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

Mohit Khanna (RS1904B50)

Ravish Sharma (RS1904B51)

R. Swadeep Chhetri (RS1904B52)

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
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.

 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.

 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.

 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.

Macro-Economic Indicators 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 nation’s 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.

 Rise in import will negatively affect GDP growth.

 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:

 Consumption: Durable & Non-durable Goods, Services, etc.

 Investment: Business & Residential Construction.
 Govt. Spending : Net Exports

Methods:
  Expenditure Method – Final spending on goods & services.
 Product Approach – Calculate the market value of goods & services produced.
 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:

 Creeping Inflation [b/w 5-7]

 Running Inflation [b/w 8-15]
 Galloping Inflation [15 & above]

Causes of Inflation

 Increase in money supply

 Deficit Financing
 Increase in population
 Increase in minimum support price of food products.
 Increase in wages
 Indirect Taxes
 Devaluation of Rupee
 Black money
  Expectations of future rise in price

Effects of Inflation

 Effect on economic development

 Effect on foreign investment
 Increase in cost
 Adverse BOP
Methods of Inflation
 CPI
 PPI/WPI
 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

 CPI UNME (Urban Non Manual Employee)

 CPI AL (Agricultural Labour)
 CPI RL (Rural Labour)
 CPI IL (Industrial Labour)

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:

 Industrial Deficit of the country.

 Fiscal Deficit of the country.
 GDP and GNP of the country.
 Foreign Exchange Reserves.
 Inflation Rate of the Country.
 Agricultural growth and production.
  Different types of policies like EXIM Policy, Credit Policy of the country as well reforms
undertaken in the yearly Budget.
 Infrastructure of the Country
External Factors:
 Export trade and Import trade with the foreign country.
 Loan sanction by World Bank and IMF
 Relationship with the foreign country.
 Internationally OIL Price and Gold Price.
 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-à-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.
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.
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 :

 Study the different indicators of Macro Economics of 7 countries.

 To find out the potential in the countries where in the companies can invest or can even
start their operations
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 the
eight 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
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 breed’s 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.
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 indicator
is 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.
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 available literature. 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 Economies Daniel Navia:-

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
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
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
Groups in Emerging Markets Tarun Khanna  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 stock price.
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 prices and
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

Desislava Dimintrova (2005) he used exchange on stock prices by multivariate model he link
exchange 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
Chiuri et al. (2001) document that during the last decade an increasing number of emerging
economies have adopted a bank capital adequacy requirement following the spirit of the Basel I
Capital Accord. The capital adequacy requirement imposes that banks maintain a minimum capital-
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 curtailed credit 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.
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.
Brazil’s 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. Brazil’s 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.
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. Russia’s 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
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:

Market liberalization in 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 capita income 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 of
179 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
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 world’s 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 the
world, with the highest life expectancy and the third lowest infant mortality rate.
The world’s second-largest economy only after the US and Asia’s 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. Japan’s 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 Japan’s
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 country’s economic growth remained slow. During that period there was only a
1.5% rise in the GDP annually. Moreover, in the 2000s, Japan’s 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. Mexico’s 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, Mexico’s economy is part of the
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 Mexico’s 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 tropical
forest 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 the
country’s GDP.

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

8 7.54
7
6.09
6
5.14
5
3.96
4

0
1 2 3 -0.19
4 5
-1

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 Brazil’s 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.

Inflation, end of period consumer prices:-

 7

0
1 2 3 4 5

As per the Economy of the Brazil, Inflation of the country as per the CPI at the end of the year 2010 is
5.197% comparing to 4.321% in 2009 followed 5.90 to 4.45, 3.14 in 2008,2007,2006, respectively. As
per the increasing Inflation of the BRAZIl Real Wstate business is most suitable as the value of
property rises with the rise in Inflation and for the long term business it is the most suitable one.

UNEMPLOYEMENT RATE:-

12

10

0
1 2 3 4 5

After taking into account the unemployment rate decreases to 7.2 in 2010 comparing 9.28%in 2007
and 8.1% in 2009 this shows that more employment opportunity are available in the country and
decreases in % signifies that the GDP of the country is increasing as a result f which any
manufacturing and service providing business is suitable for the country. The GDP rate of the country
increases to 7.54% in 2010 which is quite less than 2009 it shows that the GDp of the country is
increasing which is helpful for manufacturing concern as it can also be seen from the reduce rates than
the unemployment that production of the country is increasing.

BOP:-

1.5

0.5

0
1 2 3 4 5
-0.5

-1

-1.5

-2

-2.5

-3

AS per the BOP of the country the net import in the country is doubled in 2010 comparing to 2009 and
within the increase in the GDP it signifies that new and innovative ways to be simplest of task are
being taking place in the country in this case. An EXIM business is suitable where in the raw material
and 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 the
country to 10.75% in 2010 comparing to 8.75 in 2009 this is because of the increases in the GDP as
day these countries the expectation to earn profits is more which helps in increases the interest rate so
during the interest rate any financial institution or financial assistance company is to provide the loans
to the in duly concern is the most fruitful.

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 it’s 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 the labour 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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