ECO610 Week 6 assignment Final Paper: Developed vs developing countries

Name

ECO610

25/10/2022

Developed vs developing countries

Developed country

The developed country I would choose for the investment in Germany. It has excellent opportunities for the production of airplane parts due to its high university system, excellent technological development and knowledge­based economy (Maull,2020). The investment would be able to benefit from many factors, such as:

One of the main goals of multinational companies is flexibility. This is because a company can give employment opportunities to people within their own country and maintain an excellent financial position. Flexibility in the production process will ensure that it is flexible and can give employees high­quality time management, which is necessary for any factory. When production costs decrease, wages are lowered, keeping costs down.

Germany, being a developed country, has a well­developed technological sector. Therefore, investment in Germany will be very profitable for the production of airplane parts due to the availability of highly developed technology. The development of new technology is often driven by market demand. This means that developed countries have more opportunities to invest in technological growth as it is driven by market forces which drive the demand for such technologies. Technologies are often expensive and require high up­front capital costs. This makes it more difficult for developing countries to benefit from investments in technological development compared with developed countries since developing nations cannot provide as much capital to innovate as developed nations do. The technological sector of Germany has been able to innovate for several years. This has led to the high development of technology in

Germany and innovation. The innovative­driven market has led to an increase in jobs and innovation. This will benefit the potential investment by providing a pool of skilled workers with which they can create job opportunities and maintain an excellent financial position.

Germany’s traditional strengths are its high starting salaries, high education level and research spending. This has made Germany a beautiful location for investment. These are advantages to manufacturing industries because they create growth opportunities and provide more and better employment opportunities for citizens.

Germany’s workforce is skilled, highly qualified and well­trained compared to other countries. This makes Germany a desirable location for investment since it means that there is an increased ability for innovation, and knowledge about the production process, with workers being able to help drive innovation and productivity in the company that is looking to produce airplane parts. Germany has many skilled workers because of its high starting salary, high education level, and research spending, all of which lead to more excellent employment opportunities.

Developing country

The developing country I would choose for investment in Brazil. It has excellent opportunities for producing airplane parts due to its large and cheap labour force, which is suitable for manufacturing (Wagley,2019). The investment would be able to benefit from many factors, such as:

There are many skilled workers in Brazil because of its cheap labour and large labour pool, leading to many businesses seeking to operate there. This is because of the large labour force, which is cheaper than in other countries in Europe and America. Due to the lower prices, businesses will seek to open their stores in Brazil. This is not an argument I can agree with since Brazil’s cheap labour force makes it more suitable for businesses to invest there than in other nations.

Economic indicators

The four economic indicators for Germany include starting salaries, education level, research spending and technological development.

Starting salaries is an important economic indicator because it can be a significant determining factor in investment. The starting salary is the amount of money a worker will receive in wages when they start working at a company. It is essential because it can affect a company’s profit since there are too many high salaries, it could lead to a decrease in profit due to higher costs. However, if there are too low starting salaries, then a company might not be able to hire competent workers. This means that salaries need to be high enough for workers to provide for their families but not so high that it leads to excess profits or an increase in the cost of production. The starting salary in Germany is negotiated between the company and the employee. It is mostly not too high to lead to company loss, and still, the employee tends to negotiate a salary not too low for their upkeep, making Germany an ideal place for investing.

Education level is an essential economic indicator in Germany because it can affect innovation and productivity. The labour is less skilled when there are significant gaps in education level. Because of low wages, parents have not provided many opportunities for children to study ahead. This could lead to an increase in waste since workers will not be able to develop their skills, which can lead to overproduction, unemployment or even underdevelopment of the country. People who do not have access to educational opportunities tend to apply for lower starting salaries due, meaning that they work for less time and therefore have higher costs when they start working at companies. In Germany, workers are very skilled and with high education levels making it the best place for investment.

Research spending is essential in Germany because it can affect the enhancement of technology in a nation due to the advancement of knowledge about the processes used in a company’s industries. Typically, companies spend much money on research to develop new technology. This is because they need to be on the cutting edge to be able to compete with competitors who have the advantage of being able to innovate. This is a significant factor in Germany because it has been at the forefront of technology development due to significant investments in research spend and technological growth.

Technology is expensive and often requires high up­front capital costs as well as investing in research, which can lead to a higher cost when producing products. This can lead to excess profits and an increase in production costs if too many risks are involved for investors. This can be seen as a disadvantage to investors when choosing a country to invest in because it could lead to higher risks than expected. Germany has been at the forefront of technological development due to significant investments made in research, which has led to innovation and the development of new technology. This is an important economic indicator because it has allowed Germany to innovate and develop new technology giving them a significant advantage over other countries. This is seen as an advantage for businesses looking to produce aeroplane parts because many innovations are being made, which means that there will be many opportunities for companies looking for investment opportunities in Germany.

The four economic indicators important for Brazil to invest in include: Low costs of living and maintenance, low energy costs, lenient legal regulations and low costs of purchasing a property.

Low costs of living and maintenance are an important economic indicator because international firm needs to predict the number of costs that will arise when they invest money in Brazil. If there are low costs of living, then it would be advantageous for the company because it would be able to make a profit. Also, if the company hires Brazilian workers, it would save money on its cost of living.

Low energy costs may also be an important economic indicator because if energy cost is too high, production may decrease. Low energy costs affect the overall costs of production. If energy costs are high, there would be a significant effect on consumption and savings, causing high inflation and high­interest rates. Also, if energy costs are low, there would be a greater demand for energy and an increase in the price of energy. Since Brazil has low energy costs, it would be conducive to invest there to minimize expenses.

Lenient legal regulations may also be an important economic indicator because lenient legal regulations could lead to an increase in the number of laws that allow business and trade to flourish in Brazil. Lenient legal regulations will make businesses easier to run and less timeconsuming with bureaucratic work. Also, there would be greater demand for Brazilian products because they are easier to make and less expensive.

Low purchasing of properties is also an important economic indicator because if the costs of property are low in Brazil, then the company will not have to pay high amounts of money to purchase the property. It would also benefit the company because it does not have to spend millions of dollars on a property. Also, there would be a higher demand for Brazilian products as consumers prefer cheaper goods.

Fiscal and monetary policies

The fiscal policies of Germany are considerably different from that of Brazil. During economic growth, the government aims to improve people’s living standards by increasing spending and lowering taxes. The government invests money in schools, roads or even building an Olympic stadium. It is generally easier for governments to finance spending (cutting taxes or increasing debt) rather than raising revenue (increasing taxes). The German federal budget is constructed under a constitution requiring that the public finances be balanced, defined as zero deficit or surplus, with all financial sources duly matched by expenditures and borrowings (Heller,2020). Each year the federal budget sets the maximum amounts that may be spent on specific functions and areas of government activity. The Bundestag, Germany’s parliament, approves this spending plan.

The fiscal policies in Brazil are considerably different from that of Germany. During a period of economic growth, Brazil’s government generally decreases spending. The government uses its revenues (taxes and fees) to cover expenditures. For example, if there is an increase in the amount of money tax revenues, then the government will transfer some of these funds to cover the costs of other programs, including health care and education. On the other hand, if there is an increase in the cost of goods and services provided by the government (such as salary increases for state employees or power distribution), then the government must raise further revenue by increasing taxes or selling bonds.

The monetary policies of Germany are considerably different from that of Brazil. During a period of economic growth, the government aims to improve people’s standard of living by increasing spending and lowering taxes. The government may also use increased spending to stimulate the economy. The German federal budget is constructed under a constitution that requires that the public finances be in balance, defined as zero deficit or surplus, with all financial sources duly matched by expenditures and borrowings. Each year the federal budget sets the maximum amounts that may be spent on certain functions and areas of government activity.

In contrast, the Brazilian government does not have the same monetary policies. Instead the Brazilian government relies on increased tax revenues (such as income and sales taxes) to finance expenditures. In 2014, Brazil’s gross domestic product (GDP) was larger than that of

Germany and its GDP per capita was $24,000 at PPP in comparison to $47,500 in Germany. The Brazilian government has set a goal of reducing Brazil’s public debt to 34% of GDP by 2017 while maintaining a budget deficit equivalent to 3­4% of GDP. To achieve this goal, it is expecting a significant increase in revenue through increasing income taxes and sales taxes; this will in turn reduce the need for borrowing.

Fiscal and monetary policies in Brazil and Germany may be different during growth periods because Brazil is a developing country and therefore must rely on increased tax revenues during economic growth periods. In contrast, Germany is considered a developed country, meaning that it can increase spending to improve the standard of living for its citizens.

In addition, Germany is more likely to finance its spending through increased borrowing (such as issuing bonds) than Brazil. Therefore, during a period of economic growth, both countries are likely to have similar fiscal policies but very different monetary policies which lead to differences in GDP per capita. In the comparison between Brazil and Germany, both countries have recently experienced sustained economic growth; however, their monetary policies are generally different.

Economic stability

The fiscal and monetary policies of Germany have led to her economic stability by changing the way that they run their economy. They have not cut taxes and government spending is increasing instead. As the government is increasing spending they are adding millions of people to the social security system which is a type of pension. They have also reformed education to include more vocational training and provided more support for research projects, which has led to better job opportunities for students. All of these measures are increasing the economic stability for Germany as in order for a country to be stable it must spend money on essential resources such as education and science.

Brazil’s fiscal and monetary policies have led to her economic stability by giving more support for research projects, although these are overall not a major part of Brazil’s GDP. The policies have also kept interest rates low which has given Brazilians more money to spend. The government finances these by raising taxes such as income tax and sales tax as well as limiting spending on public services such as education and health care. All of these measures have contributed towards Brazil’s economic stability.

Trade policies

Two recent trade policies in Germany include raising railway tariffs for the transportation of goods across their country and reducing subsidies for solar energy installation on houses along with households having a certain amount of income (Weiss,2022). These policies have affected the way that Germany does business because it is more expensive to ship goods internationally as well as it being more expensive for households to use solar energy. The impact on our investment is that we will have to spend more money on importing parts and shipping goods, as well as it being more expensive for households to use solar energy but since we would not be using solar energy in our manufacturing process, this would not impact us.

Two recent trade policies in Brazil include the reduction of import tariffs from 30% to 20% and the elimination of tariff exceptions for individual countries. These policies have caused an increase in Brazil’s exports of oil and agricultural products, as well as a decrease in the country’s import prices. The impact on our investment is that we will have to spend less money on importing parts and also we will have to spend less money on shipping goods.

Reduction of trade restrictions

Brazil’s decision to reduce import tariffs and eliminate tariff exceptions has affected its trade policies, as it has increased Brazil’s exports of oil and agricultural products (Flaig,2017). This was great for the Brazilian economy because they have been trying to boost their exports by increasing their tariffs on these goods in order to attract foreign investments. An advantage the Brazilian government had that is why this decision makes sense is that when foreign companies are investing in Brazilian companies, anything they produce will be cheaper due to the reduction in import tariffs. Overall this trade policy has been very positive for Brazil and an advantage was that it attracted foreign businesses to invest in the country.

Currencies

The currency of Germany is the Euro and that of Brazil is the Real. Both countries' exchange rates are valued close to 1:1. The German currency is usually more stable than the Brazilian currency. The Real has been devalued several times in the past few years, but it is still very weak in comparison to the Euro. The Brazilian government does not intend on reducing the value of the Real or removing it from its exchange rate with the Euro. In fact, Brazil’s debt is denominated in US dollars and some economists suggest that Brazil can devalue whenever it wants. The currencies would affect the investment because if investment is done in Brazil where the currency is likely to devalue then that will bring a loss to the investment. Investing in Germany however where the currency is stable will secure the investment and ensure proper running of the investment without fear of money losing value causing loss.

Conclusion

In conclusion, I think I would invest in Germany because of their economic indicators. Having educated and skilled labour pool is an advantage to an investment since it avails a large options of skills to choose from. Also, I would suggest investing in Germany because of her technological advancement. Since, the company is around spare parts, technology is key. The technology in Germany will be of great help to the investment as it will ensure high quality results and maximum profits.

References

Wagley, C. (2019). An introduction to Brazil. In An Introduction to Brazil. Columbia University

Press.

Maull, H. W. (2020). Germany and the Use of. Survival, 42(2), 56­80.

Araújo, S., & Flaig, D. (2017). Trade restrictions in Brazil: who pays the price? Journal of

Economic Integration, 283­323.

Weiss, F. D. (2022). Trade Policies in Germany. In National Trade Policies (pp. 131­153). North

­Holland.

Heller, W. W. (2020). The Role of Fiscal­Monetary Policy in German Economic Recovery. The

American Economic Review, 40(2), 531­547.