Economics


Presence of world’s leading retailers such as Tesco, Sainsbury’s and Marks & Spenser, fierce competition in pricing and in other terms and difficulties of market entry are the main characteristics of UK retail industry. Despite such complexities, some retailers could manage to do better during the recession achieving even higher revenues and profits. Although lack of financial resources and higher risk aversion by investors caused many difficulties for the retailers, some of the retailers introduced new strategies such as price cut downs and reinforcing their current positions rather than expanding, which helped them sustain the temporary difficulties and overcome the recession. Two types of factors, direct and indirect impacts of recent financial recession on consumer spending during and after crisis have been discussed in the report of Office for National Statistics. Direct impacts are said to be uncertainty of income and high rates of unemployment with scarcity of finance to support public spending by the governments. Indirect impacts on the other hand are credit crunch of financial organizations which makes them unable to process their businesses of providing loans the businesses. The research by Burt et al (2009) analyse and examine the impacts of financial crisis on the consumer buying behaviour in the UK and lists the following factors that had direct impact on the consumer spending: job uncertainty, declining savings, increased risk aversion and lower disposable income. Due to these factor consumers restrained themselves from excessive spending as they used to and focused mostly on important things. Respondents who participated in the study expressed their opinions saying that due to uncertainty in their future income or at least decline in the income they no longer can afford to spend excessively as previously. As it has been stated earlier, disposable income is considered to be one of the main effects…


By John Dudovskiy
Category: Economics
Tags: ,

It is important to mention the value and importance of the retail industry to the economy of the UK. According to Mintel Report (2009), retail industry of the UK is considered to be highly important and contributing factor to the UK economy as it generates 16% of UK Gross Domestic Product. In addition, every third pound is generated through retailers and almost 11% of the UK workforce is employed in this industry. UK has some retail companies that are internationally recognized and growing rapidly. For example, only Tesco has more than 1100 stores within the UK and overseas and planning to expand towards emerging markets such as Hong Kong and India. It is also worth stating that according to Mintel Report (2009) despite high importance and value, UK retailers are considered to be low employee payers although senior level managers are paid relatively well. The period of recent financial crisis in the UK was from the second quarter of 2008 to the third quarter of 2009. It started with 6.4% decline in Gross Domestic Product of UK in the beginning of the period and started increasing by 0.4% only at the end of the period. During the recession, UK economy deteriorated continuously leading to high rates of unemployment which is about 5% at the end of the period. This accounted to 800,000 people out of job (Gooberman, 2010). Another aspect of UK economy and its vulnerability to the financial recession has been discussed in the study conducted by LSE (2008). According to the research, UK economy is vulnerable to the financial crisis due to its reliance and specialization mostly on financial services and trading activities. Decline of the importance of the financial sectors had more negative effect on overall UK economy as a result of higher unemployment rate in the…


By John Dudovskiy
Category: Economics
Tags: ,

The “Open Doors Policy” or the economic reformations of the late 1970s in China enormously changed the entire economy of the country. The trade reformation which focused on liberalizing the trade which shifted the country a step closer to free market attracted huge foreign capital into the country in the form of FDI since 1978. The huge scarce resources of China had to be utilized soon after the reformations which indeed required huge capital. However,China heavily relied on the external funds in order to promote its manufacturing industry and the financing of newly privatized formerly state-owned companies. Therefore,China’s government issued series of policies which favoured the foreign investors. The inflows of foreign capital in the form of FDI brought in advanced technology, knowledge, management know-how which accelerated the economic growth in China in the last three decades. Since the “Open Doors” policy and trade reformations in the country in 1978, the country has been consistently achieving significant economic growth which averages at 10% of GDP. When the growth rate of China is compared to other developed economies such as USA which has an average of 3% GDP growth in the 100 years and Germany which has an average growth rate of 1.3% of GDP and Japan at 3.85% of GDP in the few decades, China is far ahead (IMF, 2009). However, many western policy makers and commentators believe that the main source of growth of China has been mainly due to FDI inflows which have been encouraged by fixed exchange rate. The source of economic growth of China is derived from three phases of development which are broken down into three periods of years. The first phase of development lasted from 1952-1978 where the Chinese government prioritized the development of heavy industries such as steel, chemicals and machinery. The second…


By Anna Jordan
Category: Economics

For the last two or three decades, the principal target of economy has been the control of inflation (Delong, 2002). Both politicians and economists say that this is the first economic duty of any government. And they tend to assume that other economic goals such as economic growth and low unemployment will be achieved only if the inflation is held under control. According to Frank and Bernanke (2001), as economic growth and low unemployment is achieved through successful controlling of inflation, then there is a relationship between inflation and economic growth. There were many researches and investigations to identify and analyse the relationship between inflation and economic growth which were carried out by Barro (1995) Li (2000), Gokal and Hanif (2004), and they all identified the relationship between two variables. They all tend to conclude that a consistent economic growth can be achieved with low consistent inflation rates; however, higher inflation rates distort the economic growth consistency of any country. Like many other developing and emerging groups, CIS countries also aim to achieve low sustainable inflation together with high economic growth which is of great importance for any country. Malik, (2005), indicates that one of the determinants of macro-economic stability is inflation, and long term economic growth requires macroeconomic stability which will be achieved through low inflation along with sustainable budget deficits, realistic exchange rates and appropriate real interest rates. He points out that the stability of inflation rates has an enormous impact on the economic growth of the country. Khan and Senhadji (2001) state that first researchers to study and detect the nonlinear inflation and economic growth relationship were Fischer (1993). Later, Sarel (1996) examined the data of 87 countries and covered the period of 1970-1990. He actually found structural break point of the relationship between inflation and economic…


By John Dudovskiy
Category: Economics
Tags:

Objective analysis of the past equips us with necessary knowledge and perspective to deal with the present and future. In other words, the importance of economic history and studying global factors and events that have formed the current economic situation has practical implications in terms of dealing with global economic issues and challenges (Coughlan and Coughlan, 2011). Changes in the world economy taking place since 1945 have resulted in international market expansion for many businesses erasing borders between countries to a certain extent, and providing vast opportunities for businesses. However, this process was not unilinear, i.e. economic changes taking place after 1945 did not have the same impact for all countries and businesses. The nature of economic changes taking place in each geographical location after the Second World War, as well as, the impact of these changes on the performance of private entities depend on a wide range of factors such as political and economic system within the country, the level of economic development and infrastructure etc. Global economic reality by the end of World War II, as aftermath of the Great Depression of 1930’s is referred to as a ‘Golden Age of Capitalism’ and this period lasted until till the beginning of 1970’s (Weber, 2007). Specific factors contributing to the significant rise of consumerism especially in USA in this period include the ‘baby boom’, rapid developments of automobile and aviation industries, and others. The period of the ‘Golden Age of Capitalism’ from 1945 until 1986 is also marked with US dollar becoming the world’s major reserve currency and “between 1945 and the mid-1960s the United States may have accounted for 85 per cent of all new FDI flows” (Jones, 2005, online). Leading positions in many industries were assumed by US corporations in a global scale putting a foundation for…


By John Dudovskiy
Category: Economics

Advantages of specialisation for Developing Countries Increased Production. Developing countries with specialisation are able to gain efficiencies generated from economies of scale and increased output (Mankiw 2004)     Production Efficiency. The more efficient use of resources, the higher will be productivity of output of domestic goods and services. Furthermore, international competition leads to use of new technology and marketing methods (Parkin 2008).   Benefit to Customers. Parkin (2008) mentions that specialisation in producing limited range of products offer wide range of choice for customers around the world at lower prices as people have tremendous diversity in tastes for different products and they value variety.   Arguments against Free Trade and Specialisation. However, Carbaugh (2004) argues that the key to success in free trade can be achieved only through mutually beneficial approach, which satisfies both the giver and taker. Though law of comparative advantage maintains that nations benefit equally from international trade, there might not be mutual benefits between strong and weak countries, as the strong countries tend to take more advantage of it (Mankiw  2004). Many economists believe that current international markets are not level playing field and trade systems in practice favours developed countries and hinder development in the developing or less-developing nations (Carbaugh 2004). They also suggest that organisations such as IMF or WTO mainly work to fulfil interest of powerful countries (Parkin 2008). Another fallacy about free trade is that imports reduce employment, while exports promote growth. Therefore, the notion that import are “bad” while exports are “good” particularly popular among politicians and media (Carbaugh 2004).   References  Carbaugh (2004) “International Economics”, Ninth Edition, Thomson, New York Mankiw (2004) “Principle of Macroeconomics”, South Western, USA Parkin (2008) “Macroeconomics”, Pearson, USA


By John Dudovskiy
Category: Economics

Externalities relate to an economic side effect of a good or service that generates benefits or costs to someone other than person deciding how much to produce or consume. Generally, externalities occur when firms or people impose costs or benefits on others outside the marketplace. As with any market activity, of course, fuel market carries a number of positive and negative externalities. Following are major external costs associated with oil:   Positive Externalities: ·         Economic Benefits –increased employment, business activity ·         Increased Productivity – use of oil accelerated efficient production in many industries ·         Means of Globalisation – increased trade between countries   Negative Externalities ·         Environmental Damage – environmental damages from oil production, distribution and consumption ·         Health Risks – injuries and illnesses from fuel production and distribution ·         Economic Costs – economic impact of importing fuel ·         Security Risks – political and military costs of maintaining access to oil recourses ·         Limitation of Recourses – depriving future generations from non-renewable recourses ·         Financial Subsidies – different financial subsidies to oil producers The most public attention focused on environmental damages as resource exploration, extraction, processing and distribution cause environmental damages, including wildlife habitat disruption, and release of air, noise and water pollution, both chronic and through spills (VTPI, 2010).  


By John Dudovskiy
Category: Economics

There is a set of  economic factors that determine the size of price elasticity for individual goods: elasticity tend to be higher when the good are luxuries, when substitutes are available, and when consumers have more time to adjust their behaviour.     Therefore, the length of time period that people have to respond to price changes also plays an important role. Demand tends to be more elastic in the long rung rather than in the short run, because when prices change consumers often need more time to respond and change their shopping habits. However, in the short run, the demand for goods may be inelastic, as it takes some time for consumers both to notice and then to respond to price changes (Mankiw, 2004). This is especially true in case of fuel. When price of fuel rises, the quantity of fuel demanded falls only slightly in first few months. So in the short run, demand for fuel may be very inelastic. However, in the long run, the demand for oil may be more price elastic. O’Sullivan and Sheffrin (2007) note that in early 1970’s, when several oil-rich middle-east countries cut their oil exports to the western countries, fuel prices rose quickly. In the short run, consumers’ response to higher oil prices was modest, as there was very little people could do to reduce consumption of gasoline. But as time passed and oil prices stayed high for a considerable period of time, people eventually found ways to consume less petroleum and other oil products. Some people switched to smaller and more efficient cars, while others rode bicycles or used public transport.   References  Mankiw (2004) “Principals of Macroeconomics”,South-WesternCollegePub,UK O’Sullivan and Sheffrin (2007) “Economics: Principals in Action”, Prentice Hall,New Jersey Samuelson and Nordhaus (2001) “Microeconomics”,McGraw-Hill,US


By John Dudovskiy
Category: Economics

As businesses operate within economic atmosphere of the country, any effect on the economy overall results in changing businesses. Gray et al (2007) state that recession is where incomes and output start to fall. Businesses might experience a fall in demand for their products and a decline in profit. This may further trigger rising unemployment as most of the companies start laying off their workers. They further indicate that it is all a business cycle as everything in the economy gets affected because of one being related to another. The recession basically affected all countries either directly or indirectly depending on the trade openness of the country. However, there were some countries that did not get affected by recession and Poland is a good example for that. Because Poland is the only country in EU that avoided a decline in GDP, it created the most growth in GDP in 2009 (Wikipedia 2009). According to analysts, the reason for countries that did not enter into recession is mainly because of the following factors: Extremely low levels of bank lending A relatively very small mortgage market Lack of over-dependence on a single export sector A tradition of government fiscal responsibility A relatively large internal market Low labour costs attracting continued foreign direct investment Riley (2009) states that open economies, which are highly trade dependent and export only a small range of products to few markets, are affected most by the trade transmission mechanism. This helps to understand the wider economic and social effects of the 2009 global downturn. Riley (2009) also further mentions the following influences of recession on developing countries: 1. Foreign Direct Investment declines resulting in reductions in access to loans from banks. However, some developing countries have their own wealth funds to spend in this kind of cases. This leaves businesses…


By John Dudovskiy
Category: Economics
Tags:

Global economic recessions tend to have following negative implications for big companies: Revenue and profits decline Recession caused some businesses to go out of businesses most of them suffered lowered levels of sales and profit. This may negatively affect on both short term survival (less cash) and long term survival of the company. And moreover, the recession has repercussions still on most businesses as their lost revenue is slowing them down now from predetermined goals.   Manufacturer cuts back on hiring new employees As most of the manufacturers try to save some costs on labour, this adversely affects on the companies overall efficiency or the businesses may even lose skilled workforce who are hard to employ in non-recession periods. Moreover, as every business cuts labour force, the unemployment rates rise within the country causing huge number of employees losing their vital skills due to employment gaps.   Manufacturer may stop buying new equipment This may inpact on the long term plans of the company as it may spend on capital expenditure. Another effect of this one could be low quality of goods or not safe previous equipment to work with.   Ceases research and development The large companies like J&J or GSK mainly survive due their extended research facilities. Due to recession they may not be able to secure the future market share in the market place with their newly developed products.   Stop new product rollouts Moreover, businesses may also feel insecure to rollout their new products because of the recession and low levels of demands. Therefore, innovative companies may suffer more as their share of revenue comes from introduces the new product to the market place.   Expenditure for marketing and advertising may be cut Due to declined revenue, the companies may not be able to afford to…


By John Dudovskiy
Category: Economics
Tags:
[]