IEBUS Semester 1

1. Private ownership

-innovation and entrepreneurship require a market economy

-little incentive to develop new innovations in planned economies

2. Availability of production factors

-Land, labour, capital

3. Economic freedom

-Economic freedom is equal to economic growth

4. Legal protection and property rights

5. Political stability, rule of law and regulatory quality

(6. Democracy)

Collectivism

Socialism

Individualism

Democracy

Totalitarianism

Authoritarianism

Needs of society are more important than individual needs.

-> China

Primary of the individuals freedom

-> Switzerland

People should be involved in decision making process.

Government attempts to control all aspects of life.

-> Nazi Germany

One person of one political party exercises social control, politics and economies.

-> Communists, tribal, theocratic, right wing

• Secular
  • Separated from religious principles, not based on revelation
• Man-made
  • Developed through legislation and court decisions
• Individualistic
  • Focus on individual rights
• Instrumental
  • Meant to serve political and economical interests, social dynamics
• Invasive
  • State law invading even more aspects of social life
• Everchanging
  • Legal positism leading to an "institutionalisation and arbitrariness of legal change"
• Expanding
  • Ever increasing flood of legislation

Is specifically desiged to protect low income people and focuses on low income market. -> Relevant for informal sector

Protects four shocks: Health risks, life-cycle risk, business risk, environmental risks, social and cultural risks

Core elements of microinsurance:

-Simplicity

-Flexibility

-Affordability

-Accessability

-Insurance principles

Stages:

-Dormant (less likely) -> Iraq

-Early Growth Stage (likely) -> Bolivia, Eqypt

-Sustained Growth Stage (very likely) -> Peru, India, El Salvador

-Mature (less likely) -> USA, Western Europe

• Avoidance
  • Staying at home to avoid accident
• Loss prevention
  • Drive a car and put seatbelt on to prevent death
• Transfer
  • Transfer risk to insurance company
• Self-funding
  • Increase reserve and cover yourself

• Moral Hazard
• Fraudulent claims
• Inflated claims

Group 1: Advanced Economies

-High income level, GNI per capita >12'476 USD

-High economic diversification, high degree of global economic integration, economic stability

Group 2: Developed Economies

-Income level high, GNI per capita > 1'026 USD

-Medium to low degree of economic diversification, medium to low global economic integration and economic stability

-Emerging Markets: Recent economic liberalization, middle class, high growth rate, high market potential

-Frontier Markets: Next generation of emerging market, high rates of GDP growth

Group 3: Least Developed Economies

Countries that exhibit the lowest level/indicators of socio-economic development, instability of agriculture production, instability of export goods and service

• Court proceedings are encouraging law suits
• Low fees
• No obligation to cover the lawyers fees of the opponent
• Lawyer only gets paid when he wins the case (option contingency fees)
• Option of punitive damage -> You can claim an amount far beyond damage

• Court proceedings do not encourage law suits
• Higher fees
• Obligation of covering fees of the opposing party if you loose
• Contingency prohibited
• Claims are restricted to the actual damage

1. Protect local jobs

2. Encourage local productions to avoid imports

3. Protect infant industries

4. Reduce reliance on foreign suppliers

5. Encourage local investment and FDI

6. Reduce Balance of Payment problems

7. Promote export activity

8. Prevent foreign firms from dumping

9. Promote political objectives (Do not import from countries with child labour)

• Achieving goals through discipline and flexibility
• Lending foreign currencies to poorest to help them cover during short periods of balance of payment deficits

Lending money in two ways:

1. Bond sales (borrower pays market interest rate)

2. International development Association (lends to poorest nations with very low interest rates)

• price stability
• implementation of monetary system
• holding foreign currency reserves to have control in monetary system

Foreign exchange market determines relative value of money.

Exchange rate determined by market sources

Value of currency is fixed to a reference currency

Countries fix exchange rates against each other

GDP is the market value of all final goods and services produced within a country in a given period of time. Output is valued at market prices.

• Consumer income
• Substitutes
• Numbers of buyers (population)
• Expectations of consumers

• Reduce the quantity of imports
• Rise the domestic price of the good
• Decrease the welfare of domestic consumers
• Cause deadweight losses

Tariff generates a gain for the government, whereas an import quota creates surplus for those who obtain the license to import.

Can lead to smuggling and more corruption (->who gets the license to import).

1. Voice and Accountability

• how can citizens participate in selecting their government?
• freedom of expression, freedom of association, free media

2. Political Stability and Absence of Violence

• likelihood that the government will be destabilized or overthrown by unconstitutional or violent means

3. Government Effectiveness

• quality of public services and the degree of its independence from political pressures
• quality of policy formulation and implementation and the credibility of the government's commitment to such policies

4. Regulatory Quality

• ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development

5. Rule of Law

• extent to which agents have confidence in and abide by the rules of society (especially quality of contract enforcement, property rights, the police and the courts as well as holding down crime and violence)

6. Control of Corruption

• to which extent is public power not exercised for private gain but for the long-term interest of the whole nation

Non-discrimination

• Members should not discriminate between their trading partners

Reciprocity

• Members should lower their trade barriers through negotiation

Binding and enforced commitments

• Members should not arbitrarily raise trade barriers against foreign companies, countries, etc.

Transparency

• Export subsidiaries and dumping products should be avoided

Safety valves

• Support less developed countries

-Administrating WTO Trade agreements

-Forum for trade negotiations

-Handling trade disputes

-Technical assistance and training for developing countries

-Cooperating with other international organisations

-Early childhood development and nutrition

-Universal healthcare

-Quality education

-Rural infrastructure investments

-Taxation

-Conditional cash transfer