2.
Introduction
The purpose of
this paper will be to summarize the macroeconomic and trade performance over
the last three years for three different countries with different types of economies. The report will focus on
- UK – a large industrial economy within the
trade markets
- Albania - a small open economy, and
- Chile - a non-trade emerging
economy.
The study will examine the economy as a whole, viewing total spending level and total level of production or in other worlds aggregate demand and supply.
It will also scrutinize the national-output to economic-growth, unemployment-to-inflation, and
the balance of payments and the exchange rate. The study will also measure
economic performance by evaluating different macroeconomic measurement
techniques; Gross Domestic Product (GDP) economic activities, goods and
services produced in a year. Gross National Product (GNP) measures total income
earned by domestic citizen. Moreover, expenditure, income, and output will be
used as measurement tools for national output of each countries.
Furthermore, it will critically evaluate targeted export markets of three countries for
the last three years 2007-2010. It will also analyse strength and weakness (internal
intrencities) of each economy favouring Foreign Direction Investment (FDI). Moreover, the paper will
explore in depth some contents theories and apply these
theories in to practice to support argument put forward.
Macroeconomics,
like microeconomics view issues such as; output, employment and price in
context of economies as a whole (Sloman, 2004). The main concern to
governments are economic growth, reducing unemployment, reduce inflation and
avoiding balance of payments and exchange rate (Parker, 2008). The government
support and also policies are very important for avoiding conflicts of these
goals. The author tend to define macroeconomic performance by reviewing
macroeconomic theories that provide answers for several problems and have a better understanding of
factors that can influence macroeconomic performance. It also explain some
techniques of measuring economic performance. Before examine the
causes of economic of growth is essential to distinguish between actual and
potential economic growth.
According to
Sloman (2004) actual growth is a percentage annual increase in national output.
The potential growth is the speed at which the economy could
grow. Factors contributing to economic growth are an increase in
recourses (natural, labour, or capital), and increase in efficiency of these
resources through advanced in technology, improve labour skills. The major
issues concerned with economic growth the short-run ensuring that actual growth
is to keep actual output as closed as possible to potential output, and
long-run issues of what determine the rate of potential economic growth. However,
short-run are several of aggregate demands. But, what is aggregate demand? “It
is a total spending on goods and services made with the country” (Sloman,
2004:405). A boom in economic growth is associated with rise in aggregate
demand; in contrast recession is associated with reduction in aggregate
demand.
Employment and
output theory are focus on
main issues relating people as key resources, the theory tends to answer the
following question; Are people fully employed? (Lipsey, 1989). The theory also
suggested that all people should be employed (Currie, 2008). It is vital all
resources are efficiently utilized in order to maximize the outputs of the country
(Keynes, 1936). On the other hand Business Cycle theory will
be explored to enable the author to find out that, if the economy is stable,
also investigate reasons for economic fluctuation. Another theory
related to macroeconomic performance is Consumption and
Investment. This theory examined what people do purchase, what are
trends and demands. This is important to find out what customers purchase
‘today’ (investment) produce goods for ‘tomorrow’. The theory generates
knowledge about supply and demand, therefore, is important to understanding
this theory on the macroeconomic level.
In order to
explore further on macroeconomic performance of the above countries regarding
to inflation and deflation General Price Level theory
(Keynes, 1936) is a facilitator of analysing the situation regarding demand
and supply. The theory also helps us to ought a better understanding of monetary aspects such borrowing, lending, and
savings. For everyday activities money is in demand, it can be less,
more, or equal to existing supply. Any deficiency on supply can
cause shift in general price level (Currie, 2008). Lipsey, (1989) explained
that, the economic growth is measured by the capacity of economies to provide
goods and services, and enhance the productivity year to year. However, for
some countries such as UK, the capacity of production has grown faster than the
country’s’ population. In this context this study raise a question
why some economise are doing better than others, or some economies remind
static or refuse to grow. To answer this question and enable the researcher to
compare and contrast, and analyse long-term issues for growth of the above
countries Economic Growth theory will be applied.
Another basic
economic problem is allocation of suppliers of goods. However, Macro
Theory of Distribution (Kaleck & Kaldor, 1990) attention was to
further investigation in how national income is shared. Currie, (2008:6)
suggested that, issues related to different groups of buyers such as;
customers, business firms, government bodies, foreign customers, imports and
exports, international flows of investment and international price movements
are very important and have enormous impact on economy, the Theory of
International Trade deal with all this issues.
2.
United Kingdom (UK) as a large industrial economy with in one of the triad
market.
2.1 A summary of macroeconomic
performance over the last three years
The common indicators of economy performance are:
Gross Domestic Product (GDP)
Labour productivity
Inflation
Unemployment
Exports
Imports
International competitiveness (Sloman, 2004).
However, economic growth is the indication of change in goods and
services produced by an economy (Hall et al. 2004). One way to assess an
economic growth is to examine its GDP and GNP figures where both variables are
measurement of year-to-year produce. The economy tends to grow over the period
of time and it can also be measured by changes in national income.
The population of UK is 60.8 Million and its gross national Gini index
coefficient for 2008-2009 was 0.36% beyond the normal bounds of inequality seen
in developed country (Mason, 2009) and remained unchanged between 2005-2006.
BBC, (2010) the UK economy is growing slowly, the growth is 0.8% in 2010, which
is 0.4% lower than the 1.2% predicted by analyst for the second quarter of
2010. For the similar period in 2009 the output was up by 2.8%. Figure 1
shows, UK GDP growth fell by 3.1% during 2008 from 0.6 to -2.5%. In second
quarter of the year for first time since 1993 the output and income started to
fail therefore the economy growth was declining because of recession.
The GDP bounced back to reach 0.4% in 2009 more in line with original
market expectation (Powell, 2010). The income started to rise again after a
slump. The output is increasing as spending power and confidence increases. But
in term of employment is UK economy recovering or it is still slump?
Reekie and Crook (1987); Hill, (1997); Hall et al., (2004); explained
unemployment to be high with low confidence, spending, investment and low
profits due to economic depression. The economy experienced very
difficult time as a result of decline on housing and household market from
2007-2010. Unemployment rate as shown in figure 2 was rising rapidly from
5.5% (2008) to 8.0 % (2009) because of financial economic crisis but dropped
7.5% in 2010 (positive indication). According to (www.statistics.gov.uk
) in 2009 the employment fell by 20,000 to 2.45 million and the unemployment
rate were higher for woman than for man (Sloman, 1991). Unemployment
statistics revealed, unemployment for male fell by 56,000 to reach 1.44 million
and while for female it increased by 36,000 to 1.01 million.
The higher unemployment among men reflects that, the decline in
industries that employed mainly man such as coal and steel; technological
innovations replacing men with machines and companies moving abroad, for
example; SAMSUNG, LG, and Panasonic relocating to different countries to
exploit factors-of-production cost due to cheaper resources (land, labour and
etc.); this provided for, redundant activities and exasperated by governmental
cuts for public sectors (education, NHS, construction).
There is also the direct financial cost to be considered for
unemployed/redundant employees. Cost of loss-on-earning for this unemployment,
is the difference between their previous wages and any unemployed welfare
benefit drawn from the state coffers. Then there are personal cost of being
unemployed, which introduces multiplying factors on economic leakages due to
loss-in-output; loss-in-tax revenue due to drop in income tax generation
and national insurance, not forgetting the disposable income reducing
from 3.2% in 2009 to 1.5% in 2010 (Davies, 2010).The number of females claiming
Jobseeker’s allowance is due to rise of 4,200 and to reach 431,000, but the
number of males claiming is increase by 1,100 but in total it remained higher
than females 1.04 million. The economy faced another challenge when job
vacancies/availability fell from 459,000 (2007) to 30,000 (2010). In the last
three years the biggest fall was in education sector when job vacancies fell
from 17,000 to 3200. The employment opportunity rose to 241, 000 (2010) but
this is still lower than the 270,000 for two previous years (Figure 2).
The rate of inflation measures the annual percentage increase in prices.
Consumer price index (CPI) and retail price index (RPI) reflects the inflation
rate. The rate of inflation and annual inflation remained positive from 2008 –
2010 (Figure.2); however, RPI was significantly high at 5% in September 2008
and reached -1.8% due to downward pressure of the inflation rate. According to
(www.statistics.gov.uk)
the target measure of government was 3.1% in September 2010. Although, CPI
remain in stable level, other factors affected the RPI i.e.; air transports
fares fell by 23.8% in 2009 and 27% in 2010; causing fuel prices to plummet
further by 0.8% in the 3rd quarter of
2010, compared to 2.3% in 2009. Another factor driving the downward trend is
second–hand cars price.
The increasing inflation rate has pushed the price up
exerting pressure on car sales and exasperated by rapidly increasing prices of
complementary and substitute products (petrol. diesel, gas, etc.). Food and
footwear are subjected to upward pressure due to change in CPI as a result of
increasing prices of complementary products. Figure 3 shows annual RPI
trends of ups and downs but in the overall stayed positive. Together with
RPI, the mortgage interest are slowly falling from 4.7% (August) to 4.6%
(November) in 2010. However, from 2007-2009, there was a major fall in inflation
as a result knock-on-effect of the subprime property market crisis. Figure 4
shows, the currency value is declined due to economic recession. Bank of
England introduced cuts in Bank Rate to 0.5% to thwart low confidence unlike in
the 80s and 90s interest rate reminded double digit rates throughout that
recession.
2.2 A summary of international trade
performance over the late three years
The summary of UK trade balance is negative as a result of turbulences
of global economic and political situation, and also, changes in market share
as an influence of emerging economies China, Brazil, and India (Fig. 6).
Another major reason is decrease in natural resources. However, USA, Germany,
Netherland, France, and Republic of Ireland are five markets for both goods and
services exports for UK (Fig. 10). National Audit (2010) analyses have
identified following barriers of the country disincentives to trade
Local culture and language
Size of market lack of profitable niches
Lack of local infrastructure
Bureaucracy
Corruption
Control over intellectual property rights
Political and social instability
Economic uncertainty and
Impact on distance and climate.
According to ONS (www.statistics.gov.uk) the deficit on trade of
goods and services was £4.6 billion in September 2010 compare to August 2010
(see figure 6). The deficit on trade in good was overall £8.2 billion include
the surplus on trade in service which was 3.7 billion in September 2010. Export
is greater than import, export rise by £0.5 billion, and import rise by £0.2
billion. Main products of exports and imports are shown in fig. 11.
2.3
A critical evaluation of the economy as a target market for export.
The UK has a third largest national economy in EU measured by nominal
GDP. However, it is one of most globalised economy. As shown in fig. 6
deep trade deficit have been flat for last six months in 2010, despite the
weakness of sterling. However, it is not yet clear picture of an export-led
recovery for UK economy, weak demand in the UK domestic economy makes exports
very important to the countries perspective and key element in the future
successes of many SME’s. According to www.britishchambers.org.uk
British companies have always looked overseas for new opportunities, for UK
economy foreign trade is crucial. The UK business is estimated to be
worth £200 billion, equivalent to 17% of the countries’ GDP. UK is the world’s
sixth largest exporter of goods and services, in term of investment is behind
USA as the largest investor in overseas markets.
China and ASEAN countries have signed the agreement for free and
borderless trade relationship this has put pressure in other countries. According to Parker (2010) the PM of UK has promise the relationship with China
will take a new level. More than 40 businesses are pledged to sign with China
as part of Cameron’s trade mission The contracts signed on the trip would be
worth “billions of dollars”, he said, setting a new target of doubling the
value of bilateral trade with China to more than $100bn (£62bn) a year by 2015.
Writing in the Wall Street Journal, the prime minister hoped that British
exports would rise to $30bn by 2015
2.4 An analyses of strength and
weakness of the economy as a location for Foreign Direct Investment
Table 13 shows all legal business entities. Status and capital must be
registered with ‘Companies Registration Office’ which delivers a registration
number and a certificate of registration. Once these documents are provided,
the company is legally constituted and can start its activity. These procedures
take about 6 weeks. As for branches, procedures are shorter since they are
limited to an activity declaration with the Register of companies, within one
month after the activity starts.
Strength
|
Weakness
|
¬ Speed of formalities
¬ London world’s leader of financial
service
¬ High standard legislations
¬ Low taxation makes the environment
investor-friendly
¬ Foreign companies are treated same
as British companies
¬ One of the Worlds Globalized
countries
¬ High skills
|
¬ The financial sector’s excessive
influence on the GDP
¬ Poor quality of structure
¬ Less competitive than other EU
economies
¬ High level of competitiveness from
foreign companies in industrial sectors
¬ Lack of natural resources
¬ One of the Worlds Globalized
countries
¬ Weak currency
¬ Technology
¬ Resource allocation
|
3.
Albania as a small open economy
3.1 A summary of macroeconomic performance over the
last three years
The population of Albania is 3, 2 million; the currency is Lek the
exchange rate of Lek in short – run is $107.2 or €136.4 in 2010, but it is
variable. GNI per capital is $3,910, and unemployment is 12.8% it is down from
15% in 2003 (www.wb.com)
The author will focus on economic growth, by examining demand and supply
in total level of spending in the economy and total level of production in
order to find out if there will be more goods and services for people to
consume (Sloman, 1991). The GDP per
capital is 2.8% (Figure. 16) but according to INSTAT (national statistical agency) GDP is higher, it is estimated to 3.3% in 2009.
According to (www.imf.gov
) the GDP for current price in national currency is 1, 152, 59 Billion, and GDP
in current price in US Dollar is $12,185 Billion. The economic growth over last
three years has average 5%. The GDP based on Purchasing Power Parity
(PPP) per capital was reported at $7163.80 in 2009, according to the
International Monetary Fund (IMF) in 2015, Albania's GDP based on Purchasing
Power Parity (PPP) per capita GDP is expected to be 9584.09 U.S. dollars.
In 2009, the world share of Albania's economy in total GDP,
adjusted by Purchasing Power Parity, was 0.03 percent. In 2015, Albania's share
of total GDP is forecasted to be 0.03 percent. This page includes a chart,
historical data and forecast for Albania's GDP based on Purchasing Power Parity
(PPP) per capita GDP growth of the economy has averaged around 5% over the last
five years and inflation rates have remained depressed.
As show in table 15 real GDP growth is increasing to 5.5% compare with
2009 it was 3.3%. The growth over recent years has been driven by structural
transformation, base on movement of the labour from the low productivity
agricultural sectors to service and construction, and to some extent to
manufacture.
|
2007
|
2009
|
2010
|
2011
|
2012
|
Domestic
Economy
|
|
|
|
|
|
Nominal (GDP)
|
|
|
|
|
|
(Billions of
Lek)
|
967
|
1,153
|
1,243
|
1,364
|
1,503
|
Total (GDP)
|
10,833
|
11,843
|
11,854
|
12,674
|
13,729
|
Real (GDP)
growth
|
6.0
|
3.3
|
5.5
|
6.5
|
7.1
|
Retail Price
Inflating
|
2.9
|
2.2
|
3.0
|
2.9
|
3.0
|
Private sector
share in GDP
|
75.0
|
75.0
|
75-80
|
80-85
|
80-85
|
Gross Domestic
fixed investments
|
29.0
|
30.0
|
28.0
|
28.0
|
28.0
|
Private sector
investment
|
24.0
|
21.0
|
21.0
|
21.0
|
21.0
|
Gross national
savings
|
20.0
|
13.0
|
16.0
|
17.0
|
18.0
|
Public Finance
% of GDP
|
|
|
|
|
|
Revenue and
grants
|
25.7
|
26.0
|
26.6
|
26.8
|
26.9
|
Expenditure
|
29.6
|
33.4
|
30.6
|
29.9
|
29.9
|
Budget balance
including grants
|
−3.9
|
−7.4
|
−4.0
|
−3.1
|
−3.0
|
Foreign
financing
|
1.0
|
3.6
|
3.0
|
2.4
|
3.1
|
Central
government debs
|
53.7
|
59.6
|
60.1
|
58.8
|
56.8
|
Public
savings
|
3.0
|
2.0
|
1.9
|
2.2
|
2.5
|
Distribution
of GDP% (of total)
|
|
|
|
|
|
Agriculture
|
21.0
|
21.0
|
21.0
|
21.0
|
21.0
|
Industry
|
20.0
|
20.0
|
20.0
|
20.0
|
20.0
|
Services
|
59.0
|
59.0
|
59.0
|
59.0
|
59.0
|
Distribution GDP per sectors in long – term remaining stable since 2007
distribution GDP in agriculture is 21%, for industrial sectors is 20%, for
services which is a main contributor is 59% (Figure . 17). Foreign financing
remain low 3% compare to 2009 with 3.6% me this mean that the credit rating is
low because Albania is consider a high risk investment country, as a result of
high corruption in government and unstable political situation
3.2 A summary of international trade performance over the
late three years.
The government has taken measures to curb violent crime, but this is
still a serious national problem, with life expectancy still depressed by
European standards. Its large reform packages are aimed at reining in the large
gray economy and attracting foreign direct investment. Its economy is boosted
by annual remittance inflows from its foreign workers constituting
approximately 15% of Gross Domestic Product (GDP), mostly from Albanians
resident in Greece and Italy. Its trade (imports and exports) deficit is still
massive, however. The agricultural, agrarian, fisheries and farming sector,
which accounts for over 50% of labour employment but only 20% of Gross Domestic
Product (GDP), is put a ceiling on mainly to subsistence farming and small
family businesses because of lack of modern equipment, no legal framework,
small plots of land and no modern farming infrastructure and facilities.
Energy shortages because of a reliance on hydropower, and antiquated
infrastructure and facilities contribute to Albania's poor business environment
and lack of success in attracting new Foreign Direct Investment (FDI). The
completion of a new thermal power plant near Vlore has aided diversify
generation capability, and plans to improve transmission lines between Albania
and Montenegro and Kosovo would aid relieve the energy shortages. Also, with
aid from European Union (EU) investment, the state is taking steps to improve
the poor national transportation (road and rail) network, a long term
impediment to maintained growth of the economy. Table 17 shows key
macroeconomic indicators. According to (www.wto.com) the EU remains Albanians’ major
trading partner, providing 64% of Albanian’s imports and providing 79.2% of
export in 2009. Trade with Italy and Greece present the largest share of EU
trade, with the combine 41.6% of imports and 70.2% of export (WB, IMF).
As shown in fig.18 there is a long run trade deficit which mean that
import is high than export as a result of variable exchange rate and unstable
economic situation in region. The fall in interest rate will lead to an outflow
of short term capital from Albania, therefore, depreciation of the exchange
rate will have affect rising demand for exports and fall in demand for imports.
For instance: if exchange rate will fall further imports will buy before the
rate does fall. On the other hand exporters, will hold back as long as possible
before shipping their exports, therefore this will push exchange rate
down.
According to (WFN, 2010) the long run trade balance reminds negative $−3.20bn
in 2007, $ −3.40 billion in 2008, and $ −3.60billion in 2009. However,
figure... shows that, import and export are toward achieving equilibrium.
Albanian government are willing to reduce import since they lower standards of
living. The money goes abroad rather than going into the domestic economy.
Other factors affecting balance of trade in Albania are high cost of production
and price rising, therefore; as a result a demand for goods will fall.
3.3 A critical evaluation of the economy as a target
market for export.
Strategically located in Western Balkan Albania’s natural resources
hydropower capacity large track of fertile agriculture land, over 360 km of
mediteran coastline with excellent tourism and transport potential and valuable
mineral deposit including copper, iron and crom. The countries liberal FDI
regime grand’s foreign and domestic investors equal rights of ownership of
local companies following the principles of ‘national treatment’. According to
(www.fdi.com)
the total amount of FDI for 2005-2009 was $3,202mn higher than $987mn
2000-2004. Meanwhile, inward FDI stock has sky rocketed from $247mn in 2000 to
$3,537 in 2009 (Figure. 21). Part of transport ad media all sectors is
accessible and 100% foreign equity is permitted. The former sectors are shard
in 49% for both local and international air transport. While the low in media
(No. 8410/1998) stipulate that no legal entitle or natural person can have more
than 40% stake in television companies.
However, it takes only five days
to establish foreign owned limited liability company, and also the minimum
capital required for business start-ups is only Lek 100. Registration with the
National Registration Centre take just a day and document required is online.
Also foreign investors can open and maintain foreign currency. Investors can
lease or owned privately and publicly head land; contracts are limited to 99
years for agriculture land and 30 years for other land. Other incentives are
low corporate and personal income tax rate 10% and cost productivity workforce.
Wage levels are among the lowest in the region.
|
2005
|
2007
|
2009
|
FDI inflows (net)
|
258
|
662
|
979
|
Total FDI stock
|
1,680
|
2,264
|
3,537
|
As (%) of GDP
|
20.0
|
20.9
|
30.0
|
As(%) of GDP
|
21.7
|
19.4
|
35.7
|
3.4 An analysis of the strengths and
weaknesses of the economy as a location for Foreign Direct Investment
Albania is one of the fasts-growing economies in the Balkan; however, it
has been through a very difficult transition to free market economy. Albania
government have signed the ratification of Stabilisation and Association
Agreement in 2006. In 2008 become a member of North Atlantic Treaty
Organisation (NATO). Also, Albania in 2009 applied for European Union
‘candidate’ status. Another success story of this country in term of economic
development is the strategic partnership with The World Bank for the fiscal
year 2011-2014. Albania is moving toward Europe integration, which presents
enormous future opportunities for economic growth through trade and foreign
investments. However, the table below will show some economic strength and
weakness that will help us to have a better understanding of whole
picture.
4.
Chile a non-trade emerging economy
4.1 A summary of macroeconomic
performance over the last three years
Chile is a Latin American country, it is ‘the place to be’ (fig. 22), the
population is 17 Million, and 85% are urban – dwelling. According to (www.cnc.gov)
labour forces are 7.30 million in 2009 and unemployment was 9.7%. The average
annual per capital is 4.1% over a period of fifteen years (WBO, 2009). The
economy was hit hard by financial crises, the growth between 1998 and 2003
decreased to an average 1.3%, as a consequence of these slowdown shortcomings
in productivity and external vulnerability was evident. However, OECD
(2010) explained that, Chile’s economy returned to growth which means that more
goods and services will be available for people to consume (Sloman, 1997).
The strong macroeconomic framework provides a solid basis for the
economy, with stabilization policies having enhanced the country's growth
prospects. Table. 22 shows it has remained sustainable in 2007 and 2008,
increasing in 2009 to 5.4% but, in 2010 5.3% which mean that, GDP fell only by
0.1%. The domestic demand peaked in 2005 reaching 11% and remained stable for
200-2007 before falling from 2009-2010. According to WBO (2009) Chile has
consolidated macroeconomic stability through the adaption of flowing exchange
rate and fully fledged inflation targeting. The government has supervised
financial market and developed sound regulatory which have reduced the
vulnerability of the financial sector.
The value of output produced within the country over the twelve months
period. The medium-term growth of economy could be
higher than predicted from government (fig. 23)
Regards, the evolution of GDP in 2010 the expectations remains fixed at
around 4.5% to 4.8% which is around trend output according to the central
bank's estimations. The 4.25% target for the monetary policy rate in 12 months
implies a steep tightening schedule from the current level of 1.5% and many
analysts have voiced caution that interest rate will climb this much in a 12
month horizon. This view reflects both the fact that the central bank may be
too linear in the way it has set its 12 month target interest rate as well as
it reflects the market's perception that appreciation of the Peso may become an
issue as the yield advantage of Chile increases relative to the USD and
Euro. According to statistics Chile actual growth is positive, and there is a
potential growth as a result of rich –resources and increase in efficiency
which the resources are used.
4.2 A summary of international trade performance over the
late three years
Trade has expanded despite an appreciation of the real exchange rate in
the wake of the Copper boom (Fig. 27). Exports diversified beyond copper before
the 1990s, although copper remained the principal export representing about 2/5
of export values before the sharp increase of the price of copper in 2003. The
appreciation of the real effective exchange rate (REER) has only been around
22% during 2003-07. The relatively muted impact of the commodity boom on the
REER is due in part to the ownership structure in the mining sector, where half
of copper mines are owned by foreign companies, as well as to Chile’s
macroeconomic framework. The structural fiscal rule has led to savings, mining
leads the export with 49.46% and also agriculture, forestry and fishing are
other sectors which play crucial role in Chile’s export industry (fig. 28).
4.3 A critical evaluation of the economy as a target
market for export
The main risk factors for the economy are external,
including a slowdown in global markets, increased global risk aversion, and
disruptions in the energy supply and high oil prices. Chile, a small open
economy, remains sensitive to regional and global developments and shifts in
demand from its major trading partners. There is a strong association between
GDP growth and external conditions. A slump in the market for primary products
such as copper, or an interruption in capital flows can substantially reduce
short-term growth. Out of the last six major economic recessions in Chile, five
were precipitated by exogenous shocks. While Chile has been successful in
reducing exposure to financial contagion and diversifying its exports base, its
economy remains vulnerable to commodity price shocks and in particular to
copper prices.
4.4 An analyses of the strength and
weakness of the economy as a location for foreign direct investment.
As shown in figure below OECD countries tend to be more open towards FDI
than non-OECD countries, as reflected in the lower average OECD score (0.095
versus 0.157 for the non-OECD countries).
The medium-term growth could be higher than projected in the authorities
‘baseline scenario’. Chile’s government has to encourage innovation and enhance
educational quality and attainment for all Chileans. Providing adequate
physical infrastructure for growth and improved competitiveness by strengthen
of competition framework and functioning of labour and capital markets are
other challenges for Chile government.
However, according to Foreign Investment Committee (FIC) the Chilean
policy for reception of investments has always been based on simplicity,
transparency and non discrimination towards foreign investors. The process of
direct investment DL 600, offers security of investment. The government
continues to develop and improve laws such as the simplification of
administrative procedures or the increased appeal for credit. On a fiscal
level, foreign investors benefit from a moderate income tax on companies and
their capital can be repatriated without being taxed at the level of the
invested funds. The country also offers a large range of investment solutions
and has established a program called: "Chile Platform" in order to
encourage investment. These courses have notably allowed the development of a
new type of company ”The Simplified Limited Company" which allows a
foreigner to create a business in Chile without needing a local partner.
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