Economics and Global Business Applications

Introduction

There is no doubt that communication is an integral marketing strategy that a firm must master in order to compete effectively in foreign markets. According to Tian and Borges (2011), a company must adopt sound marketing communication strategies in order to engage in international business successfully (p. 110). Nonetheless, some senior executives fail to realize that cultural difference may enhance or impede a companys marketing approach in a foreign market.

As the world becomes globalised, many countries have progressively staked a claim to a right to culture in global business (Tian & Borges, 2011, p. 110). Some experts have even predicted that national culture will play an important role in determining not only economic growth but also the overall global business strategies. Consequently, this paper will explore the major cultural issues that impact a firms marketing approach in China.

Major Cross-cultural Issues Affecting a Firms Marketing Approach

It is important to mention that cross-culturalization is an unavoidable process since the world is rapidly becoming a global village. On the one hand, as the world becomes more globalised, the disparities between national markets are weakening. On the other hand, the cultural disparities between ethnic groups, regions and countries are (nonetheless) growing stronger.

Accordingly, since global marketing communication is a cross-cultural process, senior executives must strive to understand cultural diversity across ethnic groups and countries in order to successfully launch their business operations in international markets (Pitta, Fung & Isberg, 1999, p. 240).

As noted earlier, global marketing communication entails communication that transcends national frontiers. Accordingly, cross-cultural communication (from the viewpoint of consumers, values and language) is a complicated undertaking since a certain level of miscommunication is bound to happen.

For example, cross-cultural communication problems may surface when a particular group from one culture fail to grasp culturally established disparities with respect to communication traditions and practises that are presented in another cultural perspective. In addition, the manner in which a firm entrenches the norms and values in its advertising messages may positively or negatively impact its business operations in the global market.

In other words, a firm must grasp the role of cultural values in advertisements in order to enhance its cross-cultural marketing communication. Thus, a firms global marketing strategy should be guided by the cultural values present in the targeted market to avoid misinterpretation of the intended message and consequently result in poor performance in the global markets (Pitta, Fung & Isberg, 1999, p. 240).

The China market provides a good example for exploring the relevance of cross-cultural communication given the prevalence of numerous variable that determine the manner in which the Chinese businessmen interact with their non-Chinese counterparts.

For example, Tian and Borges (2011) point out several factors that new market entrants must consider inculcate in order to market and sell their products successfully in China market. These factors include strong negotiation skills, agility and patience (p. 111). In addition, new market entrants must learn how to adapt to the local market environment in order to compete effectively in the China market (Pitta, Fung & Isberg, 1999, p. 240).

Cross-cultural Communication and Marketing Strategies In Chinese Market

As noted in the previous section, the rapid globalization of world markets has compelled marketing executives to learn how to carry out business operations among diverse cultures. It is worth mentioning that the cross-cultural communication between consumers and marketers is an important factor that determines business success in the China market.

Thus, it is important for a firm to collect market data, interpret and use it effectively to ensure business success in the China market. This argument can be supported by one classic example regarding efforts by the Japanese firms to introduce coloured televisions in the China market (Tian & Borges, 2011, p. 112).

In the late 1990s, the China market was dominated by coloured television sets imported from Japan. Previously, the European and the Japanese television set producers carried out studies to explore the viability of their operations in the China market. The European producers (based on their findings) opted not to venture into the China market.

Their studies revealed that the Chinese consumers could not afford coloured television sets because the countrys (China) GDP per capita was lower. Nonetheless, the Japanese television set producers opted to market their products in the China market because the findings of their studies revealed that most Chinese shoppers had a culture of saving. Their findings also revealed that this tradition has been practised by successive generations in China for many years (Tian & Borges, 2011, p. 113).

In addition, the majority of consumers in the Western nations have poor saving habits compared to their Chinese counterparts. For example, the research by the Japanese marketers found that a majority of households in China had saved their earnings for close to three years in order to purchase a television set. The Japanese manufacturers also found that majority of the Chinese households purchased Japanese television sets more than those produced by the local Chinese companies.

Based on their findings, the Japanese manufacturers were convinced that the Chinese households would purchase coloured television sets imported from Japan. It is against this backdrop that the Japanese coloured television manufacturers reaped enormous profits in the China market because they were able to grasp the distinctive aspect of the Chinese culture (Tian & Borges, 2011, p. 113; Pitta, Fung & Isberg, 1999, p. 240).

Cross-cultural Ethical Differences In Marketing Strategies Between US and China

The Chinese culture perceives change as disturbing especially if it is extensive and happens abruptly. This viewpoint is grounded on the principles of Taoism and Confucius which are held in high esteem by the Chinese. It is worth mentioning that Taoism and Confucius tenets have strong influence on the manner in which the Chinese people think and act since they emphasize peace and harmony.

However, the Americans hold efficiency in high esteem in all their marketing strategies. In other words, any marketing strategy that will bring about the desired outcomes is considered as essential. In addition, American marketers lend credence to a rational way of thinking that is anchored in facts. Furthermore, Americans hold in high esteem the desired outcomes which may be troublesome to the existing relations .

What is more, Chinese marketers value human relationships and abhor the spirit of individualism in their marketing strategies. On the contrary, human relationships play a limited role among American executives. Furthermore, the spirit of individualism is highly prevalent among Americans because it enables them to acquire their uniqueness via their individual actions and accomplishments (Pitta, Fung & Isberg, 1999, p. 247).

References

Pitta, D., Fung, H., & Isberg, S. (1999). Ethical issues across cultures: managing the differing perspectives of China and the USA. Journal of Consumer Marketing, 16 (3), 240-256.

Tian, K., & Borges, L. (2011). Cross-cultural Issues in Marketing Communications: An Anthropological Perspective of International Business. International Journal of China Marketing, 2 (1), 110-126.

Fiscal Policy in an Economic Downturn Since 2008

Economic Stimulus Plan

The world has been experiencing an economic recession since 2008. As a result, the economies of many countries around the world were affected in a negative way. To respond to this recession, the United States government came up with an economic stimulus plan that aimed at controlling inflation.

However, the expectations of this fiscal policy were not realized since the level of unemployment and inflation are relatively high. To resolve this problem, the government in conjunction with the congress has proposed a new stimulus plan worth $200 billion. Just like the predecessor, this fiscal policy will aim at reducing the unemployment rate and maintaining an affordable price level for the goods and services offered within the country.

The 2008 recession was characterized by massive employee lay-offs especially in the private sector (Patil, 2012). Firms within the private sector sought to lay-off their employees as a means of cutting down operating costs. Some of these companies filed for bankruptcy due to massive debts.

This left millions of US citizens unemployed. Thus, to stabilize this situation, the government should make direct investment to rejuvenate the operations of these companies. This would increase the level of employment and the economic situation as a whole. This plan should also focus on cutting down bank lending rates. Increment of bank lending rates is one of the monetary measures that is use to curb inflation (Patil, 2012).

However, this reduces the disposable income available for investments. Thus, by reducing the lending rates, individuals can take loans to start small and medium sized enterprises. This will not only reduce the level of unemployment but it will also improve the status of the economy.

Finally, a fair proportion of the money should be used to reduce taxation rates and on tax rebates. This should mainly focus on loans and mortgages offered by public institutions. This will increase the disposable income of individuals encouraging investments and savings.

With this economic stimulus plan in operation, the government shall be able to increase the aggregate demand of the US economy. Increase in the employment rates shall be one of the results of this plan. Additionally, the government shall be able to stabilize the prices of goods and services within the nation. This will encourage expenditure thus increasing the amount of money in circulation. In the long run, the economic growth rate shall increase and stabilize at an optimum level.

Classical and Keynesian Approaches

According to the classical theory, economic imbalance is the main cause of recession. The theory further states that the economy is a self-sustaining unit and in case of an imbalance, it will automatically adjust itself to an equilibrium (Patil, 2012). Thus, according to classical economists, the current high unemployment rate is as a result of a low number of people who are willing to work at the current price level.

Thus, to reduce this rate, the government should increase the wage rate that will in turn increase the number of people who are willing to work. This will in turn increase the demand for employees hence reducing unemployment. Keynesian theory on the other hand is slightly different. According to this theory, the best way a government can control inflation is by increasing the level of spending and reducing tax levels (Patil, 2012). This will increase the disposable income of individuals hence increasing the aggregate demand.

Conclusion

Given the Classical and Keynesian approaches, it is evident that the Keynesian approach is more practical. This is because the price levels of an economy are rigid unlike the Classical approach assumptions of flexibility. Thus, to control the recession, the government needs to come up with measures and policies that will have impact on the entire economy and not specific sectors only. Therefore, this stimulus plan should focus on reducing taxes and encourage of spending.

Reference

Patil, S. (2012). . Web.

The Trickle-Down Economics Definition and Aspects

In economics and politics, the term trickle-down economics or Reaganomics is the pejorative term for the theory that taxing the wealthiest individuals in society less will in allow those individuals to invest more of their money into the economics development and create new jobs for the middle and lower class. Proponents for the theory use the term supply-side economy, considering that the idea of the middle to lower classes tangentially receiving benefits through economics policy which directly benefit the rich is somewhat insulting. The basic idea is that the recipients of the tax cuts will then be able to invest more money into infrastructure, opening more stores and companies, which will then provide more jobs as well as drive down the prices of goods.

However, in terms of economic theory, there have been no major economists who have ever supported this theory or have attempted to defend the trickle-down aspect of the theory. While the total of taxes that the wealthy actually pay can increase the total number of taxes that they pay, there is little to no evidence of the middle to lower classes receiving any sort of benefit from these policies: Moreover, taxes paid specifically by the rich were higher than before, because their incomes rose so much as the economy boomed that they paid more total taxes despite the reduced tax rate (Sowell 2006). There is a generalized increases in the economic growth, but where the connection becomes tenuous is in its benefit for the poor (Sowell 2005).

Instead of providing indirect benefits for the middle to lower classes, these tax cuts for the wealthy have been shown to increase the rich-poor gap. The problem, though, is that its reductive to simply show how CEOs salaries have increased to exorbitant levels and have a knee-jerk reaction in which these people are solely blamed for any economic problem that a country is suffering through: To be sure, excessive corporate compensation is only a small part of income inequality in America. Most experts agree that the larger problem requires significant and smart investments in education and job training for skills required in tomorrows economy (Hunt 2007).

The important thing in politics and economics is to attempt to navigate your way through any sort of knee-jerk reaction and to consider the entirety of a problem. While the increasing rich-poor gap is in fact a problem, those who benefit from it can merely point to other problems that exist as well, in an effort to deflect blame. For instance, the simple fact that the rich-poor gap is increasing on its own is not enough to make any changes by simply pointing out that the problem exists. What must be done is to examine why the gap has increased to the extent that it has, such as increasing executive pay and loss of jobs to cheaper foreign markets.

What was seen in the 90s, particularly with trade agreements such as NAFTA, was that instead of increasing jobs in their own countries, corporations decided that they would turn to overseas markets to fulfill theirs demands for reduced labor costs. Reduced labor costs are of direct benefit to them, increasing profit margins, and are directly a loss to the poorer populations who are being offered the jobs that any sort of trickle-down policy would create. The sort of laissez-faire attitude that states that government should not intervene in an individuals pursuit of wealth because it will directly benefit everyone is without any sort of defense in todays modern global society.

How can anyone justifiably claim that anything is going to trickle-down to the masses when the supposed benefits for the lower classes, specifically in terms of economic gain through jobs, are shipped overseas because a lack of regulation allows corporations to pay foreign workers a mere fraction of what a first world worker would be paid? When Chief executives of large American companies, for example, earn more than 10 times what they did in 1980 (Frank 2007), it is difficult to think that any sort of extra benefits that tax-cuts that benefit the wealthy will end up in anyones pockets other than the wealthy.

The U.S. has the highest disproportionate executive pay in the world, which is the percentage difference between what an average worker makes versus what the executives of a company pay themselves: The upper 1 percent of Americans are now taking in nearly a quarter of the nations income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent (Stiglitz 2011). There is a growing backlash in European and Asian countries as the level of executive pay raises as well. With this sort of exponential increase in executive pay, it is difficult not to view the actions of these executives as coming from any place other than from a sense of entitlement.

As far as the wealthiest population receiving tax-cuts, there is an additional issue that comes along with it. Consider the psychology of a person who is being told that what is of benefit to them will ultimately lead to greater benefits to others. This encourages greed and provides a person with an excuse to continue to pursue policies which will in turn increase their wealth even more. This sort of long term profiteering and encouragement of profiteering insulates people against the realities of those facing economic hardships. If a person can say There isnt any problem with me taking this for myself because at some point people poorer than me will indirectly receive a benefit of me receiving this simply encourages an entire culture of greed.

Consider the financial collapse in the U.S. and the sort of attitudes displayed by those whose policies directly led to the collapse. In short, the sort of policies that were enacted directly led to an exaggerated profit margin which was not only unsustainable in the long term but were regarded as being unsustainable in the long term. So not only did they take advantage of these predatory policies, but they knew that the sort of problems that arose would in fact arise. But what can we expect when greed is rewarded?

Reference List

Frank, R 2007, In the world of wages, trickle-down theories dont hold up, The New York Times. Web.

Hunt, A 2007, Letter from Washington: As U.S. rich-poor gap grows, so does public outcry, The New York Times. Web.

Sowell, T 2005, Trickle-down ignorance, Capitalism Magazine. Web.

Sowell, T 2006, The trickle-down life: Preserving a vision, Capitalism Magazine. Web.

Stiglitz, J 2011, Of the 1%, By the 1%, for the 1%, Vanity Fair. Web.

The Untenable Developmental State Economic Model

Introduction

The developmental state is a term used to describe industrialised and rapidly developing economies. In these economies, policies that bring rapid economic change are formulated and implemented by the governments concerned.

Previously, the term developmental state was used to describe the East Asian economies such as South Korea, Taiwan, Singapore, Hong Kong and even Japan and China, where governmental policies played a vital role in the exponential economic growth of these countries from the early eighties.

Chalmers Johnson, an eminent Political scientist who did large quantities of research on Asian economies, first used Developmental State as a term in his book MITI and the Japanese Miracle (Stubbs 2009, p.4). However, the term has lately been used to describe states outside Asia that have similar development styles, such as Botswana in Africa and some Latin American countries.

The rapid industrialization and economic growth that characterised the East Asian economies were of much interest to western scholars. According to Hayashi, there exists two types of criticism for the developmental state (2010, p.46).

The first type states that, developmental states are not a decisive factor in economic growth and that other developing countries would do well to forgo the form of economic growth exhibited by development states.

This is because, according to economists like Paul Krugman, development states had exhibited a sham growth that did not take into account a concept known as total factor productivity, where all variables that play a part in economic growth are included in the calculation of growth and GDP.

According to Krugman therefore, these developmental states would soon crumble under illusionary the weight of the deceptive economic growth. The second class of criticism states that, although a slight level of growth was achieved by the developmental states in the eighties and nineties, such a model of economic growth is no longer viable in todays globalized world.

The emergence of the developmental states of East Asia was in a sense a rebellion from the economic models practiced by the former colonial masters of these countries. According to Kim, these East Asian states desired to pursue unique economic strategies that were customised to fit the cultural, political and economic realities of East Asia, distinct from the policies advocated by fly-by-night western economists (2009, p.383).

These countries felt that the economic practices proposed by their former colonial masters were far-removed from Asian realities, and purposed to chart their own paths towards industrialization and economic growth.

The Asian economic crisis of 1997-1998 affected most countries in Asia. Those severely affected were Thailand, South Korea, Indonesia and Malaysia. Other countries affected were The Philippines and Laos. India, Japan and China were less affected, but suffered a loss of confidence in their markets. Therefore, the crisis reach spanned the entire Asian continent.

Eventually, as the crisis deepened, the International Monetary Fund (IMF) had to step in and bail out some of these economies. During the years when the model of the developmental state was being touted as one of the best models that a country in need of rapid industrialization and economic growth could adopt, the East Asian countries served as the prototypical examples.

The general belief was that these countries had sound fiscal policies and the high-capital flows into these countries were evidence of investor confidence in the said policies. However, when the crisis began, the model of the developmental state, especially when juxtaposed with countries in the west with differing economic policies, did not appear as reliable and stable as earlier thought.

Additionally, because of the intervention of the IMF, and the subsequent actions by these countries in adopting policies proposed by the IMF, the developmental state as a model of growth for developing countries needs re-thinking. In light of these developments since the East Asian financial crisis of 1997-1998, the notion of the developmental state, as a model for growth, is economically nonviable.

Moreover, the concept of globalization has rendered governmental influence on economic progress unfeasible. Additionally, because in the aftermath of the financial crisis the Asian states affected adopted western economic structures and policies, the notion of the developmental state as a model for rapid industrialization is unsustainable.

Prior to 1997-1998 Financial Crisis

During the 1980s and early 1990s, Asian countries attracted foreign investors in droves. Countries like Indonesia, Thailand and South Korea posted double-digit growth rates for many consecutive years (Stubbs 2011, p.155). This seeming economic boom saw high interest rate returns for investors, and capital inflows to these countries increased.

These Asian countries, especially South Korea, Taiwan, Hong Kong and Singapore earned the admiration of the IMF and the World Bank, and were given the moniker Asian Tigers to describe their successful and aggressive growth towards industrialization.

The 1997-98 Asian Financial Crisis

The 1997-1998 Asian financial crisis began in Thailand, where due to the countrys massive foreign debt, its currency was rendered valueless. Soon the effects of Thailands currency collapse spread to other Asian nations, and countries such as China and Japan, though relatively less so, were also affected.

Because of the significant investments made by international and foreign investors in these economies, the IMF had to step in to pre-empt a worldwide financial crisis. The IMF started a bail out program for the economies of South Korea, Indonesia, Thailand and other affected nations.

South Korea

As one of the countries that was most affected by the crisis, South Korea accepted the IMF bail out funds in order to restore its economy. The immediate aftermath of the crisis was an increase in the level of unemployment in the country; the IMF request to reduce public spending and downsize workers in the public sector only worsened matters.

Additionally, many of the large corporations in the country had chalked up astronomical debts and were nearing insolvency when the crisis began.

Government efforts to shore up the activities of conglomerates such as Kia motors, the countrys largest car marker at the time, had served to laden the company with poor debt. Typical of developmental states, the South Korean government had made efforts to bail out the company prior to the crisis.

According to Jung and Clark, many South Koreans believe the IMF intervention worsened the crisis, with some going as far as blaming the IMF for instigating the crisis (2010, p.30).

Indeed, even though South Korea accepted the bail out money from IMF, it did not strictly adhere to the conditions set by the monetary institution (Su-Hsing & Ming-Jang 2010, p.175). For instance, the government rejected the condition of reducing its public spending, and on the contrary offered welfare funds to the needy and others most affected by the crisis.

In the long term, the stance of the government bore fruit, and by the year 2007, the South Korean economy was again recording consistently high levels of growth.

Thailand

Thailands economic growth prior to the financial crisis of 1997-98 was one of the highest in the world. As the epicentre of the financial crisis, panic began through investor speculation on the strength of the countrys currency. The central bank, in the face of massive lay offs and loss of jobs and businesses, refused to devalue the currency.

Thereafter, many of the countrys financial and industrial institutions collapsed, and more workers lost their jobs. A high number of expatriate workers also left the country. By December 1997, the government of Thailand accepted bail out packages from the IMF, and implemented the conditions that the IMF set for granting the funds.

These conditions included limited government spending, high taxation, and maintaining high interest rates. Additionally, all institutions and firms that could not sustain themselves and were insolvent were not to be bailed out. Within seven years of implementing these measures, Thailand was firmly on the road to economic recovery, and paid its IMF debt within the stipulated period.

Indonesia

Indonesias financial crisis was least expected amongst the Asian nations. Indonesia, unlike other East Asian nations that were affected by the crisis, had low inflations, a stable currency, adequate foreign reserves, and its currencys exchange rate to the dollar was stable. However, financial contagion stemming from Thailands collapse led to speculative ambushes on the rupiah, Indonesias currency.

Soon the countrys premier stock exchange reached its lowest points in history, and the political class, led by the president, decided to accept IMFs bail out funds of $20 billion dollars. The crisis claimed several political scalps, including that of President Suharto.

The president, in an attempt to contain the crisis, had earlier sacked the central Bank governor whom he accused of formulating defective policies that failed to arrest the economic decline that was plaguing the country.

Malaysia

Prior to the crisis, Malaysia attracted large foreign investment. Like other developmental states, government hand in promoting the country as an investment hub was significant in attracting high numbers of foreign investors. The Kuala Lumpar Stock exchange at the time was the most active in the world.

However, in 1998, due to the effects of the financial crisis in other East Asian nations, the Malaysian economy went into recession. Industrial sectors like the construction industry, one of the foremost industries in the country, shrunk massively. Massive lay offs and downsizing of staff followed.

The government intervened to slow the currencys decline against the dollar. Malaysian economic authorities formed task forces to oversee he stabilization of the economy, and Malaysia was the only country to decline aid from the IMF. By the year 2005, measures to contain the crisis had taken effect, and the Malaysian currency was de-linked from its previous fixed exchange status.

China, Japan and the USA

China was not intensely affected by the financial crisis. Its currency, at the time, traded at about 8 RMB to the dollar. However, due to the decline in the relative value of most Asian currencies occasioned by the crisis, China was faced with the need of devaluing its own currency so that its exports could remain competitive.

Chinese authorities decided not to devaluate the currency, and in the end, China was able to survive the financial crisis with the barest of losses to its economy and prestige. Japanese investments in other Asian nations suffered because of the collapse of these economies during and after the financial crisis.

Additionally, in 1998 the economy suffered a recession due to low foreign exchange occasioned by competition from cheaper sources of goods from other Asian nations.

In the US, although the economy did not undergo a recession, fears of collapse fuelled by the crisis occurring in Asia led to the brief suspension of trading at the New York Stock Exchange. Similarly, the country experienced reduced consumer spending amid speculation of the outcome of the Asian financial crisis.

Lessons Learnt

Prior to the financial crisis of 1997, these East Asian economies were believed to have implemented sound fiscal policies that would forestall the occurrence of a financial crisis. Therefore, even the most ardent sceptics of the Asian miracle like Paul Krugman could not predict the scope and intensity of the crisis.

According to Ka Ho, Lawler, and Hinz, the Asian financial crisis worsened the existing social gaps that existed priors to the crisis (2009, p.146). Educational opportunities for the poor became limited, and access to social services was hindered by the lack of funds in government treasuries in these Asian nations (Ramesh 2009, p. 80).

The IMF intervention was conditional, and the nations affected had to pursue frugality measures crafted by the IMF in order to reduce public spending, increase revenue and restore investor confidence.

The Role of the IMF

As earlier stated, one of the main reasons that the Asian states pursued the developmental state economic model was a desire to curve out economic paths that remained true to Asian conditions. For many of the countries in Asia, simply following western models of economic growth was not tenable.

Therefore, adoption of the developmental state model by these countries was, as much an act of defiance, as it was a pursuit of a unique economic growth model. The IMFs role in reducing the effects of the financial crisis through bailing out these economies took several angles.

The conditions set by the IMF served to achieve certain purposes, which many in the Asian region felt was a form of neo-colonialism, and a movement towards a form of economic models many Asians countries had strived so hard to disassociate with  the western model.

Westernized Financial and Banking Institutions

Ultimately, the IMF wanted the Asian nations affected by the crisis to adopt financial models moulded in the form of those found in Europe and the USA. As far as the IMF was concerned, the developmental state models had failed at its most critical point.

The financial crisis that plagued Asian nations, which until the actual crisis began were believed to be examples in sound financial and economic management, was proof of failure of the developmental state model for the economic growth. Therefore, the IMF facilitated bail out funds with conditions that required these countries to restructure their economic and financial institutions, industries and policies.

According to Pettis, emerging economies that pursue aggressive policies aimed at industrialization have to be aware of imminent collapse wrought by unstable institutions (2001, p.17).

Pettis states that, countries that industrialize over a long period are better placed to deal with sudden economic shocks because the economic industries in these countries usually stabilize over long periods, enough to withstand sudden economic shocks. Therefore, the IMFs role was to steer these economies away from the developmental state model and towards a more western economic orientation.

Transparency

A strong feature of the developmental state is a lack of financial openness to foreigners or the outside world. Whenever government is involved in economic matters, many times the need to pursue genuine economic policies and the desire to placate the electoral masses usually conflict.

Subsequently, many developmental states find themselves issuing economic data that the masses and the electorate will find pleasant, while hiding or failing to disclose economic data that may place the government in a negative light (de Boyrie 2009, p.5).

Indeed, developmental states tend to have minimal democratic practices, and sometimes need to maintain a positive economic image for the public and investors overrides the need for full disclosure (Pempel 1999, p.14). Some analysts believe that one of the reasons that remarkably few economists predicted the Asian financial crisis of 1997-1998 was because the data that the economists worked with was not comprehensive.

Therefore, while these economies were given a clean bill of health in the economic books of western scholars as late as 1996, the real data or economic trends that would have allowed for some sort of prediction was overlooked, or simply unavailable for outside scrutiny.

Therefore, one of the conditions set by the IMF was that the financial institutions that were to be given the bail out money would disclose all their financial activities, and such activities should henceforth be subject to public scrutiny (Best 2010, p.30). As shown in the economic data of the countries that were affected by the Asian financial crisis of 97-98 in this paper, all of these countries showed healthy economic data prior to the crisis.

Even Thailand, the country that precipitated the crisis, enjoyed an economic growth rate of 9% in the year preceding the financial crisis. The belief that the governments of these countries had withheld crucial data that would have pre-empted the crisis thus holds water.

Restoration of Confidence in Asian Markets

In order to facilitate quick economic recovery and restore investor confidence in the Asian markets, the IMF proposed measures to realise the same. In countries such as Thailand, Indonesia, and South Korea, the beginning of the financial crisis saw them hold remarkably little in foreign reserves.

Therefore, the IMF instructed these countries to maintain high interest rates to ensure that their respective domestic currencies remained in the hands of locals, thereby maintaining confidence in these currencies.

Similarly, the crisis led to a reduction in capital flow to the Asian region, and fearful of speculative buying and withdrawal of investments that would bring a global crisis, the IMF sought to restore investor confidence in the Asian markets as soon as was practically possible (Kaufman, Krueger, & Hunter 1999, p.35).

In the pursuit of restoring investor confidence, the Asian economies that accepted bail out money from the IMF resorted to adopting financial practices similar to those of western societies like the US.

Vindication of the Western Model over the Developmental State Model

Ultimately, the fact that these Asian states accepted bail out funds in order to restore their economies points to a victory of the western route towards economic progress and industrialization over the developmental state model. The policies pushed by the IMF, and adopted by these countries, ultimately worked. In essence, the developmental state model failed when it mattered most.

Globalization and the Notion of the Developmental State

The Asian Financial crisis of 1997-1998 had profound effects on the social, economic and political sectors of the East Asian economies. The immediate aftermath of the crisis saw these states grapple with massive unemployment, lack of access to social services and increased poverty rates.

Since the crisis, changes in the modus operandi of world economies, precipitated by technological advances, have ushered in global markets for national economies. Through globalization, traditional country boundaries that restricted trade have been eliminated, and business transactions across national barriers are common and necessary.

According to Green, globalization is changing the way countries run their economies and industries in Asia (2007, p.25). Outsourcing of labour across national boundaries, exchange of goods and services over the Internet and technological transfer have all contributed to creating economies that rely less on governmental policy and more on the individual innovativeness of citizens.

Conclusion

Certainly, the East Asian developmental states prior to the East Asian financial crisis of 1997-198-98 were models on achieving high economic growth and rapid industrialization. Variously called the Asian miracle, Asian tigers and other such epithets, analysts of these economies prior to the crisis were confident in the model as a vehicle towards economic progress.

However, the financial crisis of 1997-1998 calls for a re-think concerning the efficacy of the developmental state as a model for economic and industrial growth. As discussed in this paper, the financial crisis called into question various attributes of the developmental state.

Overall, the inability of these developmental states to secure their economies by themselves and only doing so through the assistance of worldwide monetary institutions such as the IMF indicates a considerable failure of the development state notion (Muchhala 2007, p.45).

The intervention by the IMF, and the subsequent policies adopted by these states, point to the weaknesses in the development state model. Firstly, in order to recover from the financial crisis, these states had to acquire financial models similar to those of the western world. This indicates a failure of the financial model espoused in developmental states.

Secondly, these states had to pen up their economy for more intense international scrutiny. Thirdly, these states had to restore confidence in their markets by practicing policies such as implementing high interest rates, an idea prevalent in western economic policies.

Ultimately, because these states had to forgo their developmental state models in order to recover from the financial crisis, the developmental state model thus becomes effectively redundant.

Finally, as discussed in the paper, the changes in world economic practices have served to obviate the need for adoption of a development state model for economic growth. Globalization has shattered traditional trade and economic activity beliefs. In the present day, economic transactions rely less on governmental regulation, and more business activities are carried out across national and international boundaries than ever before.

Such open, quick and innovative transactions carried out over the Internet and through technological transfers have placed market forces firmly out of the hands of governments. The notion of the developmental state thus belongs to a bygone era.

Reference List

Best, J., 2010. The Limits of Financial Risk Management: Or what we didnt learn from The Asian Crisis. New Political Economy, 15(1), pp. 29-49.

de Boyrie, M., 2009. Structural Changes, Causality, and Foreign Direct Investments: Evidence from the Asian Crises of 1997. Global Economy Journal, 9(4), pp. 1-38.

Green, A., 2007. Globalisation and the changing nature of the state in East Asia. Globalisation, Societies & Education, 5(1), pp. 23-38.

Hayashi, S., 2010. The developmental state in the era of globalization: beyond the Northeast Asian model of political economy. Pacific Review, 23(1), pp. 45-69.

Jung, C., & Clark, C., 2010. The Impact of the Asian Financial Crisis on Budget Politics in South Korea. Asian Affairs: An American Review, 37(1), pp. 27-45.

Ka Ho, M., Lawler, J., & Hinz, S., 2009. Economic Shocks in Education: Analysis of the 1997 Asian Financial Crisis and Lessons for Today. Global Social Policy, 9(2), pp. 145-173.

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Kim, W., 2009. Rethinking Colonialism and the Origins of the Developmental State in East Asia. Journal of Contemporary Asia, 39(3), pp. 382-399.

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Stubbs, R., 2009. What ever happened to the East Asian Developmental State? The Unfolding debate. Pacific Review, 22(1), pp. 1-22.

Stubbs, R., 2011. The East Asian developmental state and the Great Recession: Evolving contesting coalitions. Contemporary Politics, 17(2), pp. 151-166.

Su-Hsing, H., & Ming-Jang, W., 2010. Did IMF Put Out the Fire or Start One when the Financial Crisis Struck Asia? International Research Journal of Finance & Economics, 40(6), pp. 172-183.

Bahrain Bay Economic Development

What are Bahrain Bays four foundational philosophies, and how might they be used as marketing tools?

The first one is the community development and greater involvement with the support that can be directed at people who already reside in the area. The focus has also been changed from businesses and people living there presently, towards the future and changes that will happen to the community and companies. The surrounding area will feel the effect and, thus, would be the goal in the plan for prosperity. Another philosophy is to support any interests of the community, such as the sports team. It is imperative that Bahrain Bay becomes a part of the history and heritage of the people, and so, both will benefit from the mutual support and interests.

What would you see as being Bahrain Bays mission?

The mission is to develop the region and move towards a stable economy. It is also to place the location on the map and make it known to organizations and other investors so that the region becomes the center for business and industrial activity, as well as for the community to enjoy the facilities and the surrounding area. It looks far into the future and makes their goal a reality. The close cooperation with many widely known companies enables it to secure success and a positive outlook.

What is the MIPIM, and why was it important for Bahrain Bay to target its potential customers, investors, developers, and retailers?

MIPIM is a real estate show that is known worldwide. Numerous organizations present their projects and developments. It is a place where a lot of investors are found, looking for properties that can be used for offices, governmental buildings, sports, industrial sectors, residences, and many more. Bahrain Bay has set out a plan that shows properties that were already sold and those that are still available. This will allow potential buyers to choose the location that benefits their business. The participation in the MIPIM makes Bahrain known to the world, and as it is a developing location, many will be interested in taking part in the project.

Why might the Kingdom of Bahrain be an attractive location for overseas investors?

The eastern culture offers much diversity and interest to the international market and travel. People enjoy the environment and innovations that help the nation to prosper. It is becoming a very stable region with an enormous market and great possibilities for business. As it is a new market, people will be interested in coming and visiting, as well as invest because it is a promising location with the developing cultural values, business, and technology. The architectural designs are of the highest standards and are bound to attract people.

What are Bahrains closest competitors for inward foreign investment?

There are many businesses and organizations in the close by Saudi Arabia that might become competitors for Bahrain Bay. Some of the banks, buildings, and construction companies are among the few, as the nature of the involvement is very common. Airlines and the transportation industry is another area of competition. In reality, the project has involved many worlds known companies, and all are interested in taking part in the business.

What part of the marketing mix is related to football sponsorship, and what function does it perform?

By sponsoring the football community and the team, Bahrain Bay invests in the domestic well being and popularity of the nation. The much-needed support will create a positive image but, more importantly, establish strong relations with the public. Bahrain Bay does not make it seem like there is interest; it has a sincere belief in the strength of the project and the people that are so closely involved in the community and culture. By bettering the social fabric, Bahrain Bay sets itself apart from other organizations and adheres to the needs and wants of people.

Eurozone Economic Crisis and Global Business

Executive Summary

This report is aimed at analyzing the effects of the Euro zone economic crisis on international business. The report also gives an account on the actual and potential business risks that are likely to be experienced in the Euro zone by prospective businesspersons. The results of this report assert that the crisis in the Eurozone is not a regional problem, but goes beyond Eurozone.

Globalization has precipitated a global and interlinked business village in which economic problems are no longer solitary. Moreover, it was established that poor economic policies and a culture of impunity are some of the driving forces behind the crisis in the Eurozone economic crisis. Furthermore, the report posits that the adverse effects of the crisis in the Eurozone will reverberate to other parts of the world.

Relevant recommendations have been outlined to assist that dissects the Eurozones economic woos and provides a succinct analysis of the core strategies potential investors in the region may wish to pursue to cushion them against impacts of these problems.

Introduction

Countries, just like firms, operate their within the principles of theories of capital structure. The theories of capital structure attempts to provide an explanation between the mix of securities and financing sources that may be employed by nations to finance their real investments.

These theories of capital structures emphasize on the levels of debts and equities on firms and are determinants to the capacity of a nation to finance its projects. Several theories have been advanced on the debt-equity choices without one being universally accepted.

This suggests that the path a firm or nation will follow does not depend on a universally accepted throry of capital structure, but is guided by the internal structures of a nations financial characteristics and its debt levels.

The pecking order theory on the other hand advances that a firm will borrow, rather than issue equity, when internal cash flows are not sufficient to fund capital expenditures, suggesting that the amount of debt will reflect on the firms cumulative need for external funds.

The free cash flow theory on the other hand proposes that dangerously high debt levels will increase value, notwithstanding the threat of financial distress, when the firms operating cash flow significantly surpasses its profitable investment opportunities.

The crisis that currently afflicts the Eurozone is not a unique economic crisis to the European region. Despite the fact that its impact in the region is greater, it is shifting the balance of trade with the regional trade partners. This implies that as long as the Eurozone continues to exist within this shaky economic situation, the rest of the world must brace itself for tough economic times ahead.

As stated above, the aim of this report is to demonstrate the economic destabilizing effects that impacts on Eurozone countries. Whereas the report will make these observations, it is not limited to that scope.

Within this process on examining the effects of the Eurozone crisis on international business, the report will illustrate the potential risk areas and provide relevant recommendations. An assessment of the local impact the crisis has on businesses will be conducted alongside the global impact. Short and medium term political impacts on businesses will also be dissected in this paper.

Definition of terms

Eurozone  European countries that have adopted the Euro as national currency in a process aimed at monetary and economic unification.

Contagion-Transmit ion through contact.

Gold standard the system of monetary organization under which the value of a countrys money is legally defined as a fixed quantity of gold and domestic currency of that country.

Discussion

Origins of the financial problems

The international financial crisis that was witnessed in 2007 to 2008 impacted hard on 16 members of the Eurozone. The impacts of the financial crisis on most countries have had significant shift in their economic set ups, their public deficit have reached record figures with and considerable increase in their public debt (Kaiser 2007).

The economic turmoil in Greece remains an avid example that cannot be blamed on the international financial crisis that rocked the world and continues to be felt. The economic woos of Greece draw their origins from wrong judgments on the part of political leaders.

Effects of the Eurozone crisis

The effects of the financial crisis in the Eurozone have not been limited to the member countries. The US president asserts that the problems of the economies of the world will continue to demonstrate weakness as long as the issues of Greece and the larger Eurozone are not addressed promptly (Peston, 2011).

Indeed, the Eurozones economic situation is a significant concern to the United States, which is embroiled in its domestic economic problems experienced in the last half a decade. It remains a fact that Greeces debt problem will continue not only get complicated if effective remedies are not put in place, the United states will continue to express grave concern over Greeces inability to service its debts.

Such economic circumstances may in turn precipitate panic in the US economy and global economy and create far-reaching implications for the US and rest of the world (Ramonde 2011). In mitigating the effects, the USA is examining effective strategies to dilute the far-reaching impacts.

Economic stimuli programs such as increasing the levels of exports to cover the gaps of recession have been proposed as viable options in addressing the challenge. However, the persistence of the Greeces situation is likely to witness weakening of the Euro and the strengthening of the dollar. Such a set up in economic shape that makes imports to the Eurozone expensive would remain disastrous in these hard economic times.

As the situation prevails, the debt continues to accumulate; the value of the Euro will eventually decline. This will raise interest rates that will consequently make life unbearable for the common population.

Despite the fact that the European Central Bank has injected bonds from the struggling governments in an effort to try to reduce the financial pressure, a reduction of deficit levels is proving to be a tall order. Interest rates are skyrocketing and the chances of defaulting are real and banks around the world are feeling the heat under the collar (Sinclair, 2011)

Efforts to avert the crisis

Indeed, the effects of the Eurozone crisis are of concern to all governments due to the interdependence nature of the world economies. Stock and bond markets in the Eurozone are continuing to slide down sharply amid the fears that governments efforts in those areas are not strongly reassuring. As this happens in the Eurozone, economic sentiments outside the zone are continuously dwindling.

The UK is burning its fingers to ensure that Greece is stabilized because the opposite would be disastrous. In the event that Greece defaults on payments, UK banks that have heavily invested in Greece would definitely incur huge losses. This brings a new and complex dimension to an already grave situation.

It suffices to say that Britain is not in the Eurozone, however, as it has been shown, the problems of the zone are not limited to member states alone. The EU accounts for 40% of the exports of Britain (Laidi, 2011).

The UK has been on the forefront in lending money members of the Eurozone. Britain must be on the forefront to ensure that the advanced loans are not lost in the economic meltdown. Defaulting on the part of the countries of the Eurozone would worsen Britains austerity problems.

Impact of the Eurozone Crisis on Cost of Capital for Firms

How firms select their capital structures is a question that has been severally asked and analyzed without a definite answer being arrived at, given the economic realities of the specified times. The case of Eurozone economic crisis presents challenges in accessing capital for small and large firms and economic short and long terms are severe.

This will essentially bring forth the issue of capital structures of companies that are operating under credit constraints. It has been ascertained that credit crunches as in the case of Eurozone crisis affects the corporate capital structure decisions for both small and long-term firms. The frictions in the credit creation process result in fluctuations in the supply of bank loans.

These imperfections could result from monetary shocks, bank assets devaluations, and regulatory changes, a congregation of factors that severely affect growth of businesses. This is a direct consequence of spiking interest rates on loans.

Ex-post real interest rates in different European Countries Source: European Central Bank (2011).

Ex-post real interest rates in different European Countries Source: European Central Bank (2011)

Basically, changes in supply frictions in the case of credit has impacts on the leverage ratio, issuance choice and the mix of debt sources of small bank dependent firms as contrasted with firms that have public market access, following positive or negative supply chokes (Leary, 2005).

For example, Leary (2005) has demonstrated that the use of public debt by firms that have access to public markets increases relative to that of small firms. This would cement the underlying believe that bank loan supply movements are important determinants of variations in firms placement of their debt and by extension, capital structures.

What is important to note is that small firms may experience more difficulties in gaining access to credit during economic crisis, given their less intense asset bases, that is required as collateral in the issuance of loans. As a result, smaller firms may actually not be highly dependent on bank loans, largely because they fail to meet loaning requirements from the financial institutions.

As opposed to large firms, small firms experience worse economic impacts in such hard economic situations. This is because their scale of operations is low, which means that they do not benefit from the economies of scale which limits their operations and generally inhibits their growth and ability to develop and dominate the markets.

The impact of Eurozone crisis on shareholder and wealth of most affected companies have been severe. According to European Central Bank (2011), the value of stock market declined sharply from 2007 to 2011 while real house prices shot up by almost a similar margin. This is because of high inflation rates in Eurozone as comparison to other regions as indicated by the graph below.

Break-even inflation rates. Source: European Central Bank.

Break-even inflation rates. Source: European Central Bank (2011)

Conclusion

The crisis in the public finances of Greece and other members of the Eurozone provoked a new episode in the financial crisis in the first quarter of 2010, in what was initially called sovereign debt crisis, affecting Greece and later other peripheral countries of the Eurozone such as (Laidi , 2011).

This crisis began with the massive sale of public debt of the countries involved in the financial markets, which are caused by several motives. On one hand, the fear of investors of a default in the payment of the debt (interests and repayment) on the maturity date, given the financial difficulties of the countries precipitated the problem.

Furthermore, reasonable reaction in defense of the financial assets, some illustrious financial institutions (not only the denigrated hedge funds) involved themselves speculative operations that were intended to earn huge benefits in the short term. This kind of selfish ideologies was benchmarked on the idea that the price of bonds would collapse.

Both reasons caused a massive sale of public debt bonds, which in turn led to an increase in the risk premium. This can be explained that the financial markets indicate (with or without reason) that public indebtedness is excessive, that it has overcome admissible levels (Ramonde, 2011).

The consequence is that financing the countries affected becomes far too expensive, especially the case of Greece. Other peripheral countries of the Eurozone, derogatorily called PIGS by the English media, are increasing the difference between the interest rates.

Therefore, the countries affected (who need financing not only to address the actual public deficit, but also to repay the old debt on time), have to issue the new public debt bonds at a much higher interest rate. The financial burden that results from the crisis, especially on the interest rate of the Eurozone countries has resulted in the direct increase of the public debt.

Consequently, these countries face the risk of trapping themselves in the deficit-indebtedness vicious cycle (Peston, 2011). It comes to ones knowledge that even though these countries are compelled to issue new public debt bonds at higher interest rates, the inevitably risk that there may be default on part of struggling countries can only be compared to putting the cat among the pigeons.

This is the case of continuing to invest in a ship that shows no signs whatsoever of recovering. If indeed this is the case, then it is obvious what is given to you is not seen by others.

In April 2010 following all economic and political forecasts, it was obvious that the deficit-indebtedness was headed for a complete cycle. Countries such as Greece had already initiated the process of formally requesting for financial aid from other member states in the Eurozone. After many doubts and delay, the Eurozone finally responded with a bailout plan for Greek public finances.

However, in spite of the Greek rescue plan, and the fact that there are significant differences in organization of public finances among member countries, there was no clear and straightforward solution to the problem. Other nations, particularly the peripheral states had their own concepts on how to deal with the situation. This led to mistrust among the financial markets, ideally worsening the sovereign debt crisis (Sinclair, 2011).

On the understanding of the large debts on properties such as homes, businesses and banks, and given the fact that there were weak perspectives of economic growth of the Eurozone countries; the situation was bound to get worse. The mistrust would later extend to the privately held bonds, the stock market, and other important cornerstones of economy.

This was particularly severe in May and June 2010. Hence, serious financial turbulences took place in the private fixed and variable interest rate markets, which lead to capital movements of financial assets in Euros to financial assets issued in other currencies, causing the depreciation of the Euro in relation to the Dollar, the Swiss Franc, gold and other reserve assets (Ramonde, 2011).

As investors began to realize that the financial markets in the Eurozone are not providing solutions to this problem, they considered taking off and thus creating a panic that resulted in the weakening of the Euro in relation to other global currencies. This weakness could have been considered a plus to the dollar, but in a subtle way, it was not necessarily the case.

The weak Euro definitely opened the way for the dollar to assert itself. The problem is that this assertion does little good to America, especially because it was working on ways to increase its exports to the Eurozone countries. Confronted with these precarious events, that worsened the crisis and threatened the overall recovery of European economies.

One particular interest was the response by Ecofin (Economic and Financial Affairs Council), which was so much delayed due to the doubts raised by countries such as Germany and other central countries as to the real benefit of helping countries with serious financial unbalances (Peston, 2011).

In order to create the European Mechanism of Financial Stabilization, a temporary institution aimed at favoring countries that could be going through serious financial problems, and the commitment of these countries, namely Portugal and Spain, to take stronger measures to overcome public deficit than those taken until then (Ramonde, 2011).

This is apart from the on-going plans to create communitarian institutions that supervise the operations of stock markets and financial institutions, to try to avoid financial imbalances in the private sector, as well as reforming the Growth and Stability Pact (the rules to ensure the balance of the countries public finances). This is also aimed at adopting harsher control measures and more severe sanctions to those countries that fail to comply with the rules.

In brief, the problems in Greece have affected the whole region adversely and the survival of Greece hinges on issuing bonds at higher interest rates. This translates to plunging her deeper into economic debt. The debt accumulated may be impossible to repay given the current economic realities. The question is how to handles tensions and suspicions that begin to mount in these countries.

Proposals to separate Eurozone into south and north zones may not translate to better economic situation as the problems are far entrenched into the entre global economy. Such a framework would be too expensive and would mean that those who opt out of the currency revert to their former currencies (Piris, 2010).

Recommendation

The financial institutions in the Eurozone ought to be supervised closely by the relevant authorities. In addition, the remunerations of top-executives need to be revised to be consistent with the prevailing economic conditions. When there is a clear indicator as to what ought to be done and what ought not to be done, it is simple to keep track of best approaches even in instances when not all would support the initiatives.

As demonstrated above, run away expenditure and indebtedness are only proof of lack of commitment on the part of governments within the Eurozone. This lack of monetary discipline put individuals as well as governments in awkward situations whereby the expenditure surpasses the revenue.

This obviously leads to deficits and accumulation of debt. National and international monitory organs should come in to mediate this situation. Potential investors also ought to keep a keen eye on areas where the economies run solely on credit it is not necessarily an indicator of wealth, but a desperate move for the lack of austerity in monitory issues.

The experience of this crisis informs one that anti-cyclical government policies (of stimulus facing the crisis and social protection) has limitations determined by the financial markets, limitations which they are overcome, deter public finances into entering an unsustainable vicious circle, after which comes the need to carry out unnecessary adjustment plans.

The countries of the Eurozone have to review the contents of the Stability and Growth Pact, establishing commitments that prevent excessive imbalances in national public finances (Sinclair, 2011).

The discussions presented in this paper have shown that Eurozones economic woos will have an impact on the cost of debts as assessed by the capital structure theories. It is has been established that the impact, largely will be moderated by the regional frameworks in handling the challenges.

As already determined above, the economies that do not exercise restraint and where the foundations of accountability are still not firm, will continue to flop, continuing to source for support from other countries.

Reference list

European Central Bank (2011). . Web.

Kaiser, W., 2007. Christian Democracy and the Origins of European Union, London: EC Peston, R., 2011, , News business. Web.

Laidi, A., 2011. , Council of Foreign Relations. Web.

Leary, M. 2005, Do firms rebalance their capital structures?, Journal of Finance, 60(6): 2575-2620.

Piris, J., 2010. Lisbon Treaty. Cambridge: Cambridge University Press.

Ramonde, J., 2011.The crisis of the Eurozone. Web.

Sinclair, L., 2011. Eurozone debt crisis how it will affect UK, Sky News. Web.

The Economic Impact of SMEs in the Economy

Introduction

The definition of the term SMEs usually differs from one country to another, and most countries define the term depending on three criteria. These criteria are based on the size of the firm including micro, small or medium enterprise. In addition, SMEs usually have three main characteristics. To begin with, SMEs are mostly characterized with an independent management where the owner of the business is also the manager. Another important property of SMEs is that, money or funds or capital in the enterprise is usually and mostly in the hands of the one or a small group of individuals. Lastly, SMEs conduct their operations in the local region or area while workers of the business and owners usually come from the same locality or society (Khaja, 2013).

The size of SMEs usually depends on the number of employees and the worth or value of assets owned by the SMEs, hence, there are both minimum and maximum sizes of SMEs. Moreover, different countries have different sizes of SMEs depending on the countrys development level and availability of resources. It is also usually clear that SMEs operations mostly involve sectors such as manufacturing, trade, agribusiness, transport, and even communication among many other sectors. Even though some SMEs are innovative, growth-oriented, and flexible, others are usually less dynamic and are usually owned by families. Lastly, SMEs operate in formal sector and in most cases, majority of employees and workers usually earn wages (Rody and Stearns, 2013).

Macroeconomic Analysis of Key Variables

Various macroeconomic variables play an important role in an economy in relation to SMEs, including unemployment, inflation, and economic output. These macroeconomic variables mostly and usually have a key role in the economic development of many countries. For example, the financial markets of many developed countries such as Sri Lanka and India indicate that more economic tools and financial markets results into challenges to SMEs.

There are a number of critical macroeconomic roles of SMEs in different countries. These vital roles of SMEs usually result into the economic development of the countries they are based in. To begin with, SMEs usually contribute to the creation and generation of employment to a larger population of citizens worldwide. According to various researches, it is clear that about 40% of the total population of various countries globally is mainly employed in local SMEs although the performance and employment creation differs from one country to another. For example, in the year 2009, around 40% of the population in Germany and Australia was employed through SMEs (Khaja, 2013).

Again, data from other countries like UAE usually indicate that majority of people in these countries are employed by the micro, small and medium enterprises. Therefore, from these data sources, it is clear that SMEs play a very important and key role in the macroeconomic development of various countries. Furthermore, SMEs provides employment in almost all sectors of economy such as trade, hotels, industries, transport and communication, construction, agriculture, fishing, tourism and other services that lead to economic development of various countries (Khaja, 2013).

Secondly, SMEs promote macroeconomic development by generating economic wealth in various countries. Here, money generated from SMEs in various countries is usually used in the development of various sectors of economy of a country. In addition, the money obtained from SMEs is also used in uplifting and raising peoples living standards. Besides, SMEs sector is seen to easily generate capital that contributes to economic wealth. Wholesale and retail stores are among the leading sections of SMEs contributing to economic development by generating huge capital and enhancing other economic aspects in a country (Oncioiu & Oncioiu, 2012).

Thirdly, SMEs contribute to creativity and innovation in the use of local resources of various countries worldwide. Again, the creativity in use of resources and innovation of ideas usually result to the economic development, as the resources that would have been otherwise wasted are innovatively modified to produce useful products. These products are then exported to other areas and countries, thus earning the country valuable foreign exchange. Furthermore, SMEs provide proper and advantageous competition in various countries that brings and makes individuals to work hard, leading to economic development (Khaja, 2013).

SMEs are also very important in that, they contribute largely in eradication of poverty level in various countries worldwide by promoting economic growth. Generally, one of the main benefits from the existence of SMEs is wealth and employment creation, thereby providing a source of income to individuals of the country. As a result of these wealth and employment creation, SMEs reduce poverty level of various countries. It is also important that owners of SMEs know their resources as well as how to use them appropriately in order to create competitive advantage. This will make SMEs use appropriate knowledge and skills in improving their operations, hence achieving competitive advantage that will not only aid the growth of specific SMEs, but also increase aggregate demand, leading to economic development of the country.

Other important macroeconomic development impacts SMEs include, the promotion of technological innovation, as most technological advancement in the world is attributed to the SMEs. Again, SMEs aid in increasing export growth and productivity in various countries, leading to growth in GDP. Therefore, as a result of SMEs, there has been more knowledge-based economy due to information, communication, and technological advancements witnessed recently from SMEs. Due to this, there is continuous innovation of various technologies taking place worldwide every day. Therefore, it is important that various countries governments provide conducive environments for SMEs to apply and use technological growth strategies in their businesses (Shaikh, Shafiq, and Shah, 2011).

The Impact of the Financial Sector on SMEs

From the discussion of the economic impacts of SMEs to the economy, especially in UAE, it is clear that SMEs play a very important role in the economic development. Therefore, it is important that the governments of these countries put in place various important policies and programs of promoting SMEs in their countries. These may include providing conducive and favorable environment that will promote the SMEs sector as well as enhance fair competition in the markets. Again, the government must move forward and provide and support innovative strategies that will allow various SMEs to have confidence in the government, hence promoting the entire SMEs sector (Khaja, 2013). In addition, the government should avoid interfering with markets, as this usually discourages owners and investors of SMEs, a situation that may bring adverse effects to the countrys economy.

Besides, the governments should also try to provide financial support to SMEs through monetary and fiscal policies such as tax concessions, allowing them to participate in Open Market Operations. Therefore, government support to the SMEs will provide economic growth and promote GDP of the country. Again, this government support will also enable owners and innovators in these SMEs to have confidence and trust in the government, thus aiding in effective utilization of local and national resources in improving peoples living standards. Furthermore, technological importance on the SMEs cannot be ignored; hence, the government should enhance technological competitiveness in order to promote SMEs (Hodorogel, 2011).

There are various challenges that affect the SMEs sector in various developing countries as well as developed countries. To begin with, there is the problem of access to credit by the SMEs from various banks. For example, various researches and data publications show that SMEs experience difficulties in accessing credit facilities from financial institutions due to their low endowment in terms of resources and collateral (Hutchinson and Xavier, 2006). Generally, various banks fear that these SMEs may fail to pay back loans and other credits advanced to them. As a result of this, many capable SMEs have failed to grow, leading to poor living standards and low economic growth. Besides, due to poor accessibility of credit, research shows there is low lending rates to SMEs due to previous rejections they fear they might face in banks again (Hutchinson and Xavier, 2006).

Secondly, there is poor saving practices by SMEs in banks, as policies and procedures regulating them are ineffective, especially in matters related to financials. This again is caused by low consumption and poor government marketing regulations that at times cause low demand for local products (Badulescu and Badulescu, 2012).

There are various reasons why various regular banks usually do not allow the SMEs to access credit from them. This has resulted into financial gap in the SMEs sector due to lower returns and lack of adequate skills, capacity, and experience. In addition, there are also other factors such as higher risks of perceptions and uninspiring government regulatory environment policies leading to this financial gap. To begin with, in various developing countries, banks are usually unwilling to provide SMEs with capital to support their businesses. This has caused a large financial gap for SMEs in developing countries (Hodorogel, 2011).

Secondly, banks rarely give SMEs loans, and if in any case they give, they usually charge high interests rates, making the SMEs to lack interest in applying for loans from banks. For example, research shows that African banks are among the leading banks globally that charge high interest rates, thereby discouraging SMEs from applying for loans. Besides, banks usually argue that they rarely give SMEs loans and other credit facilities, and this is evidenced by the fact that loans given to SMEs are usually very small, hence making the transactional cost to be very high in terms of interest rates and other fees charged. Furthermore, banks in Africa and other developing countries usually do not give long-term loans, since there are few long-term borrowers of loans in these countries.

In other countries such as those in West Africa, local regulations usually discourage banks from giving long-term loans to borrowers. Moreover, banks experience challenges providing foreign exchange services, especially due to the fact that most of SMEs that have income and capital earning in terms of foreign currencies usually want funds in such same form of currency, leading to foreign exchange problems in the exchanging rates. In addition, most SMEs operating locally usually avoid a currency that is not used locally due to local regulation problems and limited forex availability (Pisoni, Fratocchi, and Onetti, 2013).

Another problem is due to the limited and lack of enough information, regulatory support, and even skills and knowledge to involve SMEs in the learning and teaching borrowers in various SMEs lending and borrowing procedures and programs. For example, in most developing countries, most SMEs usually lack accurate standard accounting procedures to provide accurate financial analysis on their revenues, interests, profits, and even bank statements. Again, there is little or no market information available on issues dealing with SMEs marketing issues. This leads to lack of collateral forms and ability of SMEs to claim their collaterals, hence causing banks to invest only in high government parastatals to avoid potential risks that may occur on SMEs due to lack of repayment of principal and interest. Again, charging rates by banks usually lead to high cost and high risk of investment, hence scaring SMEs owners from borrowing (Jekanyika, 2012).

Economic Impact of SMEs in GCC countries

SMEs in Gulf Cooperation Countries (GCC) play a crucial role in their economies, leading to economic stability. For example, Oman studies show that SMEs sector is the largest contributor to the countrys economic progress (Ashrafi and Murtaza, 2008). Therefore, it is important for GCC countries to encourage expansion of SMEs in providing development in both public and private sectors. In other countries such as Egypt, Tunisia, and Morocco, data shows that SMEs contribute largely in the provision of jobs and other employment opportunities, hence leading to economic development. Again, in countries such as Bahrain, Kuwait and Oman, various researches show that they largely depend on SMEs for economic development, as most of the people are employed by SMEs in these GCC countries.

SMEs usually refer to small and medium enterprises that employ not less than 10 and not more than 250 employees in most cases. In GCC countries such as UAE, SMEs sector is among the sectors that contribute largely to economic development in those countries (Pisoni, Fratocchi, and Onetti, 2013). This comes in the form of creating employment, generating economic wealth, and contributing to innovative and creative utilization of local and national resources in the countries where those SMEs operate. Although there are many challenges and problems, including financial problems facing SMEs, it is clear that, with appropriate government policies and programs, SMEs can be used to produce more economic development in their countries.

Again, SMEs are vital in growth and development of economies, especially the high-income countries such Germany and Australia. On the other hand, SMEs do not contribute too much to economic development of less developed and low income countries when compared with the highly developed countries. Again, in high-developed countries, SMEs usually provide economic development in terms of innovative technological ideas and other current technological advancements, whereas in less developed countries, SMEs only provide economic development in terms of employment, hence they do not contribute largely to development. Nevertheless, some researches indicate that SMEs contribute to employment creation, wealth creation, and economic development in both developed and less developed countries (Shah, Mehmood, Hashmi, Shah, and Shaikh, 2011).

For proper provision of economic development, there is need for financial support in the SMEs sector in various countries worldwide. This is due to the fact that various failures of entrepreneurial businesses and other SMEs have been attributed to lack of enough financial support to steer their growth. Again, studies show that financial support and access to finances is one of the best strategies that can be used in order to help SMEs to grow faster and stimulate economic growth and development (Shah, Mehmood, Hashmi, Shah, and Shaikh, 2011). Besides, there is also evidence in various countries showing that there is a big financial gap in the various SMEs globally. These financial problems are more prevalent among SMEs in low-income counties than in highly developed countries.

Furthermore, studies also indicate that smaller SMEs are affected by financial problems globally; however, when given enough financial support, they usually produce stronger boost and response in growth than large firms or SMEs do. Therefore, it is important that governments give enough financial support to various small firms by providing appropriate policies and systems that encourage people to invest in SMEs to boost economic growth. Finally, it is clear from various studies that provision and growth rate of SMEs have direct effect on the economic growth of various countries, since it will result into rising GDP growth (Shah, Mehmood, Hashmi, Shah and Shaikh, 2011).

There are various factors affecting the development of SMEs such as macroeconomic factors, growth opportunities, and the business environment. Macroeconomic factors it largely depend on government expenditures and government procurement procedures in the registration of SMEs in various countries. Therefore, legal requirements of the government regulations need to be considered in the process of registering SMEs in order to allow them provide sound taxation and proper contract terms. In addition, low-inflation economic environment has been found to be one of the ways through which growth of SMEs can be encouraged, given that high inflation rates usually lead to slow growth rate of SMEs. Moreover, there is need for creation of a stable exchange rate regime to encourage SMEs engage in effective and efficient operations; this allows them to engage in stable exchange currencies, leading to economic development.

The level of education in a country also plays a very crucial role in the development of SMEs, as high education level contributes to high level of development and growth of SMEs. Besides, there is need for the promotion of SMEs to acquire and access credit services from banks and other financial institutions, as it has been found that this promotes the growth of small firms, leading to more economic development. Therefore, banks should be encouraged to provide loans at low rates in order to attract more small firms to apply for loans and in the process increase the rate of investment in the country.

Other factors such as the black market premiums, including land rates and rents, also affect the development of SMEs; hence, the government should properly regulate the black market policies. Again, startup costs in the registration of SMEs usually differ from country to country. In addition, in all countries, SMEs are usually required to have license in order to operate freely without interferences. Again, studies show that corruption and other labor market operations affect the operations of SMEs. It is also found out that the political stability of various countries contribute largely to the development of SMEs. Moreover, it is clear that SMEs also contribute to infrastructural development of various countries both locally and nationally (Steinerowska-Streb, 2012).

SMEs face some challenges and problems in their operations such lack of credit and other financial support. Again, lack of access to modern technology is also another common problem facing various SMEs worldwide. Training of individuals in order to improve human resource development is also a problem that faces SMEs. Other problems that are common to SMEs globally include lacks of funds to improve research and development on matters dealing with SMEs, limited information, skills, and knowledge on the possible market changes, and poor government policies and regulations.

Therefore, to solve these problems, the government must put in place policies and systems that will give SMEs a conducive environment to promote and develop their entrepreneurial businesses. To begin with, the paper suggests that the governments should provide support to SMEs development by providing conducive environment for them to operate (Pisoni, Fratocchi, and Onetti, 2013). Again, the government should provide policies and regulations, including regular opportunities to share market information with the SMEs firms and to involve the firms in developing various policies and regulations affecting them. In addition, there is need for more links between the private sectors and the governments in order to provide mutual understanding between them.

Due to the problem of finances and limited funds facing SMEs, the government can provide loans to various small firms and encourage banks to start giving loans to these small firms, as that will result into more economic development. Furthermore, the government should also ensure that the level of education is elevated and improved in their countries in order to provide more knowledge and skills to SMEs. Besides, the problem of infrastructure can be solved through promoting local infrastructural development and other technological advancement in order to promote the development of SMEs.

If possible, it is important for the government to fund various research and developments activities in order to encourage new ideas for these SMEs. Again, it is also important that the government provide good and sound regulations, including taxation policies and regulations that will not only provide more transparency, but also will be less expensive for the operations of SMEs. Therefore, the government policies seem to be among the factors that largely affect the operations of SMEs globally. Banks should also be encouraged to provide enough information to SMEs and reduce their interest rates to attract more firms into the investment and lending field (Akanbi. 2013).

Conclusion

The paper has clearly discussed economic impacts of SMEs in the economy of various countries globally. Again, it is clear from the paper that SMEs have a great influence in the economic direction of a country, which may be in form of reducing unemployment and eradicating poverty, thus resulting to higher standards of living. However, it is important to note that, SMEs tend to promote economic development more in developed countries than in low-income countries. In addition, SMEs promote wealth creation and lead to competitive advantage, which results into more innovation and creativity in various firms.

Besides, it is clear from the paper that SMEs provide opportunities to improve infrastructural development and promotes local economy in the countries in which they operate. Despite all these contributions of SMEs to economic development, it is found out that SMEs face challenges in terms of access to credit and capital from banks and other financial institutions. Therefore, the paper recommends government intervention in order to promote the development of SMEs. This will include providing policies that promote economic growth of SMEs. Further, the paper recommends that more research and development must be encouraged and funded by the government in order to provide adequate ideas for the development of SMEs.

There is also need for awareness by various SMEs to be involved in global markets in order to improve their market value. The government should also provide room for the development of private sectors through correcting potential market and creating conducive business environment where there is fair competition and a level playing field. Again, the government should be involved in the upgrading of technological skills of its citizens. This will also require the involvement of citizens in the operations of global markets by providing them with access to information and finances.

This may include providing both long-term and short-term funding to the people at a good rate in order to encourage investment. In addition, advisory assistance in times of crisis is also very important for the SMEs, including provision of broad economic exposure. Besides, it is important for the government to provide sustainable strategies that would promote the development of SMEs. Therefore, SMEs importance in the economic development should not be ignored; instead, the government should support the SMEs in order to provide more economic growth.

From the macro-analysis of key variables such as capital access by SMEs, it is clear that lack of funds has been one of the huge challenges to small firms. Therefore, with provision and financial support, these firms will promote their economic development. It is also clear that in some SMEs in some countries contribute to loss of employment opportunities, especially where technology is highly advanced. For example, with the innovation of new technological ideas such as computers, many individuals lose their jobs, as less labor is needed.

Furthermore, SMEs also sometimes lead to poor marketing trends, as most SMEs usually sell their goods at low prices, leading to low economic development. Therefore, it is important that proper policies be put in place in order to enable SMEs engage in productive and effective operations that involve use of proper management skills that is geared towards boosting economic development of countries they operate in. In addition, government interventions and policies are important factors that can largely promote the development of SMEs. Finally, it is clear that there are many economic impacts of SMEs in the economy of countries they operate in; hence, these SMEs should be encouraged in order to enable and to promote economic development of those countries.

References

Akanbi, T.A. (2013). Customer Perceptions of GSM Impact on Service Delivery of Small and Medium Enterprises (SMEs) In Nigeria. Journal of Emerging Trends in Economics & Management Sciences, 4(1), 80-86.

Ashrafi, R., & Murtaza, M. (2008). Use and Impact of ICT on SMEs in Oman. Electronic Journal of Information Systems Evaluation, 11(3), 125-138.

Badulescu, D., & Badulescu, A. (2012). Corruption as Constraint in SMEs Financial Management (I  Concept and Economic Impact). Journal of Electrical & Electronics Engineering, 5(1), 7-12.

Hodorogel, R. (2011). The Global Economic Crisis Challenges for SMEs in Romania. Theoretical & Applied Economics, 18(4), 129-140.

Hutchinson, J., & Xavier, A. (2006). Comparing the Impact of Credit Constraints on the Growth of SMEs in a Transition Country with an Established Market Economy. Small Business Economics, 27(2/3), 169-179.

Jekanyika, M. M. (2012). Internationalization of established small manufacturers in a developing economy: A case study of Kenyan SMEs. Thunderbird International Business Review, 54(4), 509-519.

Khaja, S. (2013). Impact of FDI on the Financial Measures of Select Firms in India. Advances in Management, 6(11), 16-26.

Oncioiu, I., & Oncioiu, F. (2012). Impact of creativity and innovation of SMEs on economic growth development in the knowledge society in Romania. Global Conference on Business & Finance Proceedings, 7(2), 184-190.

Pisoni, A., Fratocchi, L., & Onetti, A. (2013). Subsidiary autonomy in transition economies: Italian SMEs in Central and Eastern European countries. Journal for East European Management Studies, 18(3), 336-370.

Rody, R. C., & Stearns, T. M. (2013). Impact of Entrepreneurial Style and Managerial Characteristics on SME Performance in Macao S.A.R., China. Journal of Multidisciplinary Research (1947-2900), 5(1), 27-44.

Shah, A., Mehmood, T., Hashmi, M., Shah, S., & Shaikh, F. (2011). Performance of SMEs in Export Growth and Its Impact on Economy of Pakistan. International Journal of Business & Management, 6(7), 287-297.

Shaikh, F. M., Shafiq, K., & Shah, A. (2011). Impact of Small and Medium Enterprises SMEs on Rural Development in Sindh. Modern Applied Science, 5(3), 258-272.

Steinerowska-Streb, I. (2012). The determinants of enterprise profitability during reduced economic activity. Journal of Business Economics & Management, 13(4), 745-762.

Brazilian and Argentine Economic Crisis

Brazilian Economic Crisis

Brazil is currently experiencing an acute economic crisis that continues to ravage its prospects for a strong and stable economy. The crisis presents numerous challenges to poor Brazilians who struggle for survival. The crisis has worsened because of economic policies put in place by the government and ratified by the International Monetary Fund and the United States authorities (Brainard 21). The crisis continues to generate international concern, especially from international press and economic observers (Brainard 23). Many international powers viewed Brazil as an emerging economic powerhouse. However, the current economic crisis has lowered the prospects of Brazils rise to economic supremacy.

The crisis resulted from economic policies enacted by president Cardoso during his re-election campaigns (Cohen 45). Attempts to diffuse the crisis, supported by international monetary institutions, have failed. Experts have tried synchronising the local currency with the American currency. This attempt has failed to generate expected results (Cohen 47). This aimed to increase the inflow of foreign exchange with a view to garner sufficient reserves to sustain the exchange rate. This strategy has produced unsatisfactory results. Consequently, citizens no longer believe in the governments ability to manage the economy (Nanto 12). The current economic down turn is attributed to historical practices that continue to have negative effects on the countrys economy. Analysts believe that political patronage and interference are key contributors to the current economic crisis (Nanto 17).

Argentine Economic Crisis

The economic crisis in Argentina occurred between 1999 and 2002. It commenced in 1999 with a sharp decline of the Gross Domestic Product (Taylor 67). The crisis caused numerous problems for the country. It resulted to the crumbling of the government, rise in the countrys external debt, high unemployment rates, civil unrests, and deterioration of the local currency against the dollar (Taylor 71). By the end of 2002, economic growth had returned to normal levels. This was contrary to the expectations of economic experts and analysts. Due to this recovery, the government managed to pay IMF loans (Epstein 43). The crisis was attributed to the countrys history of military dictatorship.

The military rule was responsible for numerous economic hardships that were encountered by the country. During this period, the country accumulated foreign debts for non-existent projects (Epstein 46). By the end of military rule, the levels of employment were high and unprecedented. After holding democratic elections in 1983, the government embarked on implementing new economic policies with a view to change the countrys economic course (Bao 11). The new administration had to borrow funds to finance the implementation of these policies. Eventually, the country failed to finance the loans. This eroded the confidence of donors and other financiers in the international community. The economic crisis has resulted in political and economic turmoil that has had adverse effects on the image of the country (Bao 14).

Works Cited

Bao, Sandra. Argentina. London: Lonely Planet, 2010. Print.

Brainard, Lael. Brazil as an Economic Superpower: Understanding Brazils Changing Role in the Global Economy. London: Brookings Press, 2012. Print.

Cohen, Michael. The Global Economic Crisis in Latin America: Impacts and Responses. Newyork: Routledge, 2012. Print.

Epstein, Edward. Broken Promises: The Argentine Crisis and Argentine Democracy. London: Lexington Books, 2006. Print.

Nanto, Dick. Global Financial Crisis: Analysis and Policy Implications. London: DIANE Publishing, 2010. Print.

Taylor, Alan. A New Economic History of Argentina. London: Cambridge University Press, 2003. Print.

Global Economic Order: Losers and Winners

Globalization is a term that has been defined variously, with most scholars agreeing that it entails a process, a situation, a system, a force, and an era that is characterized by intense technology in communication and transport. Through globalization, Steger is of the view that boundaries are no longer relevant because states are forced to allow goods and services to circulate freely without the restrictions that existed in the previous years (Steger 4).

Globalization has ensured that dramatic changes take place in the way goods and services are manufactured, something that signifies a change in global economic production. New technologies facilitate the easy transfer of commodities and services from one region to the other. Additionally, the advent of the internet allows merchants to communicate with ease and enables the advertising of products on social networks, such as Facebook, yahoo, twitter, and Google. In fact, many studies indicate that technologies are transforming the social interactions meaning that interrelations and human communications are based on market-centered.

From this perspective, it is noted that the current global economic order is based on three major strands, one of them being the huge transnational corporations (TNCs) while the second is powerful economic and financial institutions, such as the IMF and the World Bank. Finally, the expanded regional organizations, such as the European Union (EU), Asian Pacific Economic Cooperation (APEC), and the ASEAN serve as the third strand. The new world economic order traces its origin in the Bretton Wood Organizations, including the IMF and the World Bank.

Globalization dictates that for any sustainable economic order to be achieved, the deregulation of major economic events is critical, such as applying uniform policies and rules in the production and distribution of products and services. Additionally, all barriers to trade have to be done away with, and these obstacles include things such as wars, bad leadership, and human sufferings. It was established that the state had to follow the established standards as far as governance is concerned.

This means that egalitarianism is compulsory, as it is believed that democracies do not go into war with each other. Again, global economic development calls for the establishment of the binding rules, which are known to create some fairness in the way goods are produced and consumed globally. Currently, many advocates of globalization are obsessed with the issue of the elimination of barriers in trade (Selden 14). In fact, globalization is based on the concept of deregulation, which is closely related to the views of neo-liberalists.

It is concluded that the current global economic order has losers and winners. First, the state is the loser because it does not have the ability to influence global economic matters, but instead, it depends on the market forces. For instance, the government cannot claim to control the prices of products, even though it comes in whenever issues of quality and safety standards are raised. The emergence of complex economic, social, and political systems, which is the result of globalization, forces states to enter into agreements with each other in order to survive. As realists would observe, each state is concerned with its national interests, but they cannot be realized without forming strong partnerships with other actors (Smith 93).

On the other hand, supranational and multinational organizations are the main beneficiaries of the global economic order, as they have the power to determine the direction that other actors should follow. For instance, Bretton Wood organizations have been designing the economic policies of many developing countries as a requirement for the granting of financial assistance.

Works Cited

Selden, Mark. Economic Nationalism and Regionalism in Contemporary East Asia. Asia-Pacific Journal, 10.1 (2012): 1-21. Print.

Smith, Laurence. The New North: The World in 2050. London: Profile, 2011. Print.

Steger, Manfred. Globalization: A Very Short Introduction. Oxford: Oxford University Press, 2013. Print.

Economic development in Africa

This talk basically is about the paradox of financial aid given to Africa. Much of the talk is centered on showing that this aid is dead aid. This is done by giving illustrations that show why this is the case. The central argument is that many of the African countries are not used to a saving culture, consequently aid money acts as their save boxes.

This has led to these countries running their budgets on aid money implying that if there is a sudden stop in flow of the aid then government operations will not proceed smoothly. Financial aid hurts the economy because the governments do nothing to encourage private investment since the funds are sourced from donors and not from domestic taxes.

The talk also touches on the standards of living in Africa. It is argued that the living standards in Africa are worse than they were in the 1970s. Life expectancies is said to be quickly shortening. It is argued that this is due to epidemics such as the HIV Aids which have greatly spread in Africa without being properly contained.

The talk also focuses on the Africa-China interaction. This interaction is argued to benefit the African continent greatly. The Chinese aid to Africa is therefore applauded unlike Western aid to Africa. The explanation given is that the Chinese come to Africa to do business and not to make policies. The Chinese aid is not attached to any policy issues but is purely focused on capital projects which have enabled Africans to acquire jobs and raise their living standards.

In the closing minutes of the talk, Moyo reacts to a few critics. What comes out so well is that the aid given to Africa cripples the African continent. This aid does not let the Africans do what they are supposed to do.

The arguments made in this talk are quite logical. I like the comparison made between the Western aid and the Chinese aid. It helps to illustrate where the problem with the Western aid is. The fact that the Western aid has been doing what the African governments ought to do is a great push back to the economic development in Africa.

I agree that the western financial aid in a way acts as an incentive for the government not to engage in serious economic projects. Good examples to support this assertion came out in the talk. One of them was the drug assistance to people infected with aids.

This is the role of the local governments but because the western nations have always taken up this responsibility, the local governments, seemingly, have assumed that it is not their role to provide their people with the medication required. In my opinion, this kind of insulation has made the local governments to fall into laxity and therefore they have failed to stimulate economic develop in the various African nations.

On the contrary, the Chinese aid seems to do the opposite of what the western aid has been doing for such a long time. The Chinese aid has been significantly in the form of infrastructure development. In the talk, road networks are mentioned. Making investment in infrastructure is significant for economic development and that is what the Chinese go to do in Africa. In conclusion, I am in agreement that Africa needs to be assisted to start off serious economic developments to cater for its own financial demands.