What are some other cultural reasons for a country

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Unformatted text preview: 15 11/18/05 9:13 AM Page 424 In some cultures people value the status quo over change. What are some other cultural reasons for a country not achieving a high rate of economic development and growth? country as a high-, low-, or medium-tax-rate nation. Rabushka found that Hong Kong, with the lowest tax rates, had the highest growth rate in per capita income during the period under study. Generally, low-tax countries had an average growth rate in per capita income of 3.7 percent, and high-tax countries had a per capita income growth rate of 0.7 percent. to workers to work and more incentive to investors to invest than does a country with relatively high taxes. As discussed earlier in the chapter, low-tax countries had an average growth rate in per capita income that was substantially higher than the average growth rate in per capita income of high-tax countries. Factors That Aid Growth and Development Absence of Restrictions on Foreign Investment Some countries prevent foreigners from investing in their countries. For example, country X may pass a law stating that no one from any other country can invest there. Such restrictions on foreign investment often hamper economic growth and development. Allowing foreigners to invest in a country, to start or expand businesses, promotes growth and development. Can a poor country follow a certain recipe in order to become a rich country? Some economists believe so. They argue that poor countries can become rich countries if they do certain things. Here are some factors that economists emphasize. Free Trade Countries can hinder or promote international trade. For example, they hinder it when they impose tariffs or quotas on imports. They promote it when they eliminate tariffs, quotas, or anything else that prevents the free flow of resources and goods between countries. Free trade promotes the production of goods and services in a country and therefore spurs growth and development in two ways. Free trade allows residents of a country to buy inputs from the cheapest supplier, no matter where in the world it is located. Free trade also opens up a world market to domestic firms. Low Taxation Generally, a country with relatively low taxes provides a greater incentive 424 Chapter 15 International Trade and Economic Development Absence of Controls on Bank Lending Activity Banks channel funds from those who save to those who want to invest and produce. In some countries, government tells banks to whom they can and cannot lend. For example, banks may not be able to lend to automobile manufacturers but be permitted to lend to steel manufacturers. Such restrictions may arise because the government in the country is trying to promote a particular industry. Controls of this type often hinder growth and development. Banks have a monetary incentive to search out those individuals, firms, and industries that can repay any loans received. Often, these individuals, firms, and industries are the ones likely to be 15 (390-427) EMC Chap 15 5/8/06 5:04 PM Page 425 Absence of Restrictions on Foreign Investment Some countries prevent foreigners from investing in their countries. For example, country X may pass a law stating that no one from any other country can invest there. Such restrictions on foreign investment often hamper economic growth and development. Allowing foreigners to invest in a country, to start or expand businesses, promotes growth and development. Absence of Controls on Bank Lending Activity Banks channel funds from those who save to those who want to invest and produce. In some countries, government tells banks to whom they can and cannot lend. For example, banks may not be able to lend to automobile manufacturers but be permitted to lend to steel manufacturers. Such restrictions may arise because the government in the country is trying to promote a particular industry. Controls of this type often hinder growth and development. Banks have a monetary incentive to search out those individuals, firms, and industries that can repay any loans received. Often, these individuals, firms, and industries are the ones likely to be the most successful at producing goods and services and at generating employment. Absence of Wage and Price Controls The free market determines equilibrium prices he United States usually exports more agricultural products than it imports, but it usually imports more manufactured goods than it exports. If you want to find the balance of trade for manufactured goods and for agricultural products, you can go to www.emcp.net/balanceoftrade and click on “U.S. Trade in Goods.” At this site you can also find the top 50 purchasers of U.S. exports and the top 50 suppliers (to the United States) of imports. In 2004, the top three purchasers of U.S. exports were (in order) Canada, Mexico, and Japan. The top three suppliers of imports (to the United States) were Canada, China, and Mexico. T and wages. When government “overrides” the market and imposes controls on prices and wages, production usually suffers. Suppose the market wage for workers in a particular industr...
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