using electrical generation and other energy efficiencies is a good proxy for the Slow residual, or technological progress, that is, the portion of economic growth that is not attributable to capital or The proper role of energy in production processes was elucidated by the technological theory of social production. Energy growth theory economists have criticized orthodox economics for neglecting the role of energy and natural resources.

Ares and War’s model relates the slowing of economic growth to energy inversion efficiencies approaching thermodynamic limits, and cautions that declining resource quality could bring an end to economic growth in a few decades. [37] Hall et al. 2001 state: “Although the first and second laws of thermodynamics are the most thoroughly tested and validated laws of nature the basic neoclassical economic model is a perpetual motion machine, with no required inputs or limits. [38] Unified growth theory[edit source I editable] Unified growth theory was developed by Owed Gallo and his co-authors to address the inability of endogenous growth theory to explain key empirical regularities in the Roth processes of individual economies and the world economy as a whole. Endogenous growth theory was satisfied with accounting for empirical regularities in the growth process of developed economies over the last hundred years.

As a consequence, it was not able to explain the qualitatively different empirical regularities that characterized the growth process over longer time horizons in both developed and less developed economies. Unified growth theories are endogenous growth theories that are consistent with the entire process of development, and in reticular the transition from the epoch of Malthusian stagnation that had characterized most of the process of development to the contemporary era of sustained economic growth. 39] The big push[edit source I editable] In theories of economic growth, the mechanisms that let it take place and its main determinants are abundant. One popular theory in the asses, for example, was that of the Big Push, which suggested that countries needed to Jump from one stage of development to another through a virtuous cycle, in which large investments in infrastructure and education coupled with private investments would move the Economy to a more productive stage, breaking free from economic paradigms appropriate to a lower productivity stage. 40] Centenarians growth[edit source I Centenarians growth is an economic theory named after the 20th-century Austrian economist Joseph Schumacher. Unlike other economic growth theories, his approach explains growth by innovation as a process of creative destruction that captures the dual nature of technological progress: in terms of creation, entrepreneurs introduce new products or processes in the hope that they will enjoy temporary monopoly-like profits as they capture markets. In doing so, they make old technologies or products obsolete.

This is the destruction[disambiguation needed] referred to by Schumacher, which could also be referred to as the annulment of previous technologies, which makes them obsolete, and “… Destroys the rents generated by previous innovations. ” (Action 855)[41] A major model that illustrates Centenarians growth is the Action-Hewitt model. [42] Institutions and growth[edit source I editable] According to Guacamole, Simon Johnson and James Robinson, the positive correlation between high income and cold climate is a by-product of history.

Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where these colonizers faced high mortality rates (e. G. , due to the presence of tropical diseases), they could not settle permanently, and they were thus more likely to establish extractive institutions, which persisted after independence; in places where they could settle permanently (e. G. Those with temperate climates), they established institutions with this objective in mind and modeled them after those in their European homelands.

In these ‘neo-Europe’ otter institutions in turn produced better development outcomes. Thus, although other economists focus on the identity or type of legal system of the colonizers to explain institutions, these authors look at the environmental conditions in the colonies to explain institutions. For instance, former colonies have inherited corrupt governments and gee-political boundaries (set by the colonizers) that are not properly placed regarding the geographical locations of different ethnic groups, creating internal disputes and conflicts that hinder development.

In another example, societies that emerged in colonies without solid native populations established better property rights and incentives for long-term investment than those where native populations were large. [43] Human capital and growth[edit source I editable] One ubiquitous element of both theoretical and empirical analyses of economic growth is the role of human capital. The skills of the population enter into both neoclassical and endogenous growth models. [44] The most commonly used measure of human capital is the level of school attainment in a country, building upon the data development of Robert Barron and Gong-Who Lee. 45] This measure of human UAPITA, however, requires the strong assumption that what is learned in a year of schooling is the same across all countries. It also presumes that human capital is only developed in formal schooling, contrary to the extensive evidence that families, neighborhoods, peers, and health also contribute to the development of human capital. To measure human capital more accurately, Eric Handshake and Dennis Kim introduced measures of mathematics and science skills from international assessments into growth analysis. 46] They Dunn that quality to human capital was very significantly related to economic growth. This approach has been extended by a variety of authors, and the evidence indicates that economic growth is very closely related to the cognitive skills of the population. [47] Inequality and economic growth[edit source I editable] Percentage changes in GAP growth spell length as each factor moves from 50th to 60th percentile and all other factors are held constant. Income distribution is measured by the Gin coefficient. Political institutions are measured by the Polity IV Project scale.

Exchange rate competitiveness is measured by rate deviation from purchasing power parity adjusted for per capita income. 48] Initial[when? ] theories incorrectly stated that inequality had a positive effect on economic development. The marginal propensity to save was thought[who? ] to increase with wealth and inequality increases savings and capital accumulation. [49] However, it was[who? ] determined much later[when? ] that the analysis based on comparing yearly equality fugues to yearly growth rates was flawed and misleading because it takes several years for the effects of equality changes to manifest in economic growth changes. 48] The credit market imperfection approach, developed by Gallo and Zaire (1993), monstrance that inequality in the presence of credit market imperfections has a long lasting detrimental effect on human capital formation and economic development. [50] The political economy approach, developed by Elysian and Radio (1994) and Person and Tableland (1994), argues that inequality is harmful for economic development because inequality generates a pressure to adopt redistributive policies that have an adverse effect on investment and economic growth. 51] Evidence[edit source I editable] A study by Operator (1996) examines of the channels through which inequality may affect economic growth. He shows that in accordance with the credit market imperfection approach, inequality is associated with lower level of human capital formation (education, experience, apprenticeship) and higher level of fertility, while lower level of human capital is associated with lower growth and lower levels of economic growth.

In contrast, his examination of the political economy channel refutes the political economy mechanism. He demonstrates that inequality is associated with lower levels of taxation, while lower levels of taxation, contrary to the theories, are associated with lower level of economic growth[52] A 2011 note for the International Monetary Fund by Andrew G. Berg and Jonathan D. Story found a strong association between lower levels of inequality in developing countries and sustained periods of economic growth.

Developing countries with high inequality have “succeeded in initiating growth at high rates for a few years” but “longer growth spells are robustly associated with more equality in the income distribution. “[53] Disputing the claim of a Washington Post editorialist that “Western Rupee’s recent history suggests that flat income distribution accompanies flat economic growth,” urinals Timothy Noah, points out that redistribution policies in Europe do not seem correlated to economic problems of the late twenty-ought.

Deflation in Japan or The Lost Decade Japan’s economic development of the sass ended at the start of the sass. At the end of sass, irregularities inside the Japanese economic organization had qualified a hypothetical asset price bubble of massive scale by Japanese enterprises, banks and securities corporations. The mixture of extremely high land prices and low interest rates temporarily caused sharp liquidity of the market. This led to enormous borrowing and strong investment mainly in domestic and global stocks and securities. Realizing that this bubble was unsupportable, the Finance Ministry of Japan precisely increased interest rates in late sass’s. This severe course of action metaphorically pursued the bubble, and the SSE Pan stock exchange) market collided. A debt crisis trailed and the Japanese banks and insurances were now burdened with uncorrectable bills, uncorrectable loans and had to write off many debts as bad debts. The financial associations were bailed out from the government, credits from the reserve bank or known as central bank and the ability to delay the acknowledgement of losses, eventually turning them into the banks whose net worth s less than or so called Zombie banks.

Zombie banks are considered to be one of the important causes for the Japan economic stagnation. Michael Schuman ( Asia business correspondent for Time Magazine ) said that Japan’s economy would not have started to improve until this practice had terminated, he also indicated that these banks kept inserting more capitals into loss-making “Zombie firms” to keep them floating, arguing that they were too huge to fail. Banks kept insolvent firms alive by continuing to deliver them with credits, often at low-market interest rates.

These so-called “zombie” firms regularly suffered from low productivity and lagging technology, but were kept moving because the banks were loath to show loan defaults on their balance sheets. Most of these technically insolvent firms were protected from foreign competition and many were small. And they were often better at lobbying local politicians for forbearance than producing what consumers wanted at competitive cost. Most of these enterprises were too much in debt to do much more than stay alive on bail-out funds.

Finally, most of hose weakening companies became unsupportable, and merging of companies started to take place, turning the four important national banks in Japan. Several Japanese businesses were loaded with huge debts, and it turn out to be very difficult to take loans or credit from the bank. Therefore during the time from 1990 till 2010 was known as “lost decade”, this was when the economy slowed down or grew at a miserable rate. Unemployment rates were on the rise, but not at a threatening level. Pan economic growth By Safes-Khan workers, who had little or no Job security and very few aids. Japan’s economy has not been fully recovered yet and is still making efforts to overcome from this situation. Japan Policies Fiscal policy and Monetary easing The “Lost decade” was there for more than 20 years and Japan was trying hard to get back on track. To end the era, it used aggressive monetary easing to depreciate the value of their currency Yen in the global market. The Bank of Japan had retained short-term interest rates somewhere around zero ever since 1999.

With quantitative easing, commercial banks were flooded with surplus liquidity to promote private owning, giving them large stocks of excess capitals, and hence little risk of shortage of liquidity. The BOX achieved this by purchasing many government bonds than would be essential to fix the interest rate to zero. The Bank of Japan allowed the commercial bank current account balance to increase from trillion yen to trillion for a 4-year period beginning in March 2001 . Bank Of Japan made three times the amount of long-term Japan government bonds it could purchase on a monthly basis.

In 2010, the BOX declared that it would scrutinize the purchase of 5 trillion in assets. This was an effort to bring down the value of yen against the U. S. Dollar to motivate the local economy by making their exports cheaper. “While supporting a rise in exports, a further impact of a weaker currency was to raise the price of imported raw materials. Latest data showed that average input costs rose for the fourth month in succession, and at the sharpest rate in over a year- and-a-half. Margins subsequently remained under pressure as a net fall in output charges was recorded for the twenty-first month in a row. ” It did not achieve the results which was expected but still had positive figures. Monetary easing was not the only method used to improve the economy but strategies like expansionary fiscal policies and a wide range programmer of structural reforms.

Kara Mari, Japan’s economic minister, put it in simpler terms: “Almost all economic indicators are pointing upwards. ” Expansionary fiscal policies Is when there is a rise in government buying, a fall in taxes, and a growth in transfer expenditures are used to undo or erase the faculties of a business-cycle contraction. The main motive of introducing expansionary fiscal policy is to reduce a recessionary gap, motivate the economy, and lower the unemployment and its rate. Expansionary fiscal policy is frequently agreed by expansionary monetary policy.

It affects aggregate demand, the distribution of wealth among the people, and the economy’s capability to manufacture goods and services. In the short run, changes in expenditure or taxing can change both the level influences the allocation of resources and the productive capability of an economy wrought its influence on the returns to elements of manufacturing, the development of human capital, the distribution of capital expenditure, and investment in technological inventions.

Tax rates, through their effects on the net returns to labor, saving, and investment, also has a great impact on both the magnitude and the allocation of productive capacity. Bionics “Japan’s economy is on a steady path of recovery and it will gradually gather strength,” and financial markets will calm down, Bank of Japan Governor Harrumph Kurd All the recent economic policies developed and implemented to fight from fellatio by Japan are called Bionics.

Bionics involves 3 specific policies to bring inflation in Japan, and is trying to pull themselves up from deflation since the past 20 years. These policies are developed mainly by the current prime minister of Japan “Shins¶ Abe”. It includes an enormous rise in fiscal stimulus through government expenditure, a massive rise in monetary motivation through exceptional central bank policy, and an improved package focused at making structural improvements to the Japanese economy.

In brief, “Bionics” sums up to one of the important economics experiments the modern world has ever seen. The results achieved by the country have been more than satisfactory; the Nikkei has gone 25 % this year. Japan’s economy grew 3. 5 % in the first quarter, outpacing that of the U. S. But there are critics who are opposing against the policies and predicting that it may harm the domestic and international economy in the short and long run. “A few days or weeks of market turbulence are no reason to believe that Bionics is doomed to fail. Said Grant Lewis, head of research at Data Capital Markets Europe Ltd. N London. The black side of Bionics can be seen. Stock prices have begun to show unpredictable variations. Organized investors have made returns, but normal citizens are in no place to take advantage from the stock market. The sensibly reduced yen, compared with the level mainly throughout the days of the Democratic Party of Japan government, has aided in the development of the act of export businesses.

But the rise in price of imported fossil fuel and raw materials are transforming into expensive electricity charges which also increases the prices for food items. The government must give importance to stabilize people’s lives and must flexibly manage with unpredictable economic conditions. The “third bullet” of the Abe management’s growth and development strategy has also upset the market. The Nikkei index fell more than *843 recently to come down to a level prevalent before the Bank of Japan gigantic monetary easing. Fluctuation in the overseas exchange market is incredible.

The yen which had dropped to more than 100 against the dollar forte to a level little lower than at one point. The variation means that the active market participants have faith in the Abe f the Bank of Japan) had wished that its immense monetary easing would manage to a drop of interest rates in long term. On the opposing, interest rates have increased upward. The follow-on effect is a skyward trend in interest rates for home loans and loans for enterprises and businesses. Mr. Kurd clearly failed to precisely forecast the movement in the domestic bond market.

According to critics the biggest loss will suffer the neighboring countries due to depreciation of yen specially South Korea. With nearly 60% of South Korea entire GAP deriving from net exports, every % drop in TTS trade balance result in a more than 0. 5% hit to GAP: more than any nation in the world. And since South Korea and Japan compete for the same export end markets, there would be no bigger loser in a zero trade sum world than Seoul. “The point is that these monetary policies are having quite a negative impact,” Mr. Hymn told the Financial Time. South Korean Finance minister. Not only South Korea, but other countries have been affected a lot by bionics in a negative way. Bionics effects on Nikkei stock average and yen vs. Dollar Source: Thomson Reuters Datagram As you can see in the above the diagram that the red line shows the Nikkei 225 stock exchange and blue line indicates the depreciation of yen compared to dollar. Both the graph line is going upwards which indicates that the economy is recovering and stabilizing. It is a positive start after a 20 year long deflation.

Source: Thomson Reuters As you can see in the above graph that since the time Bionics has been implemented there has been a positive change in the Nikkei, which has been increasing day by day. Japan’s government debt is so excessive that, one way or another, many think it will eventually default. But there’s a way Japan can begin sloughing off its debt and growing its economy: by propagating government assets. In fact, the nature of its debt means that it can’t fix its debt problem without doing that says Michael Pettish, a finance professor at Peking University Gangue School of Management.  As one can see in the above graph that Japan has been leading the race in the debt. Conclusion The BOX and the government must pay severe consideration to the genuine economic conditions people are encountering. The country’s 10 main power companies and our most important city gas companies will increase their rates in July (2013) for the fourth straight consecutive month because the prices of imported liquefied natural gas and crude oil have increased.

There is no vision that employees’ wages will increase. The Abe management’s policy to attain 2 % inflation in two years is expected to end in rise in price without wage increases, and could even form economic bubbles in the economy. Mr. Abe and other government representatives should be aware that their economic strategy could create financial chaos on many initiative that will generate more Jobs and increase wages.

To many people globalisation is a very recent phenomena, no one had really spoken about it in terms of it being a global issue, or problem. However, the term and definition of it have only come to light recently, as the spread of western ideas have transfixed much of the globe. Globalisation is more of a process than an occurrence, it is not so much that it is the cause of the issues in this essay, but a term used to describe the spreading of a trend, that of capitalism. Fundamentally, the term is about increasing levels of connectivity, integration and interdependence between different parts of the world economy, politics, society, and culture.

As I have said views on the benefits or drawbacks of this effect vary greatly, as is shown by Singapore’s Deputy Prime Minister Lee Hsien Loong, “Globalisation, fostered by free flow of information and rapid progress in technology, is a driving force that no country can turn back. It does impose market discipline on the participants, which can be harsh, but is the mechanism that drives progress and prosperity”. However, other opinions are held, mainly from groups who believe that it is destroying culture, and widening the poverty gap, as well as de-stabilising world economies. “If globalisation has not succeeded in reducing poverty, neither has it succeeded in ensuring stability”.

The East Asian experience with globalisation has been very mixed due to the changing economies in the region. It is not only an economically dynamic region, but also very diverse culturally and ethnically, which is why the region is susceptible to change and external influences. With countries such as Japan encountering stronger influences of capitalism through integrated markets, while transitional economies such as Cambodia, Laos, and Myanmar have not yet opened up their economies to the external markets.

In this essay I will look first at the effects globalisation has had on helping the region progress quickly through a short industrialisation period, with the aid of FDI (Foreign Direct Investment), technology, MNCs, economic policy, and international finance. I will then focus on the crisis the region experienced, the effect globalisation had, and the implications of such an event. This essay will also briefly take a look at the effects globalisation has had on society and culture, while later addressing the environmental issue and the impacts globalisation has had on poverty, and inequality.

The benefits of an inevitable and irreversible globalising world are clearly illustrated by the management of economic and political policies in the majority of Southeast Asian countries, most notably the tiger economies. The areas in discussion are comprising economies, all of diverse size and resource endowment. As they have proved in the past two decades, they have used the spread of globalization as a tool to become a dynamic region, having achieved high and sustained economic growth. The Philippines are an example of a reformed economy as of the 1980’s, due to previous political instability, which had adverse effects on its economy.

Prominence was placed on deregulation, privatization, export manufacturing, and foreign direct investment. With a mainly export led economy, the Philippines, and other ASEAN members recoiled their economy, to achieve remarkable economic growth until 1997. Other factors of growth in the ASEAN region came in the form of high FDI development strategy, with the involvement of foreign multinationals. These MNC’s capitalized on the opportunity to enhance their manufacturing productiveness and efficiency within the region, taking advantage of low labour, and relocation costs.

One aspect of the development achievement within Asia is the impressive way in which they have attained a high degree of trade orientation, and low intra-ASEAN trade, much of which was aided by capitalist ideas spread through globalisation. Positive economic policies, coupled with the influx of western technology have allowed East Asian countries to develop their own industries, especially in electronics. This is seen in Korea, Japan, Taiwan, Singapore, and even Malaysia. “As globalisation of information and communications fuelled demand for semiconductors, PCs, cellular phones, and other telecommunications equipment. Electronics came to dominate ASEAN exports, accounting for about half the exports of Singapore and Malaysia”.

The trade/GDP ratios have risen for most countries in the region, which is at a higher level than most countries in the world. “Singapore’s combined imports and exports are more than double the size of its GDP, while Malaysia’s amounted to 160 per cent. Only Indonesia and Myanmar have ratios of less than 50 per cent, which are still much above world average”.

Other indicators of economic openness show that as of 1996 Singapore’s export and import/GDP ratio was 261.1 per cent, Thailand’s was 67.7 per cent and Vietnam’s was 76.1 per cert. With much of the region going through a rapid stage of industrialization, it is helping the economy churn out far more value added goods to mainly western markets, at a high rate of return.

As a result of the fast industrialization period, export structures have been able to shift away from primary sectors, such as agriculture, and towards more dynamic secondary industries such as labour intensive manufacturing. It was a very much needed rapid shift, as the region experienced depressed commodity and energy prices. “The collapse of oil and commodity prices in the early 1980s compelled these countries towards export manufacturing to develop new sources of export earnings”.

Much of the shift is attributable to FDI, which has facilitated the capital transfer, and technology upgrade. “The growth of FDI and globalisation strategies of MNCs have led to growing intra-firm trade, both between parent and affiliate, and among affiliates based in different countries in the East Asian region”.

Whilst protectionist measures where still in place in many of the regions economies, the spread of capitalist ideas where unable to have much effect on them. Therefore, many economies adopted export processing zones (EPZs), which allowed free importation for export production, though only in controlled geographical regions of the country. China is one example of this, where the government allows these zones to be set up in areas such as Shenzen, and Xiamen.

FDI has been a main source of development aid in Asia, and has helped the more open economies pull quickly through their industrialisation period. Since the mid 1980s FDI has grown faster than trade for Asian economies, and the primary mechanism of integration has shifted to it. What is important here, and a common element is the importance of MNCs. They bring in to a country much needed foreign exchange, and build new facilities, which are known as ‘Greenfield investment’. Furthermore, by MNCs merging or acquiring firms in host countries, they spread managerial, marketing, and technological expertise.

“In the case of developing countries as a whole, inward FDI is twice as significant to the domestic economy as in developed countries”.

With the decrease of outward FDI in the primary sector, and consequently an increase in FDI in service sector, it has led to faster rate of development. Although “until the early 1980s, the bulk of FDI was in manufacturing industry and was an integral part of the rapid growth and internationalisation of economic activity

Finally, South Korea has been one example of how Asian countries can expand beyond their own markets. This is seen through Korea’s ‘segyahwa’ (globalisation) policy, where the chaebol have pursued investment in European markets. In the long term, what this achieves is the growth of Korea’s domestic firms, and enables them “to acquire an independent technological capability, based on the notion of overseas investment acting ‘as a bridge over which necessary, advanced technology can enter the domestic arena’ (Korean Ministry of Finance and Economy 1995)”.

A possible understanding of globalisation is that it is the process of creating a single global financial market. In order to achieve the homogeneity, differences in national financial markets must be minimised. Differences in financial markets are often due to differences in regulations regarding their operation. Deregulation of national financial markets that seek to harmonise regulations with those of other nations is therefore an important aspect of the globalisation process.

The euro-market has helped the stem of this financial globalisation which has transpired to Southeast Asia over the last several decades. With Europe experiencing high influxes of ‘hot money’, it is easy to see why economic fundamentals have allowed for trillions of dollars to be exchanges in one economy over the time period of one day. This is mainly due to investors not paying deposit insurance, economies not having any interest rate regulations, and either low or no taxes. Contrary to this, Asia began to experience waves of ‘hot money’ which is what leads us to the collapse, and reform of many financial institutions in the region, as a result of globalisation, which has shifted control increasingly away from the national governments to the MNCs and financial institutions.

The immediate implication of this has been the “increase of relative importance of the external compared to the internal or home market in almost every nation”. This has had an impact on the handling of the financial institutions, with governments keeping a much tighter control on their fiscal and monetary policies, aiming to maintain low budget deficits and interest rates high. What had happened in the region was a severe blow of confidence to a region which was developing at a miracle rate. Moreover, what this does is discourage future investment and inflow of capital into these nations which have adopted new economic policy following the crisis. In the long run harming the ability of potential economic growth and stabilisation.

Further to the shift in economic policy, many nations in Southeast Asia have begun to resemble strategies of multinational corporations. Countries are now attempting to cut labour costs in relation to productivity, and so try and gain a competitive advantage over other nations. “With demand management policies abandoned by governments, the focus of national policies has also shifted away from the size of the market. Since the size of the external market lies largely beyond the control of individual national governments, macroeconomic policy now focuses on capturing a bigger share of the external market”, by gaining competitive advantage.

What financial globalisation has done in effect is reduce government control over its financial markets due to the spread of capitalist markets and speculators. As I will explain further in this essay, the effect of foreign speculators, and investors in Asian markets was one of the more prominent reasons for the Asian financial crisis. One of the main players to voice a concern about the financial trends in Asia was Dr Mahatir Mohamad by pointing out that he felt his government had lost control of their own financial institution, and that control was placed in the hands of Wall Street speculators.

• Does Economic Growth lead to Poverty Alleviation?

Please compare and contrast very briefly the experiences of China, India and Brazil. What lessons can an African country of your choice learn from these experiences?

INTRODUCTION

The last few decades witnessed a rapid economic growth in developing countries. However, over 88% of the 1. 2 Billion world poor (Olin et al, 2013) live in these countries. This phenomenon poses the question if the recent growth has been pro-poor .

This essay argues that growth output alone is not sufficient for poverty alleviation; ether complementary measures and policies need to exist to create sustainable pro- poor growth. The essay has been organized as follows: First, the analytical debate on the correlation (or the lack of it) between economic growth and poverty reduction will be analyses. Second, case studies of China, India and Brazil will be presented with relevant data to make a brief comparison and apply the results to the developmental debate presented above.

Third, Burning Fast, a sub-Sahara country that went through a rapid development phase, will be brought into the discussion to analyses trends and offer recommendations gleaned from BIG experience. Finally, the discussion will be summarized by concluding if the hypothesis set above holds true for all four countries. While a variety of tools and measures exist in the literature for poverty measures, the current essay will use the revised poverty line of $1. 25 per day on a purchasing power parity basis and the popular head-count index (Chem. and Ravioli, 2009; Ravioli et al, 2008).

A report published by DIF (2008) argues that growth is the most powerful instrument tort pope reduction and, thus, it should be at the heart to all development policies. Cross country studies carried out by Chem. and Ravioli (1997), Adams (2002) estimates 10% increase in a country’s average income will reduce the poverty rate by between 20% and 30%. Two more flagship studies, Bessel and Cord (2007) and POPS (2005), present conclusive arguments through cross country empirical evidence that on average, 1% increase in per capita income reduced poverty by 1 . 7% per cent. Appendix: Figure 2. 2 and Figure 2. 3) In Bessel and Cord (2007) above, two authors Menses-Folio and Voicelessly (p. 219-243) draws on Brazier’s experience in creating pro-poor growth. In the book overview, Cord (p. 9) agrees that growth elasticity of poverty is negatively related to initial inequality and any increases in inequality further increase poverty incidence. He further states, “The factors conducive to pro-poor growth are those that improve the level of income and decrease income inequality’. This view is shared by the opponents of the current debate too.

Ravioli (2001) too observes the chance of growth being accompanied by increasing or decreasing inequality is roughly equal. However, a series of studies using cross- country data suggest that growth has neither a positive nor a negative effect on inequality. (Chem. and Ravioli, 1997; Easterly, 1999; Dollar and Kraal, 2002; Ravioli, 2004, 2007) Biracial and London (1997) argue that social divide is created by the “initial assets” hill DIF (2008) warns any attempt of asset re-distribution may have an adverse effect on the incentives to save and invest.

Nevertheless, rising inequality in the developing world, spurred by liberalizing and globalization, is a major concern for many economists. Stilling (2013) and Millennia (2005) observe that a race to the bottom has been created by asymmetric globalization. In the Lewis Theory (Toward and Smith, 2011), surplus labor from the rural subsistence sector is gradually transferred to urban industrial sector for higher productivity.

The rural-urban migration, in the long run, may result in urban employment, wage decrease, loss of agricultural productivity, debt accumulation, monopolizing, lack of access to credit and insurance, and social exclusion. Mammary Seen (1999) described economic growth as a crucial means for expanding the substantive freedoms that people value. But in reality, in India, more than 270,000 farmers caught in a debt trap have committed suicide since 1995. (Shiva, 2013; stagnant 2013) According to Gin index , global inequality is 0. Points today (Millennia, 2005) while it is between 4. 5 – 4. 7 for developing countries that saw a proliferation of economic activities in the recent past (Appendix: Figure 2. The Sunset’s curve , on the other hand, tells a different story about inequality. (Sunsets, 1955; Appendix: Figure 2. 6). The inequality seen in developing countries is part of the development and will phase out as more growth is achieved. However, The Sunsets hypothesis has been one of the most debated issues in development economics.

Bannered et al (2006) explains the reasons for the drop in inequality in industrialized countries during the 20th century was not related to the optimistic trickle-down process advocated by Sunsets theory. For developing countries, high inequality is not necessarily a sign of growth or an expectation that the trend will reverse in a spontaneous fashion. Inequality, rather, can have harmful effects on the growth. Ravioli and Chuddar (2007) speaks about “Good Inequality’ (egg. , that fosters entrepreneurship) and “Bad Inequality’ (I. E. , geographic and human resources traps) wherein the latter is capable of driving out the former.

Some view the rise of developing countries as convergence. But historically the trend of mobility among countries has been in opposite directions. Table 2. 7 in the Appendix shows poor countries have seen a downward trend while rich countries too have seen an upward mobility (Aqua, 1993, cited by Reality Domino, 2013) Another crucial point is the spatial dimensions of the problem. In his latest book, Global Poverty and the New Bottom Billion, Andy Sumner (2010) highlights that poverty is no longer a Low Income country issue; for currently % of the world poor (approve. 1. 3 Billion) live in Middle Income countries.

According to new World Bank classification, (see footnote 1) many Licks have been graduated to Miss. This suggests hat world poverty is turning from an international to a national distribution issue and internal politics, inequality, domestic taxation, redistribution policies are becoming of growing importance visas-¤-visas economic growth. Islam (2004) identifies a gap in the literature that advocates a direct correlation between income growth and poverty reduction. Through an empirical analysis, he demonstrates that there is no invariant relationship between growth and poverty reduction.

For, the pattern and sources of growth as well as the redistribution mechanism are important from the point of view of achieving the goal of poverty deduction.

BIG COMPARISON

During the past three decades, China, India and Brazil – with a population count of 2. 7 Billion in their countries – have attained extraordinary levels of economic progress. (Cravings, 2006; Chary, 2004; Campus et al, 2002) China’s GAP grew at an average rate of 10. 4 per cent, India at 10. 3 per cent and Brazil at 7. 5 per cent per year . (World Bank, 2012; Appendix: Figure 3. 1, Figure 3. 2, Figure 3.

During this period of rapid economic growth, China alone has lifted over 200 million people out of poverty (Asian, 2002). Indian’s poverty rate fell from 42% to 24% while Brazier’s “$3-a-DaY’ poor populace decreased from 17% to 8% (Ravioli, 2009). What were the main drivers of economic growth in BIG countries? What were the approaches to reduce poverty? Are there any factors that impede sustainable and pro-poor growth? A. Drivers of Economic Growth: BIG experienced few common factors. The reforms appeared as a in the backdrop of a crisis-response. As a result, growth-promoting policy reforms were implemented.

BIG also liberalized the markets and exposed local producers to foreign trade. An alternative view is put forward by Rod and Submarine (2004) who argue Indian’s Roth started in sass with government’s attitudinal shift towards reform. However, certain factors of growth were exclusive to one or two of them. Although both China and India followed the Lewis theory of growth, China’s surplus labor from agricultural sector was transferred to industrial sector while India focused on the services sector. Brazil, followed the Roster theory of growth, focusing more on local consumption. . Approaches to Poverty Alleviation: Driven by its initial conditions, each country employed different strategies to tackle poverty. Brazier’s redistribution policy was markedly exclusive from other two players. It introduced Bolas Familial , that helped lift MM people out of poverty. (Slakes, 2009) China allowed the poor to participate in country’s growth process and social policies. (Ravioli, 2009). In all three experiences, we realize macroeconomic stability was vital to poverty reduction. C. Sustainable and Pro-poor? This growth had its consequences.

Both China and India saw worst disparities in income and opportunities. Slakes (2009) states that government policies, by favoring high productivity regions, fuelled this inequality and rural-urban divide. Brazil, on the monetary, had success in reducing inequality through its pro-poor redistribution policies . (Stilling, 2013, Ferreira et al, 2012; Appendix: Figure 3. 4) There is much debate on if the growth of BIG is sustainable. The Economist (AAA) brought to light Brazier’s slump in GAP growth, high public sector spending and other internal issues that resulted in mass public protests. The Economist, AAA; Ferreira, 2013) China’s future too has been questioned because it no longer has that boundless cheap labor. China still hasn’t decided to privative its state-owned enterprises that nag financial resources. Another major obstacle in China’s path is the lack to rights for rural farmers to their lands. This has further deepened the rural-urban divide in China. (The Economist, Bibb). Dads and Indian’s (2013) predicts China will cross the Lewis Turning Point – due to cheap labor shortages caused by demographic shift – between 2020 and 2025.

Granary and Song (2006) too refers to a turning point; but with regard to China’s energy usage. Challenges loom into Indian’s ability to sustain the momentum too. Ball (2003) presents employment and labor market data to show the rise in unemployment, rural-urban divide and informal sector since sass’s. The IT services sector employs 1 million out of a total labor force of 450 million and it has reached its capacity. (Syria, 2011)

SUB-SAHARA EXPERIENCE

Burning Fast, has a population count of 16 million people.

With population growth of just over 3 per cent per annum, Burning Basso’s population is expected to double within 25 years. This poses major problems for the country in terms of ensuring food security and the sustainable development. Past political instability, corruption, ethnic tensions and violence, especially in the neighboring Cote divorce, government’s sake capacity to respond vigorously to exogenous shocks, etc. , have left the country with lack of local services to support communities and improve people’s lives. (PROS, 2007) 45% of Braking©s live below the poverty line, half of them are cotton farmers.

Malnutrition and Hiatus are major health concerns. Burning Fast also has the lowest literacy rate, 13%, in the world. (UNDO Report, 2005) Burning Fast has significant reserves of gold, but 80% of the population relies on subsistence agriculture, cotton being the economic mainstay. Only a small proportion of Braking©s work in industry or services. CIA World Fact Book) Growth and Development Breton Woods Institutions are substantially involved in Burning Fast since grants and foreign loans account for around 70% of state revenues. The World Bank, 2013) Since 1991, country was espoused to a market economy, founded on the principles of free enterprise. Government’s economic and structural reforms aimed at creating the conditions for promoting private initiative and achieving sustainable growth, helped the national economy to grow at an average rate of 5 per cent a year in real terms. Despite the fact that Burning Basso’s economy grew at around 5% per year from 1995 o 2002, poverty increased from 44% in 1994 to 46% in 2003. (Appendix: Figure 4. 1 and Figure 4 2) So while some people were becoming better tot, others were becoming poorer.

The inequality found in Burning Fast is not related to income distribution. It is due to existing inequalities between men and women and regional disparities. Salsa-I-Martin and Pinky’s (2010) observation on African poverty (Appendix: Figure 4. 3) contradicts with the reality in Burning Fast. But Chem. and Ravioli (2008) clarifies that because of the population growth in Burning Fast, the aggregate poverty ate has not been sufficient to reduce the number of poor. This explains why the expected outcome of Poverty Reduction Strategy Papers (PROS) has not been favorable.

In addition, while income growth alone may not reduce poverty in other parts of the world, Burning Basso’s experience has a direct correlation with wealth generation and poverty reduction. Lessons from BIG Burning Basso’s context, demography and institutions differ from BIG countries. (Hager, (2001). Agriculture will be the centerpiece of Burning Basso’s efforts to achieve growth, reduce poverty and ensure food security. This can be done by easing agriculture’s profitability through technological innovation. Burning Fast can learn from China’s experience on agricultural growth as well as population planning.

Burning Fast can capitalize on its mining industry through foreign market exposure, a lesson that can be learnt from Indian’s IT industry. Brazier’s approach to developing human capital and social insurance can offer few directions to Burning Fast to reform its education, health and social sector. It can also create community based rural development programs to offer social and income protection for farmers through subsidized programs. Ravioli (2009) emphasizes that combining China’s growth-promoting policies with Brazier’s social policies would surely be a good formula for any country.

CONCLUSION The objective of this essay was to understand if there is a direct relationship between economic growth and poverty reduction. To achieve this, I reviewed theoretical literature and relevant empirical data to understand the nature of the analytical debate. Brazil, India and China’s growth and poverty reduction experiences were explored, compared and contrasted. Then I Burning Fast was brought into the discussion to analyze trends. BIG experience provides results that support my hypothesis. Major challenge was terming conclusions related to Burning Fast. Unavailability to reliable and consistent data was a major impediment.

Deviant (2013) dubbed it as ” Africans statistical tragedy’. Africans Pulse (2013) observes that population censuses for Sub Sahara countries are out of date, poverty estimates are irregular, and incomparable over time due to changes in survey design and inadequate price deflator. However, through existing literature inference can be made that the growth in one aspect of the economy will not automatically translate into benefit the poor. Rather it depends on the profile of growth, the distribution across locations of the poor, and the extent of mobility across sectors.

Although the same cannot be said for BIG countries, Burning Basso’s experience shows a robust relationship between economic growth and poverty reduction when the population growth is controlled for. Through implementation of Preps to achieve Millennium Development Goals, Burning Fast has seen a considerable growth in the past five years. In 2012, it’s GAP growth rate stood at 10. 1%, a target government, International donors and civil society actors aspired to achieve in 2015. Inequality was found to be minimal; but for reasons not created by Economic growth.

Resources used by Tesco are several in its multi stage operation. Tesco has huge operations of scale in Production, Procurement, Storage, Marketing, Finance and Supply chain management to name a very few core functions. Resource management is at the heart of the profitability function of any economic unit. These resources can be primarily grouped into Products, Services, Personnel, Capacity and Strategy. Tesco allocates one resource to the other function to provide for the maximum efficiency and Quality control. For example, it provides the Procurement operation with its capacity resource to maximize availability of seasonal food products.

Similarly it allocates a huge chunk of human resource (personnel) and strategic resources to Marketing function to come up with its unique concepts of online-mall (which has been rightly replicated by other chains promptly) to increase its reach in the virtual market segment. The base-lining of the supply chain management with Resource management and having effective and quality-controlled processes to allocate and later evaluate their returns on various key performance indicators results in maximizing the economy of scale in line with their philosophy of “every little helps”

Or instance the marketing team is allocated to the malls newly opened in various countries as part of Tesco’s global reach. They are then evaluated on KPIs like footfalls, net revenue, market realization and acquisition. This prudent resource management helps Tesco afford profitability to all its stake holders. Efficient usage of resources helps Tesco keep its promise of something for every customer irrespective of his budget. The now legendary support of Tesco to its vendors by allocating its resources of transport and storage has helped them grow and Tesco is now reaping the dividends of dependable and loyal vendor management system.

Show how by use of social welfare and greater use of ‘Corporate Social Responsibility’ Tesco’s reputation could be enhanced in the eyes of the wider community Source: http://www. wbcsd. org/DocRoot/RGk80O49q8ErwmWXIwtF/CSRmeeting. pdf, accessed on 4/2/2007 “Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. ” (WBCSD Stakeholder Dialogue on CSR, The Netherlands, Sept 6-8, 1998)

Tesco understood already the benefits of using a coherent CSR strategy based on sound ethics and core values as well as the benefits to monitor shifts in social expectations and to help control risks. For example, over the past years Tesco have reduced the amounts of salt in over 500 of its products and is engaged to cut the amount of salt of 2000 more products to help meet the Department of Health and Food Standards Agency targets of 6g per day intake by 2010. Such a strategy has ultimately helped Tesco to grow while improving its reputation and gaining public support.

Evaluate the impact of macro economic policy and the global economy on this UK based organisation Sources: http://en. wikipedia. org/wiki/Macroeconomic_policy_instruments and http://en. wikipedia. org/wiki/Global_economy accessed on 4/2/1007 There are two major macroeconomic policies: – The monetary policy, which can be either expansive for the economy or restrictive for the economy. Historically, the major objective of monetary policy had been to manage or curb domestic inflation. More recently, central bankers have often focused on a second objective: managing economic growth as both inflation and economic growth are highly interrelated.

The monetary policy has an important impact on Tesco because it influence the whole economic activity through interest rates, exchange rates, control of money supply and control over bank lending and credit. For example, the monetary policy controls Tesco’s ability to borrow money from banks and the interests charged; so, if Tesco wish to enlarge one of its store and need some funds from its bank, the conditions might be more or less restrictive depending of the current needs of the government. – The fiscal policy, which consists in managing the national budget and its financing so as to influence economic activity.

Raising taxes and reducing the Budget Deficit is deemed to be a restrictive fiscal policy as it would reduce aggregate demand and slow down GDP growth. Lowering taxes and increasing the Budget Deficit is considered an expansive fiscal policy that would increase aggregate demand and stimulate the economy. Tesco pays a certain amount of taxes depending on its revenue and current needs of the government. – The global economy gave business the ability to market products and services all over the globe. It has also allowed them to develop partnerships and alliances throughout the world, which has become essential for success in today’s business.

” (Haag Stephen, 2000). The breaking down of global barriers allows companies to benefit from the largest and cheapest workforces, raw materials and technology. One disadvantage of a global economy is the increased need for transportation due to less local production. Increased transportation leads to increased emissions greenhouse gases. Tesco took advantage of the globalisation. It has stores in several countries, employs workforce from all over the world, buys from local suppliers and uses the latest technology to facilitate the shopping experience of its customers (ex: laser check out).