A LevelBusinessEdexcelRevision Notes4. Global Business4.1 Globalisation4.1.1 Growing Economies

Growing Economies (Edexcel A Level Business)

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Jennifer Aryiku

UK Growth Compared with Emerging Economies

  • The growth rate of a country is measured by the annual change in its gross domestic product (GDP)

  • Emerging economies are economies that have increasing growth rates but relatively low income per head (per capita)
    • E.g. India, China and Brazil are considered to be emerging economies

  • UK growth tends to be lower than emerging economies
    • A key factor why emerging economies are growing at a faster rate than the UK economy is because of the growth of the manufacturing sector
    • The UK economy has seen a decline in the manufacturing sector as businesses choose to manufacture in emerging economies due to lower labour costs and access to raw materials
    • China is the world’s largest manufacturing economy and exporter of goods

 
china-gdp-growth-rate-2023-02-22-macrotrends

The growth rate of China from 2002 to 2021 peaked at around 14% 

Source: Macrotrends


united-kingdom-gdp-growth-rate-2023-02-22-macrotrends

The growth rate of the UK from 2002 to 2021 peaked at around 4%

Source: Macrotrends

  • A comparison of the two charts above quickly reveals that the growth rate of China is consistently higher than that of the UK
    • The UK growth rate peaks at around 4% in 2000 whereas China peaks at around 14% in 2007

Exam Tip

In Paper 1, Extract A-D may include graphs with economic data such as GDP figures which you may be required to interpret and explain trends over a period of time. Make sure you read the titles and labels of the axis to be clear about what the information is showing 

Emerging Economic Power in the Developing World

  • Globalisation is the economic integration of different countries through increasing freedoms in the cross-border movement of people, goods/services, technology & finance
     
  • The past twenty years has been characterised by rapid globalisation and the growing economic power of less economically developed countries

  • The integration of global economies has impacted national cultures, spread ideas, and speeded up industrialisation in developing nations

  • Emerging economic powers of countries within Asia, Africa and other parts of the world include
    • BRICS: Brazil, Russia, India, China and South Africa
    • MINT: Mexico, Indonesia, Nigeria and Turkey

  • Emerging economies have a growing middle class with increasing incomes which allows their citizens to spend more on domestic goods and imported goods from abroad
    • This increases the profitability of international firms who sell their goods and services in these emerging economies 

The Implications of Economic Growth

  • Economic growth helps to generate income in a country and there are numerous implications for businesses and individuals within it
     

The Impact of Economic Growth on Businesses and Individuals


Impacts on Businesses
Impacts on Individuals

  • Potential for increased profits as businesses enter new markets and gain more customers
  • Customers are likely to have income elastic  demand leading to increased sales and revenues/profits 

  • Reduced unemployment as there is more demand which requires more labour to increase output

  • Reduced costs of production as businesses can benefit from lower labour costs and cheaper raw materials in emerging economies 

  • Increased average incomes as individuals now have rising incomes due to employment which increases the standard of living 

  • Increased trade opportunities as demand for goods and services increases

  • Access to quality public services as more tax revenue is generated. The government can improve the quantity and quality of public services

  • Increase in investment because as the economy grows, businesses want to expand so they are more likely to invest
  • There may also be an increase in foreign direct investment (FDI) as businesses want to benefit from growing economies
 

Indicators of Growth

  • There are four key indicators used to assess the economic growth of emerging economies
    • Businesses will consider these indicators when deciding which markets to invest in for future expansion
       

4-1-advantages-of-globalisation

Indicators of Economic Growth within an economy

 



Indicator of Growth 


Explanation 

GDP Per Capita

  • GDP per capita is calculated by taking the total output (GDP) of a country and dividing it by the number of people in that country
  • High GDP per capita is associated with a high standard of living
  • It is important to look at the GDP per capita over a period of time to see whether there has been an improvement
  • GDP per capita can also be a useful indicator to compare the growth in two countries

Health 

  • The health of a countries’ citizens is important to businesses who want to invest in emerging economies as this will have an impact on the quality of the workforce 
  • Key indicators to consider are average life expectancy, infant mortality rate , access to healthcare and access to clean water

Literacy 

  • Literacy refers to the percentage of adults within an economy who can read and write
    • According to the OECD’s 2016 International Adult literacy survey, the differences in average skill levels among OECD countries explain 55% of the differences in economic growth
    • Information about literacy rates is important as this will determine the quality of the workforce and also the customers they will be selling to

Human Development Index

 

  • Human Development Index (HDI)  combines the factors of life expectancy, education and income to determine the quality of development of citizens within a country
  • Specifically, HDI looks at; life expectancy , mean years of schooling and gross national income per capita (GNI)
  • It was created by the United Nations and is measured between 0-1 (1 being the highest)
  • The problem with using HDI as a measure of development is that
    • It does not account for inequalities within a country
    • There is a lack of reliable data in some countries

Exam Tip

In Paper 1, you should be able to assess information given in extract A-D. Questions that use the command word ‘assess’ require you to outline the advantages and disadvantages of the indicators. Make sure your apply your assessment to the context of the business within the extract 

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    Jennifer Aryiku

    Author: Jennifer Aryiku

    Jennifer has completed a degree in Economics at City University London and a PGCE in Business and Economics Education from the Institute of Education, UCL. She is passionate about young people and helping in their education. She has over 10 years experience which includes working as an Academic Mentor and Head of Economics & Financial Education. Jennifer has also co-written an Economics workbook and is an examiner for UK exam boards.