How economic factors affect international businessConsidering this Essay

How economic factors affect international businessConsidering this make evaluation of the possible investment opportunities a - Essay Example For this paper, the economic elements to be discussed are Gross Domestic Product (GDP), Gross National Product (GNP), Human Development Index (HDI), Inflation, Deflation, Unemployment levels and Privatisation. Gross Domestic Product (GDP) Evaluating the GDP of a country is arguably the best way to understand the dynamics of a country’s economy. The GDP as an economic indicator measures the total output of country. It is inclusive of everything produced by the people and all the industries in the country. The GDP of a country has an effect on global firms in that, a multinational company wishing to make new investments or analyse the performance of the foreign subsidiaries would use the GDP per capita to make comparison of the GDP of different countries. A country’s GDP gives a clear reflection of what the country’s output is and the GDP growth rate tells you exactly how fast a country’s economy is growing (Hamilton & Webster, 2012, p.79). A global firm wou ld thus make informed decisions based on the GDP. Although the GDP is a good indicator of economic performance, it has its fatal flaws. For instance, the output generated in a country from the underground economy is not accounted for in calculations. The GDP also ignores the productive non-market activities of a country. In addition, certain â€Å"economically bad† activities can increase the value of the GDP whilst at the same time reducing social welfare. This makes it an inappropriate measure of social welfare. Gross National Product (GNP) The GNP is also a measure of the country’s economic performance. It measures the total market value of the goods and services produced by within a country’s borders within a given time period (usually one year). Unlike the GDP measure, the GNP measures only the income supplied to the economy by the residents, whether at home or abroad. GNP can be a good measure for use by international businesses to measure economic growth but it can be misleading due to its shortcomings. Since GNP is a viable option for measuring overall demand, the GNP of a country can affect the levels of demand in a country and hence affect the performance of the global firms. Despite being an important tool in evaluating economic investment viability for global firms, the GNP statistic has its shortcomings. In measuring economic development, the GNP statistic may pose problems in that the exchange rates vary on a daily basis hence the real value of goods is difficult to estimate. The GNP also hides the wealth distribution in a country and reveals minimal information about the quality of life and social welfare in a country which are key aspects of the economy when considering a country as being conducive to conduct business. Human Development Index (HDI) The human development index is a statistical measure of the social and economic dimensions of a country. It is a composite measure of the economic and social welfare which incorp orates the indicators of life expectancy, educational attainment and income. This three main components of HDI are useful for global businesses seeking to invest in foreign countries. A good measure of HDI is a sign of good education and a healthy population with good standards of living. This in turn serves as a good market with potentially high demand to global businesses seeking to expand into such a country. The reverse being true. The HDI, therefore, can have a positive or negative effect on a business