comparison of emerging economy through macro economy indicators

8/7/2019 comparison of emerging economy through macro economy indicators

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LOVELY PROFESSIONAL UNIVERSITY

LSM (193)

Capstone Project on

Topic-Comparison of emerging economy through

Macro Economic Indicators

Submitted to -: Submitted by-:

Mr. Vishal Chopra Group: S-025

MohitKhanna (RS1904B50)

Ravish Sharma (RS1904B51)

R. Swadeep Chhetri(RS1904B52)


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Introduction:

What is Emerging Economy?

Rapidly growing and volatile economies of certain Asian and Latin American countries.

They promise huge potential for growth but also pose significant political, monetary, and social risks.

Emerging Economies are those regions of the world that are experiencing rapid informationalization

under conditions of limited or partial industrialization. This framework allows us to explain how the non-

industrialized nations of the world are achieving unprecedented economic growth using new energy,

telecommunications and information technologies.

An emerging market economy (EME) is defined as an economy with low to middle per capita income.

Such countries constitute approximately 80% of the global population, and represent about 20% of the

world's economies. The term was coined in 1981 by Antoine W. Van Agtmael of the International

Finance Corporation of the World Bank.Although the term "emerging market" is loosely defined,

countries that fall into this category, varying from very big to very small, are usually considered

emerging because of their developments and reforms. Hence, even though China is deemed one of the

world's economic powerhouses, it is lumped into the category alongside much smaller economies with a

great deal less resources, like Tunisia. Both China and Tunisia belong to this category because both have

embarked on economic development and reform programs, and have begun to open up their markets and"emerge" onto the global scene. EMEs are considered to be fast-growing economies.

What an Emerging Market Economy (EME) Looks Like?

EMEs are characterized as transitional, meaning they are in the process of moving from a closed

economy to an open market economy while building accountability within the system. Examples include

the former Soviet Union and Eastern bloc countries. As an emerging market, a country is embarking on

an economic reform program that will lead it to stronger and more responsible economic performance

levels, as well as transparency and efficiency in the capital market. An EME will also reform its

exchange rate system because a stable local currency builds confidence in an economy, especially when

foreigners are considering investing. Exchange rate reforms also reduce the desire for local investors to

send their capital abroad (capital flight). Besides implementing reforms, an EME is also most likely

receiving aid and guidance from large donor countries and/or world organizations such as the World


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Bank and International Monetary Fund. One key characteristic of the EME is an increase in both local

and foreign investment (portfolio and direct). A growth in investment in a country often indicates that the

country has been able to build confidence in the local economy. Moreover, foreign investment is a signal

that the world has begun to take notice of the emerging market, and when international capital flows are

directed toward an EME, the injection of foreign currency into the local economy adds volume to the

country's stock market and long-term investment to the infrastructure.

For foreign investors or developed-economy businesses, an EME provides an outlet for expansion by

serving, for example, as a new place for a new factory or for new sources of revenue. For the recipient

country, employment levels rise, labor and managerial skills become more refined, and a sharing and

transfer of technology occurs. In the long-run, the EME's overall production levels should rise, increasing

its gross domestic product and eventually lessening the gap between the emerged and emerging worlds.

Types of Economic Indicators:

There are three types of economic indicators: Leading, Lagging and Coincident.

y Leading :Leading indicators help to predict what the economy will do in the future. Leading indicators are often

the most useful for an investor. An example of a leading indicator would be hours worked per

employee. If the hours are rising, firms should increase hiring some point in the future.

y Lagging:Lagging indicators confirm what leading indicators predict. Lagging numbers change a few months

after the economy does. For example, the unemployment rate is a lagging indicator. Generally, the

unemployment rate will fall after a few months of economic growth. If the leading indicator of hours

worked is increasing, after a few months the lagging indicator of unemployment should fall.

y Coincident:Coincident indicators mirror what the data is saying. Coincident indicators are generally what is

happening right now, for example, the jobs report. If a leading indicator is predicting future job gains,

a lagging indicator is saying unemployment is falling, a coincident indicator will tell you the current

employment number.


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Macro-EconomicIndicators to be studied:

Following were the Macro Economic indicators which we have taken for our study they are:-

GDP:

Market value of final goods & services produced often denoted by GDP & when NIT (Net Indirect

Tax) is deducted from GDP it becomes the factor cost GDP.

GDP = Consumption + Investment + Govt Spreading + Net Import

Real GDP:

It is the nations total output of goods & services adjusted in public change

(Inflation is the major difference between Real GDP & Nominal GDP).

Growth Rate:

The growth rate is the %age increase or decrease in GDP from previous measurement cycle.

y Rise in import will negatively affect GDP growth.y If GDP increases it will grow the business of a firm, increase the income & the jobs

vacancies.

Ideal GDP growth Rate:

Most economists have agreed that the ideal GDP growth rate is in the range of 2-3 %. The rate should

neither be fast enough to cause inflation nor too slow to cause recession.

Components of GDP:

y Consumption: Durable & Non-durable Goods, Services, etc.y Investment: Business & Residential Construction.y Govt. Spending : Net Exports


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Methods:

y Expenditure Method Final spending on goods & services.y Product Approach Calculate the market value of goods & services produced.y Income Approach Sum of all the incomes received by the producer in the economy.

Relationship b/w GDP & Inflation

In long run there is no relationship b/w Real GDP & Inflation. But in short run there exists a

relationship. Firms are expecting that the prices are higher than normal. So they go out & hire male

workers in the real GDP.

Unemployment & GDP have an inverse relationship b/w themselves.

Inflation has a great effect on time value of money which is the heart of interest rate.

Inflation:

It means process of rising prices; it is a situation when price if a supply or money is rising. There are 3

types of inflation:

y Creeping Inflation [b/w 5-7]y Running Inflation [b/w 8-15]y Galloping Inflation [15 & above]

Causes of Inflation

y Increase in money supplyy Deficit Financingy Increase in populationy Increase in minimum support price of food products.y Increase in wagesy Indirect Taxesy Devaluation of Rupee


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y Black moneyy Expectations of future rise in price

Effects of Inflation

y Effect on economic developmenty Effect on foreign investmenty Increase in costy Adverse BOP

Methods of Inflation

y CPIy PPI/WPIy GDP Deflation

CPI:

The CPI is the measure of the avg. change overtime in the prices paid by a consumer for a market

prospect of consumer goods & services.

Measuring of changes in the purchasing power & the rate of inflation. CPI expresses the current price

of a basket of goods & services in terms of prices during the same period in a previous year to show

effects of inflation on the purchasing power. Also called Cost of Living Index. It is a best known

lagging indicator.

Classification of CPI

y CPI UNME (Urban Non Manual Employee)y CPI AL (Agricultural Labour)y CPI RL (Rural Labour)y CPI IL (Industrial Labour)


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Interest Rate:

It is the yearly price charged by a lender to a borrower in order to obtain loan. This is usually

expressed as a %age of the total amount of loan.

Factors Effecting Interest Rate:

Expected levels of inflation

General economic conditions

Monetary policy and the stance of the central bank

Foreign exchange market activity

Foreign investor demand for debt securities

Levels of sovereign debt outstanding

Financial and political stability

Exchange Rate:

Any type of financial instrument that is used to make payments between countries is considered

foreign exchange. The list of instruments includes electronic transactions, paper currency, checks, and

signed, written orders called bills of exchange.

Factors Effecting Foreign Exchange:

Internal Factors:

y Industrial Deficit of the country.y Fiscal Deficit of the country.y GDP and GNP of the country.y Foreign Exchange Reserves.y Inflation Rate of the Country.y Agricultural growth and production.


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y Different types of policies like EXIM Policy, Credit Policy of the country as well reformsundertaken in the yearly Budget.

y Infrastructure of the CountryExternal Factors:

y Export trade and Import trade with the foreign country.y Loan sanction by World Bank and IMFy Relationship with the foreign country.y Internationally OIL Price and Gold Price.y Foreign Direct Investment, Portfolio Investment by the country.

Balance of Payment (BOP):

A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a

country and the rest of the world. These transactions include payments for the

country's exports and imports of goods, services, and financial capital, as well as financial transfers.

The BOP summarizes international transactions for a specific period, usually a year, and is prepared in

a single currency, typically the domestic currency for the country concerned.

Factors that can affect the balance of trade include:

Inflation Rate: The inflation rate in an economy vis--vis other economies affects the international

competitiveness of the domestic goods and hence their demand. Higher the inflation, lower the

competitiveness and lower the demand for domestic goods.

World Prices of a Commodity: If the price of a commodity increases in the world market, the value

of exports for that particular product shows a corresponding increase. This would result in an increase

in the demand for the domestic currency. A fall in the demand for domestic currency would be

experienced in case of a reduction in the international price of a commodity.

Trade Barriers: Higher the trade barriers erected by other economies against the exports from a

country, lower will be the demand for its exports a hence, for its currency.


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Imports of Goods and Services: Imports of goods and services are affected by the same factors that

affect the exports. While some factors have the same effect on imports as on exports, so of them have

an exactly opposite effect.

Value of the Domestic Currency: An appreciation of the domestic currency results in making

imported goods and services cheaper in terms of domestic currency, hence increasing their demand.

The increased demand imports results in an increased supply of the domestic currency depreciation of

the domestic currency have an opposite effect.

Level of Domestic Income: An increase in the level of domestic income increases the demand for all

goods and services, including imports and it results in an increased supply of the domestic currency.

Inflation Rate: A domestic inflation rate that is higher than the inflation of other economies, would

result in imported goods and services bee relatively cheaper than domestically produced goods and

services would increase the demand for the former, and hence, the supply domestic currency.

Trade Barriers: Trade barriers have the same effect on imports exports - higher the barriers, lower

the imports, and hence, lower the supply of the domestic currency.


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Objective of the Study:

Following were some objective of the study they can be:-

To find out the potential present in the country economy where the companies can invest. To compare all the possible Macro economic factors of different countries.

Research Methodology:

Type of Research : Descriptive, Analytical Research

Source of Data Collection: Secondary Data through Journals, Websites, Research Papers.

Scope of the Study:

The main factor considered while selecting this project was related to :

y Study the different indicators of Macro Economics of 7 countries.y To find out the potential in the countries where in the companies can invest or can even

start their operations


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Literature Review:

Strategy Research in Emerging Economies: Challenging the Conventional Wisdom

Mike Wright Igor Filatotchev, Robert E. Hoskisson, Mike W. Peng (14 JAN 2005)

introduction to the Special Issue on Strategy Research in Emerging Economies considers the nature of

theoretical contributions thus far on strategy in emerging economies. We classify the research through

four strategic options: (1) firms from developed economies entering emerging economies; (2) domestic

firms competing within emerging economies; (3) firms from emerging economies entering other

emerging economies; and (4) firms from emerging economies entering developed economies. Among the

four perspectives examined (institutional theory, transaction cost theory, resource-based theory, and

agency theory), the most dominant seems to be institutional theory. Most existing studies that make a

contribution blend institutional theory with one of the other three perspectives, including seven out of theeight papers included in this Special Issue. We suggest a future research agenda based around the four

strategies and four theoretical perspectives. Given the relative emphasis of research so far on the first and

second strategic options, we believe that there is growing scope for research that addresses the third and

fourth.

Understanding Business Group Performance in an Emerging Economy: Daphne Yiu, Garry

D. Bruton, Yuan Lu (JAN 2005)

The prevalent organizational form in most emerging markets is business groups. These groups have

typically been viewed through a transaction cost economics perspective where they are perceived as

responses to inefficiencies in the market. However, the evidence to date on what generates a positive

business group-performance relationship in such environments is not well understood. This study

expands the understanding of business groups by employing the resource-based and institutional

theoretical perspectives to examine how groups acquire resources and capabilities to prosper. The

empirical evidence is based on over 224 business groups in the emerging economy context of China

and shows that most of the endowed government resources do not help business groups to create a

competitive edge. Instead, those business groups with strategic actions to develop a unique portfolio of

market-oriented resources and capabilities are most likely to prosper. The results provide critical

insights on the relationship between the initiation of institutional transformation and the desired

outcome to be realized by organizational transformation, thus enriching our understanding of


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Institutions and strategic choices facilitated or constrained by organizational resources in emerging

economies.

Miller and Zhang (1999), through moral hazard elements and gametheory applications, the

speculative attack timing occurred in the East Asian crisis can beexplained under three views. First,

the non-existence of creditor co-ordination could imply a stopin rolling over loans (Radelet and

Sachs (1998)). Second, unsustainable indebtedness carried outby domestic agents, with assumed

guarantees from government, together with highly reversiblecapital flows, could be halted (Dooley

(1997) and Krugman (1998)). Third, a speculative attackcould be led by large enough market agents

given probable profits come from succeeding, evenfacing sounds macroeconomic fundamentals in

the emerging economy.

Organizational slack and firm performance during economic transitions: two studies from

an emerging economy

Justin Tan, Mike W. Peng (4 NOV 2003)

How does organizational slack affect firm performance? Organization theory posits that slack,

despite its costs, has a positive impact on firm performance. In contrast, agency theory suggests

that slack breeds inefficiency and inhibits performance. The empirical evidence, largely from

developed economies, has been inconclusive. Moreover, little effort has been made to empirically

test whether such an impact (positive or negative) is linear or curvilinear. This article joins the

debate by extending empirical work to the largely unexplored context of economic transitions.

Specifically, two studies, based on survey and archival data (N = 57 and 1532 firms, respectively),

are undertaken in China's emerging economy. Our results suggest (1) that organization theory

generates stronger predictions when dealing with unabsorbed slack, and (2) that agency theory

yields stronger validity when focusing on absorbed slack. Furthermore, we also find that the

impact of slack on performance is curvilinear, which resembles inverse U-shaped curves. Overall,

our findings call for a contingency perspective to specify the nature of slack when discussing its

impact on firm performance.


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Fred Hu (2004) also finds a negative effect associated with using fixed exchange rate regimes on

economic growth. His study focused on China in particular, and the need for this country to liberalize

their currency and capital control. He concludes that China must go through a gradual process that will

ultimately lead them to a more liberalized system overall. First, they must remove the peg causing them

to have a free floating exchange rate. This would cause them to enter a more balanced trading field

among their major trading partners. Second, they need to introduce a sound banking reform program,

which would stabilize their domestic financial system. Lastly, China should relax their capital control

policies. This would assist them in avoiding financial crisis while simultaneously allow them to gain

more capital freedom

BalazsEgert and Amalia Morales-Zumaquero (2005) analyze the impact of exchange rate volatility

and changes in the exchange rate regimes on export volume for ten Central and Eastern European

transition economies. The first group of countries started their transition with pegged regimes and then

moved towards flexibility. The second group of countries experienced no major changes in their

exchange rate regimes in the past ten years. Their results indicate that an increase in the exchange rate

volatility decreases exports, and this impact has a delay rather than being instantaneous

Guillermo A. Calvo and Frederic S. Mishkin (2003) take on a different view of exchange rate regimes.

They argue that macroeconomic success in emerging market countries can be produced primarily through

good fiscal, financial, and monetary institutions, and they believe that less emphasis should be placed on

the flexibility of an exchange rate regime. They find that when choosing an exchange rate regime, not all

countries are able to conform to one type. This is due to each countries particular needs and their

economy, institutions, and political culture.

ZdenekDrabek and Josef Brada (1998) argue that the flexible exchange rate regime is applicable and

appropriate for six countries with transition economies. Within each of these economies, inappropriate

exchange rate policies have led to an increase in protectionism by these governments. Because of these

policies, the nominal exchange rate is not an indicator of comparative advantage; rather the true indicatoris the level of the real effective exchange rate.Drabek and Brada conclude that these transition economies

will have to eventually switch to a more flexible exchange rate in order to send more accurate signals to

both foreign and domestic investors about the comparative advantages of their country.


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International Political Science Review (BBVA):-

This article focuses on the interactions between politics and financial markets in emerging economies.

More precisely, it examines how Wall Street reacts to major Latin American political events. The case

study focuses on the 2002 Brazilian presidential elections. The first section of the article provides a

critical review of the availableliterature. The second section presents an empirical study of Wall Street

analysts' perceptions of the 2002 presidential elections in Brazil, based on reports produced by leading

Wall Street investment firms. The final section uses polling and financial data from previous Brazilian

elections to place the events of 2002 in comparative historical perspective.

Financial Sector FDI to Emerging EconomiesDanielNavia:-

This paper reviews the theoretical literature explaining financial FDI, as well as the empirical results on

the determinants of financial FDI and its potential effects for the home country. From this revision, we

conclude that, at the present stage, the existing theoretical paradigms need to be adapted to explain the

recent surge in international banks' local operations in emerging countries financial sectors.

Macroeconomic and risk diversification theories would seem particularly well-suited to explain this

reality. The empirical literature on financial FDI has concentrated on bank-specific factors and much less

so on macroeconomic determinants, particularly push factors where generally only general

FDI literature is available. The survey draws on this literature in those cases where no specific results for

financial FDI exist. Finally, the effects of financial FDI on the home country are virtually unknown.

The literature on general FDI has focused on employment, trade and investment effects, yet the

consequences on the profitability and systemic risk of home's financial system remain a topic for debate.

Mahasarakham University (1999):-

In light of recent currency and Mahasarakham University financial crises, this

paper reviews the literature on exchange rate regimes and evaluates the fixed and flexible exchange rate

regimes with the focus on the possible choices of the exchange rate regime emerging market countries.Given the recent trend of World's financial integration, as a result of the globalization, has pushed

most countries towards the full financial integration, the analysis touches upon the topics of roles of

monetary policy, fiscal policy, currency crises, inflation, credibility, employment, and income under

different exchange rate regimes. Overall, the results indicate that the complexity of the economic system

and the dynamics of the economic development in emerging market countries have proven the difficulty


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of sticking to one exchange rate regime for a long period of time. Consequently, an emerging market

country should consider a change of the exchange rate regime upon changes in the priority of its

economic objectives.

European Center for Advanced Research in Economics and Statistics (ECARES) October 2004:-

Estache reviews the recent economic research on emerging issues for infrastructure policies affecting

poor people in developing countries. His main purpose is to identify some of the challenges the

international community, and donors in particular, are likely to have to address over the next few years.

He addresses six main issues: (1) the necessity of infrastructure in achieving the Millennium

Development Goals; (2) the various dimensions of financing challenges for infrastructure; (3) the debate

on the relative importance of urban and rural infrastructure needs; (4) the debate on the effectiveness of

infrastructure decentralization; (5) what works and what does not when trying to target the needs of the

poor, with an emphasis on affordability and regulation challenges; and (6) the importance of governance

and corruption in the sector. The author concludes by showing how the challenges identified define a

relatively well integrated agenda for both researchers and the international infrastructure community

Centre for Economic Policy Research (CEPR) July 2007:-

This paper reviews the literature on the finance-growth nexus within a neoclassical growth framework,

placing an emphasis on the policy implications in the current European environment that has placed

financial reforms high on the policy Agenda. While more research is needed to establish causality and

verify the theoretical channels linking access to finance and growth, firm-level, industry-level, macro,

and country-specific studies all tend to show a significant correlation between financial efficiency and

economic performance. The empirical evidence hint that in underdeveloped

and emerging countries financial development fosters aggregate growth mainly by lowering the cost of

capital, while in advanced economies by raising total-factor-productivity

John Whalley December 2003:-

This paper discusses the potential impacts of services trade liberalization on

developing countries and reviews existing quantitative studies. Its purpose is to distill themes from

current literature rather than to advocate specific policy changes. The picture emerging is one of


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valiant attempts to quantify in the presence of formidable analytical and data problems yielding only a

clouded image of likely impacts on trade, consumption, production, and welfare.

Adewale Adeoye September 2007:-

Many experts believe that Foreign Direct Investment (FDI) can provide substantial benefits

to emerging market countries and help to speed up the economic development process. National accounts

data also shows FDI to be the single largest component of capital inflows to the vast majority

of emerging market countries. Thus, it is crucial to determine the drivers and determinants of inwards

FDI flows to such markets. There have been several studies on some FDI determinants such as market

size and human capital factors; however the role of corporate governance at a national level has been

largely neglected. This has mainly been due to the lack of good quality data on corporate governance

measures and indicators. The creation of the World Bank Governance Indicators by Kaufmann et al

(1999) makes rigorous studies of corporate governance and FDI possible. This study uses the World

Bank Governance Indicators to empirically test the relationship between macroeconomic level corporate

governance and inwards FDI flows into emerging market countries, using a panel data set of

33 countries between 1997 and 2002. The key finding is that macroeconomic corporate governance has a

positive and significant effect on inwards FDI flows, suggesting host country governments and

authorities should shape policy in this area to maximize inwards FDI flows.

Krishna Chaitanya V. (February 2008):-

The paper investigates whether the decline in environmental quality in BRIC economies is due to high

energy consumption level which is a resultant of rapid economic growth. We answer these using

environmental, macroeconomic and financial variables along with Kyoto Protocol indicators based on

panel data from 1992 to 2004. The long run equilibrium relationship between energy consumption and

economic growth was examined. Through the panel data, feasible general least squares (FGLS)

procedure was employed to estimate the environmental degradation caused by the increase in energy

consumption. Pooled regression analysis is used to estimate the relationship between energy consumption

and growth variables. We study the impact of excessive economic growth rates on energy consumption

levels by means of threshold pooled ordinary least squares (POLS) method. Moreover, our analysis also

attempts to fulfill the econometric criticism of the Environmental Kuznets Curve faced


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Groups in Emerging Markets TarunKhanna Harvard University - Competition & Strategy Unit

Diversified business (or corporate) groups, consisting of legally independent firms operating in multiple

markets, are ubiquitous in emerging markets and even in some developed economies. The study of

groups, a hybrid organizational form between firm and market, is of relevance to industrial organization,

corporate finance, development, economic growth and other domains of economic inquiry. This survey

begins with stylized facts on groups around the world, and proceeds to a critical review the

existing literature, which has focused almost entirely on groups as diversified entities and on conflicts

Dr. Nishat (2004) analyze long term relationship between macroeconomic variables are stockprice. He

used CPI, IIP, money supply and foreign exchange rate as explanatory variable in this paper result

indicates are causal relation between the stock price and economy. He used Karachi stock exchange 100

index price for 1974 to 2004. Analysis of his work found that industrial production index is largely

positively significant while inflation is significantly negatively related he used granger causality test to

determined effect the above said variables to stock price he found that interest rate is not cause

scientifically to stock price. He used unit root technique to make data stationar

Robert D. gay (2008) he used MA method with OLS to find relationship between stock pricesand

macroeconomics variables effects on four emerging economies India, Russia, Brazil and China. He used

oil price, exchange rate, and moving average lags values as explanatory variables but result are

insignificants which shows inefficiency in market final conclusion is that these economies are emerging

so domestics factors more influence outside factors oil price and exchange rate

DesislavaDimintrova (2005) he used exchange on stock prices by multivariate model he

linkexchange rate with economic policy (fiscal and monetary policy) with exchange rate and found

relation with stock prices he defines interest parity condition effect on stock prices his results shows

unambiguous effects on deprecation of stock prices on exchange rate deprecation


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Chiuri et al. (2001) document that during the last decade an increasing number of emergingeconomies

have adopted a bank capital adequacy requirement following the spirit of the Basel ICapital Accord.

The capital adequacy requirement imposes that banks maintain a minimumcapital-risk weighted asset

ratio. Using bank-level data from 16 emerging economies, Chiuri et al. (2001) find that the

enforcement of bank capital adequacy requirements significantly curtailedcredit supply in these

countries

(Siegel 2007).Datasets trying to measure political issues such as human-rights violations, corruption,

political institutions and political regimes are perhaps even more prone to both conceptual and

measurement problems. Such datasets are usually produced by individual researchers or non-

governmental organizations, who tend to have limited resources for data collection purposes. In some

areas, such as human-rights conditions and corruption, it is nearly impossible to get reliable data; other

topics are difficult to measure objectively because of lack of consensus on the definition of basic

political concepts.


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Emerging Economy of the World:

Emerging markets are nations with social or business activity in the process of

rapid growth and industrialization. Currently, there are around 28 emerging markets in the world, with

the economies of China and India considered being the largest. Following 7 were considering for our

studies:

1. Brazil:Brazil is the largest country in South America and the fifth largest country in the world in terms of

geographical area. Brazil is bound by the Atlantic Ocean to the east and enjoys a coastline of more

than 4,600 miles. The country is bordered on the north by Venezuela, Guyana, Surinam and French

Guiana. It is bordered on the northwest by Colombia. On the west, Brazil is bordered by Bolivia and

Peru, while Argentina and Paraguay make up the southwest borders. Uruguay borders Brazil on the

south. Brazil is the fifth most populous country in the world, being home to more than 190 million.

Brazils economy is the largest in South America and the country boasts well developed agriculture,

mining, manufacturing, and service sectors. Since 2003, Brazil has improved its macroeconomic

stability, built foreign reserves, reduced debt, kept inflation rates under control and committed to fiscal

responsibilities. After witnessing unprecedented economic growth in 2007 and 2008, the global

financial crisis finally hit Brazil. Brazils currency and stock market saw huge fluctuations as foreign

investments dwindled, demand for commodity exports dried up and external credit increased.

However, Brazil was one of the first emerging markets to stage a recovery, with GDP growth

returning to positive levels. The Central Bank predicts growth of 5% in 2010.

2. Russia:Russia, also known as the Russian Federation, is a country in northern Eurasia. Russia is the largest

country in the world in terms of area (more than 6.6 million square miles). Russia shares its borders

with Norway, Finland, Estonia, Latvia, Lithuania, Poland, Belarus, Ukraine, Georgia, Azerbaijan,

Kazakhstan, Mongolia, China and North Korea. Russia is also the ninth most populous nation in the

world with more than 142 million inhabitants. The nation encompasses the entire northern Asia and

40% of the European continent. It spans 11 time zones and enjoys a varied climate. While European

and Asian Russia enjoy a humid continental and subarctic climate, the Black Sea area near Sochi

enjoys a subtropical climate.


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The Russian economy has undergone massive changes since the fall of the Soviet Empire,

transitioning from a state controlled, socialist structure to a more market based, and globally integrated

economy. Economic reforms in the 1990s privatized most industries, and some energy and defense

related sectors. Russias heavy reliance on commodity exports made the country vulnerable to the

global economic crisis of 2008. The Russian economy has averaged 7% growth since the 1998 crisis,

resulting in the emergence of its middle class. Though the Russian economy was one of the hardest hit

during the 2008-2009 crises, the signs of recovery were evident in 2H 2009.

3. India:India is a South Asian country that is the seventh largest in area and has the second largest population

in the world. The land covers an area of 3,287,240 square km (India geography) and the population

stands at 1,202,380,000 people (India population). India has Great Plains, long coastlines and majestic

mountains. Thus, the land has abundant resources. India shares its borders with China, Bangladesh,

Pakistan, Nepal, Sri Lanka and Myanmar.

Understanding the Indian Economy

Large, dynamic and steadily expanding, the Indian economy is characterized by a huge

workforce operating in many new sectors of opportunity.

The Indian economy is one of the fastest growing economies and is the 12th largest in terms of the

market exchange rate at $1,242 billion (India GDP). In terms of purchasing power parity, the Indian

economy ranks the fourth largest in the world. However, poverty still remains a major concern besides

disparity in income. The Indian economy has been propelled by the liberalization policies that have

been instrumental in boosting demand as well as trade volume. The growth rate has averaged around

7% since 1997 and India was able to keep its economy growing at a healthy rate even during the 2007-

2009 recession, managing a 5.355% rate in 2009 (India GDP Growth). The biggest boon to the

economy has come in the shape of outsourcing. Its English speaking population has been instrumental

in making India a preferred destination for information technology products as well as business

process outsourcing. The economy of India is as diverse as it is large, with a number of major sectors

including manufacturing industries, agriculture, textiles and handicrafts, and services. Agriculture is a

major component of the Indian economy, as over 66% of the Indian population earns its livelihood


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from this area However; the service sector is greatly expanding and has started to assume an

increasingly important role. The fact that the Indian speaking population in India is growing by the day

means that India has become a hub of outsourcing activities for some of the major economies of the

world including the United Kingdom and the United States. Outsourcing to India has been primarily in

the areas of technical support and customer services.

4. China:Marketliberalizationin the Chinese Economy has brought its huge economy forward by leaps

and bounds - but rural China still remains poor, even as its cities increase in affluence.

China's economy is huge and expanding rapidly. In the last 30 years the rate of Chinese economic

growth has been almost miraculous, averaging 8% growth in Gross Domestic (GDP) per annum. The

economy has grown more than 10 times during that period, with Chinese GDP reaching 3.42 trillion

US dollars by 2007. In Purchasing Power Parity GDP, China already has the biggest economy after the

United States. Most analysts project China to become the largest economy in the world this century

using all measures of GDP. However, there are still inequalities in the income of the Chinese people,

and this income disparity has increased in the recent times, in part due to a liberalization of markets

within the country. The per capitaincome of China is only about 2,000 US dollars, which is fairly poor

when judged against global standards. In per capita income terms, China stands at a lowly 107th out of179 countries. The Purchasing Power Parity figure for China is only slightly better at 7,800 US dollars,

ranking China 82nd out of 179 countries. Economic reforms started in China in the 70s and 80s. The

initial focus of these reforms was on collectivizing the agricultural activities of the country. The

leaders of the Chinese economy, at that point in time, were trying to change the center of agriculture

from farming to household activities. At later stages the reforms extended to the liberalization of

prices, in a gradual manner. The process of fiscal decentralization soon followed. As part of the

reforms, more independence was granted to the business enterprises that were owned by the state

government. This meant that government officials at the local levels and the managers of various

plants had more authority than before. This led to the creation of a number of various types of

privately held enterprises within the services sector, as well as the light manufacturing sectors. The

banking system was diversified and the Chinese stock markets started to develop and grow as

economic reforms in China took hold. The economic reforms made in China in the 70s and 80s had


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other far reaching effects as well. The sectors outside the control of the state government of China

grew at a rapid pace as a result of these reforms. China also opened its economy to the world for the

purposes of trade and direct foreign investment.

5. Japan:Japan is a mountainous, volcanic island nation in East Asia, on the Pacific Ocean. China, Taiwan,

Russia, North Korea and South Korea are its neighboring countries. Japan is popularly called the

"Land of the Rising Sun" as the characters in its name mean "sun-origin". Japan is made of up 6,852

islands, most of which are mountainous (some even volcanic). Tokyo is the worlds largest

metropolitan area and home to 30 million people. Japan is the 10th most populated country in the

world, with around 128 million residents. The country boasts a modern and extensive military force

that aims at self-defense and peace promotion. The standard of living is one of the highest in theworld, with the highest life expectancy and the third lowest infant mortality rate.

The worlds second-largest economy only after the US and Asias largest economy, Japan is a

powerful country. It is the only member of G8 from Asia and also a member of the UN Security

Council on a temporary basis. The wages in Tokyo are the highest in the world, according to the Big

Mac Index. Japans swift economic growth from the 1960s to the 1980s is called the Japanese post-

war economic miracle, with a growth rate of 10%, 5% and 4%. It was in the late 1980s that Japans

economy overheated due to falling stock and real estate prices, a phase called the Japanese asset price

bubble. However, the situation turned bad in 1989, with the crashing of the Tokyo Stock Exchange.

Even in the 1990s the countrys economic growth remained slow. During that period there was only a

1.5% rise in the GDP annually. Moreover, in the 2000s, Japans GDP rose at 0.8% annually. The

economy rose at an average of 2.1% a year from 2003 to 07, and shrank by 1.2% in 2008 and by 5.0%

in 2009.

6. Mexico:Mexico is a federal constitutional republic in North America, bordered by the United States on the

north and by Belize and Guatemala on the south-east. The south and west is flanked by the Pacific

Ocean and the Gulf of Mexico on the east. Mexicos has an estimated population of 111 million, and its

economy is the 13th

largest in nominal GDP terms ($1.143 trillion -2009) and the 11th

largest by

Purchasing Power Parity (PPP, $1.563 trillion 2009). Furthermore, Mexicos economy is part of the


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North American Free Trade Agreement (NAFATA), a trilateral trade bloc in the region comprising of

the US, Canada and Mexico.

Mexico Economy: Profile

Mexico has benefited from the NAFTA; being a free market economy, it has increased its trade with

the US and Canada threefold. Furthermore, over 90% of their trade falls under twelve free trade

agreements spanning more than 40 countries worldwide. The Mexican GDP grew at an average rate of

5.1% during 1995-2002. The recent economic recession and more specifically, the downslide in the US

markets impacted this growth in a negative way. The annual average growth for the GDP in 2005

dipped to 3-4.1%.

In 2009, the economic profile for Mexico took a turn for the worse. Widespread disease in the form of a

flu outbreak added to the failing economy in 2009. Policy stimulus proved inadequate against the

background of limited fiscal stimulus and monetary relaxation. From an all-time low rate of

annual inflation of 3.3% in 2005, this rate has only recently displayed signs of reducing from 6.4% in

2008 to 5.4%. These fluctuations are largely caused by the economy of Mexicos close association with

US business and trade.

7. South Africa:South Africa is the southernmost nation of the African continent. The country shares international

borders with Namibia, Botswana, Mozambique, Swaziland and Zimbabwe. The country ranks 25th in

terms of total land area available. South Africa has a large coastline (2,798 kilometers) along the

Atlantic and Indian Oceans. The southern coastal region rises to form small mountains towards the

north. The country has a population of 49.3 million (2009 estimates). A majority of the earning

population lives in Cape Town, Port Elizabeth, Durban and Johannesburg. These four cities are the

primary source of trade for the South African economy. Indigenous races still reside in the tropicalforest regions.South Africa is one of the most stable economies in the African continent. It is a middle-

income country, with fully developed basic infrastructure. The country exhibits several indicators of a

developing economy, such as well grown primary, secondary and tertiary sectors and non-dependency

on agriculture. The manufacturing, mining and service sectors are the largest contributors to

thecountrys GDP.


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Data Analysis & Interpretation:-

Following were the main findings of the economic indicators of the various Emerging Economies for the

period of 5 years starting from 2005 to 2010 and on the basis of this we are also assigning the Sector

where there is the potential available for the fruitful conduct of the business.

Brazil:-

Gross domestic product, constant prices

As per the GDP at the constant prices are concern the GDP of the country increases by 7.54% in

2010.Which is negative and less amount of growth is seen in the in the year 2009 as per the data given

above and the raise in the GDP the Manufacturing Concerns can find the potential in the Brazils

economy as Labour is easily available and employment rate is also increasing in the country it signifies

that raw material is easily available in the country and manufacturing is increasing.

3.955

6.092

5.137

-0.185

7.54

-1

0

1

2

3

4

5

6

7

8

1 2 3 4 5

Series1


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Inflation, end of period consumer prices:-

As per the Economy of the Brazil, Inflation of the country as per the CPI at the end of the year 2010 is5.197% comparing to 4.321% in 2009 followed 5.90 to 4.45, 3.14 in 2008,2007,2006, respectively. Asper the increasing Inflation of the BRAZIl Real Wstate business is most suitable as the value ofproperty rises with the rise in Inflation and for the long term business it is the most suitable one.

UNEMPLOYEMENTRATE:-

After taking into account the unemployment rate decreases to 7.2 in 2010 comparing 9.28%in 2007and 8.1% in 2009 this shows that more employment opportunity are available in the country and

0

1

2

3

4

5

6

7

1 2 3 4 5

Series1

0

2

4

6

8

10

12

1 2 3 4 5

Series1


26/29

decreases in % signifies that the GDP of the country is increasing as a result f which anymanufacturing and service providing business is suitable for the country. The GDP rate of the countryincreases to 7.54% in 2010 which is quite less than 2009 it shows that the GDp of the country isincreasing which is helpful for manufacturing concern as it can also be seen from the reduce rates thanthe unemployment that production of the country is increasing.

BOP:-

AS per the BOP of the country the net import in the country is doubled in 2010 comparing to 2009 andwithin the increase in the GDP it signifies that new and innovative ways to be simplest of task arebeing taking place in the country in this case. An EXIM business is suitable where in the raw materialand other another useful can be exported to Brazil making large amount of profits.

INTEREST RATE:-The interest rate is determined by the inflation, recession and state of economy. The interest rate of thecountry to 10.75% in 2010 comparing to 8.75 in 2009 this is because of the increases in the GDP asday these countries the expectation to earn profits is more which helps in increases the interest rate soduring the interest rate any financial institution or financial assistance company is to provide the loansto the in duly concern is the most fruitful.

-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

1 2 3 4 5

Series1


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RUSSIA:-

GDP:-

As far AS the Russia gdp is concern the GDP rate is increased to 4.98% in 2010 that is overall increased

10.5% from 2009 that shows the high growth in production nad manufacturing concern companies that

will also helps to gain profits for the investors and establishes new industries here that also help to reduce

the unemployment rate.

INFLATION:-

Inflation rate is increased to 4.5 in 2010 from 3.5% in 2009 that shows the money circulation in the

market and people have sufficient amount of money for investing in different different sectors. They have

ample amount of resources to increase their income level. Thus for the real estate business its a huge

apportunity to investing in such type of country.

UNEMPLOYMENT:-

Unemployment rate is increasing year by year that shows from the past 5 year. As the GDP is increases

that shows the high amount of production but according to GDP the employment rate not increased so

for a new business concern thelabour will be available at a very low rate.

BOP:-

The current account balance of Russia increased by 20 billion $ in 2010 comparing to 2009 however it is

very much less than that of the 2008 which amounts to 103.72 billoin $ by liberlising their trade policies

they were able to increase their current account balance in 2010 which is helpful for any new concern

entering into Russian market. Not only this the export of the countries product is also increasing.


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Refrences :

Brada, Josef and Mendez, Jose, Exchange Rate Risk, Exchange Rate Regime and the Volume of

International Trade Kyklos 41 (1988): 263-80.

Calvo, Guillermo A. and Mishkin, Frederic S., The Mirage of Exchange Rate Regimes for Emerging

Market Countries NBER Working Papers (June 2003).

Drabek, Zdenek and Brada, Josef, Exchange Rate Regimes and the Stability of Trade Policy in Transition

Economies WTO Economic Research and Analysis Division Working Paper (July 1998).

Egert, Balazs and Morales-Zumaquero, Amalia, Exchange Rate Regimes, Foreign Exchange Volatility and

Export Performance in Central and Eastern Europe: Just Another Blur Project? 8 Bofit

Discussion Papers (2005).


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Fountas, Stilianos and Aristotelous, Kyriaco, "Does the Exchange Rate Regime Affect Export Volumes?

Evidence from Bilateral Exports in the US-UK Trade: 1900-1998," Department of Economics 43,

National University of Ireland, Galway (2003).

Hu, Fred, Capital Flows, Overheating, and the Nominal Exchange Rate Regime in China, Cato Institute

Conference April 8-9 (2004).

Levy-Yeyati, Eduardo and Sturzenegger, Federico, Classifying Exchange Rate Regimes: Deeds vs.

Words, European Economic Review, Vol. 49, Issue 6: Pages 1603-1635 (2005).

Nabli, Mustapha Kameland Vganzons-Varoudakis, Marie-Ange, Exchange Rate Regime and

Competitiveness of Manufactured Exports: The Case of MENA CountriesWorld Bank (2002).

Rose, Andrew K., One Money, One Market: Estimating the Effect of Common Currencies on Trade,

Economic Policy (2000).

Documents

comparison of emerging economy through macro economy indicators