Economics of International Business Management-562333

UNIT CODE: AAF024-2 

PERIOD OF STUDY: AY 2016-17 

ASSESSMENT 1: Main Assessment Brief 

UNIT CO-ORDINATOR:   Dr Ourania Dimitraki 

Coursework Information Sheet

Unit Co-ordinator: Dr. Ourania Dimitraki
Unit Name: Economics of International Business Management
Unit Code: AAF024-2
Title of Coursework: Main Coursework Assignment
% weighting of final unit grade: 40%

Feedback details

The university policy is that you will receive prompt feedback on your work within 15 working days of the submission date.  Exceptionally where this is not achievable (for example due to staff sickness) you will be notified as soon as possible of the revised date and the reasons behind the change.

The policy also states that final grades are available after 20 working days.

Submission Date

TBA

Feedback Date

TBA

Details of how to access the feedback

Online  via BREO

The Gross Domestic Product (GDP) is the value of all the final goods and services produced in the domestic economy in a given year. GDP (and its derivatives) is a measure of economic activity actually. The idea, in a nutshell, is that improvement in per capita GDP is a useful synoptic measure of how well a society is doing. It measures the aggregate of economic activity within a country. More economic activity generated for whatever purpose – building prisons or schools, spending more on health care, whether or not it’s medically beneficial – raises GDP. Furthermore, GDP statistics are widely used for comparing economic performance of developing countries, but they can be criticised for several reasons: (a) it fails to capture much of what we want to know about human well-being; (b) it registers as a positive achievement some economic activities that are detrimental to well-being; (c) it measures increases in economic activity that occurs within a nation but it fails to reflect how much of that economic gain stays within that country; and (d) in its emphasis on the maximization of per capita GDP it fails to take into account of the distribution of the economic benefits within that country.

This coursework assignment will contribute to your understanding regarding the GDP as a proxy for well-being. Justin Wolfers discusses his own work with Betsey Stevenson in an online posting at Freakonomics, where he summarizes the Easterlin Paradox: “1) Within a society, rich people tend to be much happier than poor people. 2) But, rich societies tend not to be happier than poor societies (or not by much). 3) As countries get richer, they do not get happier.” You are required to produce a 2000-word economic report to discuss the above statement and critically evaluate the central difficulties associated with reliance on GDP by choosing a country to support your arguments.

You can use as a starting point:

1] the following video

2] The book, Mismeasuring Our Lives: Why GDP Doesn’t Add Up, , is one of the very best and most generally accessible works on GDP.

3] a] http://data.worldbank.org/

b] http://www.indexmundi.com/

4] Further research papers you will find relevant with the topic.

The project is worth 40% of your final mark and it is due on TBC. Submission will take place via Turnitin through the relevant BREO link. Feedback will be provided online through BREO and in person during office hours, according to University regulations, within 15 working days and it will follow the 2Q format.

Your report should follow the following structure:

Introduction: a quick overview of the GDP and its importance of GDP along with a short background for the chosen country. In addition, the structure of the report should be identified.

Review of the Literature: Here you present in a well structured and organized way all the information you have collected from other sources commenting on and analyzing the following: 1] GDP -advantages-disadvantages; 2] The Easterlin Paradox; 3] Income vs. Happiness; 5] Keep in mind: The validity of a source is vital in this section. You can always check the validity of your sources with me.

Methodology-Discussion: Here you will the chosen country’s GDP changes over time and evidence to relate it with pros/cons of GDP as a measure.

Conclusion: You summarize your main findings and identify areas of importance.

References:  You present all your sources following the Harvard Referencing System

Marking Grid

Topic % of Mark
Introduction – Objective – Structure Identification 10
Literature Review 40
Evidence Discussion and Links to Literature 30
Concluding Remarks 10
References and citations/quotations 10

 

   
  Marking Scheme
  Level 5 1%-39% (Fail) 40%-49% (D) 50%-59% (C) 60%-69% (B) 70%-100% (A)
Weighting            
15% Introduction – Objective – Structure Identification Has only addressed the task set in a superficial manner that lacks a clear focus. The structure of the report is missing Threshold Level

Begins to address the task with some evidence of focus on the aggregate demand vs. expenditure approach. The structure is identified.

Identifies the theory of aggregate demand and also the fact that the study will inform and contribute to subject knowledge. Has identified clearly how the study will inform and contribute to subject knowledge giving a sound rationale for the study to be conducted on this manner. The theory is well defined. Has clearly identified how the study will inform and contribute to subject knowledge.  Makes a convincing case for the rational of the competitive structure.
40% Literature Review No evidence of reading. Views are unsupported and non- authoritative. Academic conventions largely ignored. OR

Evidence of little reading appropriate for this level and/or indiscriminate use of sources. Academic conventions used weakly.

Threshold level. Evidence of reading relevant sources, with some appropriate linking to given text(s). Academic conventions evident and largely consistent, with minor weaknesses. Knowledge and analysis of a range of literature beyond core text(s). Literature used accurately and analytically. Academic skills generally sound. Knowledge of the field of literature used consistently to support findings. Research-informed literature integrated into the work. Very good use of academic conventions. Critical engagement with a range of reading. Knowledge of research-informed literature embedded in the work.
Consistently accurate use of academic conventions.
20% Evidence, Discussion and Links to Literature The discussion is poor and there is little reference to analysis. Threshold Level

 

Some analysis takes place, it is mainly descriptive and it barely covers the requirements

The evidence presented are analysed accordingly and some conclusions are drawn The case is linked to the theory and have been analysed according to the requirements, there is an overall synthesis of the findings and the case’s economic importance is assessed The analysis has gone beyond the basic requirements, the student has used clear evidences in a coherent way and case’s importance is assessed and benchmarked against the literature.
15% Concluding Remarks The concluding section is either missing or is very poor with no reflection on the work undertaken Threshold Level

There is some reflection on the work done and the conclusions are consistent with the findings.

Similar to the previous range but the student reflects clearly on the case study, the work undertaken and the conclusion drawn according to the findings. Concluding remarks are derived from the evaluation and discussion, consistency, linked to the literature and provide an overview of the work undertaken In addition to the B area scheme, limitations of the current work and recommendations (policy related) are presented.
10% Bibliography and Referencing Poor or non-existent Threshold Level

Basic in terms of referencing and the relevant system

Proper referencing takes place throughout the report and the Harvard Referencing System is followed All sources are being identified and presented according to the Harvard Referencing System All text, graph and table referencing is appropriate while the bibliography is presented according to the Harvard Referencing System

Chapter 1: Introduction

1.0 Introduction

GDP is the total value of goods and services produced within the economy in a given period of time. GDP is considered as one of the fundamental indicators for evaluating the health of a nation’s economy (Coyle 2015). Hence, GDP measures an economy’s size. When GDP is said to have increased by 2%, then it reflects the fact that the economy of that nation has grown by 2% compared to the last year. Over the years, the GDP has represented the growth of an economy. Therefore, it is assumed that it has an impact on the population of the nation. For example, when the GDP of an economy grows, then there is lower unemployment, and increase in wages, as more labor is demanded to meet the demand of the growing economy. Similarly, the stock prices of the companies also reflect the growth of the GDP. When the economy is in bad health, the companies earn less money and that converts into lower prices of the stocks. Negative growth of GDP indicates that the economy is in recession (Kubiszewski et al. 2013).

In this context, the GDP condition of UK has been discussed. As per 2015 data, the GDP of UK was $2.85 trillion. In the first quarter of 2017, the GDP growth was 0.3%. UK holds the fifth position in the world’s largest economies by nominal GDP. It contributes 4% in the total GDP of the world (World Bank 2017).

1.2 Background of research

In the modern economy, it has been found that, higher level of GDP does not measure the happiness or wellbeing of the population of the country. The background of the research is that GDP does not capture the wellbeing of the society. It has been found that, GDP is the best measure of the economic growth of a country (Lábaj, Luptáčik and Nežinský 2014). It is widely known that, when the GDP of a nation grows, the economy is considered to be growing. It also helps in the comparison of economic performances of the economy. For example, the GDP of UK was $2.85 trillion in 2015, while that of U.S.A. was $17.95 trillion in 2015. Hence, it can be said that the economy of U.S.A. was growing a lot ahead of UK in 2015 (Decancq and Schokkaert 2016).

However, there are several criticisms of GDP, such as,

  • GDP does not capture the wellbeing of the nation;
  • it measures the value of production, which contributes to the negative externalities generated from that activity (Giannetti et al. 2015);
  • it calculates the growth in economic activities within the nation, but does not calculate the amount of gains going out of the country or stays in the country; and
  • the maximization of GDP per capita does not takes into account the equality of benefits distribution in the country (Monni and Spaventa 2013).

Hence, the research paper aims to find out whether these criticisms are true in the context of UK. The relevance of green GDP will also be discussed in this research proposal.

1.3 Problem statement

The problem statement of this paper is, whether GDP is a correct measure of economic well being of UK and the difficulties associated with it. The GDP of UK shows the valuation of all the goods and services produced in UK in one financial year. However, it does not reflect the environmental degradation and natural resources depletion that occurs from the production activities (Kumar 2017).

1.4 Research aim

The aim of the research paper is to find out the effectiveness of GDP as a measure of wellbeing of the nation and the difficulties associated with GDP. It also focuses on the concept of green GDP and the importance of it.

1.5 Research objectives

  • to find out the relevance of GDP in measuring the wellbeing of the society
  • to find out the effectiveness of green GDP
  • to find out the problems associated with GDP as a measure of wellbeing

1.6 Research questions

  1. if GDP is a relevant measure of social wellbeing in UK?
  2. If green GDP is an effective measure?
  3. What are the problems of GDP for using it as a measure of well being in UK?

Chapter 2: Literature review

According to Nobel Laureate Joseph Stiglitz, GDP is not a good measure of a country’s well being or economic performance. Even if the GDP is growing, there can be inequality in the country. GDP also does not take into account the sustainability issues of the nation, that is, the environment degradation and depletion of natural resources is not measured. He also says about green GDP. Green GDP is the measure of economic growth, which incorporates the consequences of environmental issues, occurred due to production activities contributing in the conventional GDP. This GDP calculates the monetary value of the environmental damages along with value of productions (Stiglitz, Sen and Fitoussi 2010).

According to Thoma (2016), the advantages of GDP as a growth indicators are: it is helpful in comparing the growth of countries and rank them; it measures total domestic expenditures, investments, government expenditures and net exports. The disadvantages are: GDP does not take into account the unpaid volunteer jobs, the quality of production, wealth distribution, non market exchanges, sustainable developments and it can rise due to redevelopment after any disaster. Thus, it is evident that, quality of life of the people is not measured in GDP.

This topic brings about the concept of Easterlin paradox. According to Richard Easterlin, high level of GDP per capita of a country does not reflect the level of happiness of the citizens. An economy may witness a high level of growth, but at the same time, if there is degradation of the environment, it would generate a negative impact on the society, which reduces the wellbeing of the citizens. It says, even if the people get higher income, that does not mean they are happy (Easterlin et al. 2010).

It is said that money cannot buy happiness. The level of happiness is related to the cost of living and wellbeing of the society. The income of a person leads to emotional wellbeing and an individual’s quality of life. However, there is diminishing marginal utility of income. After the income level reaches the peak, the utility from income starts declining (Fahey 2015). Hence, higher income does not lead to higher level of happiness.s1

Figure 1: Diminishing marginal utility of income

(Source: Fahey 2015)

s2

Figure 2: The Happiness Curve

(Source: Page 2015)

The happiness curve shows the relationship between high income and happiness. The above figure shows that people with very high income are not as happier as the people with income between 10,000 and 40,000 (Page 2015).

Chapter 3: Research methodology-discussions

3.1 Concept

The researcher takes the secondary data from various works of prominent authors and sites such as, Word Bank and Office for National Statistics (ONS). The result will be based on the analysis of the secondary data. Wellbeing is a qualitative factor, and it is measured through various indexes such as HDI (Costanza et al. 2016).

According to the data of World Bank, the GDP of UK is more or less stable in the last 10 years. It was around $2500 billion over the years. It shows a stable growth in the nation.

s3

(Source: World Bank, 2017)

s4

(Source: World Bank, 2017)

s5

(Source: Indexmundi.com 2017)

From the above figures, it is evident that, happiness and GDP do not go hand in hand always. When the GDP per capita is lower during the recession period of 2008-2009, the life satisfaction of the citizens of UK was quite higher. While, the GDP was higher during 2004-2005, but the happiness of people was quite low (Rees 2017). It reflects the Easterlin paradox. Further research should be done to find out how much inefficient GDP is in measuring the happiness of the people. To measure the wellbeing of people, other measures are used, such as Human Development Index (HDI), Genuine Progress Indicator, and Happy Planet Index etc.

The effectiveness of green GDP should also be measured, as it incorporates the natural resource depletion and degradation of the environment. These create negative externalities for the society, which reduce the social wellbeing (Bartelmus 2014). Along with that, the relevance of the difficulties will be examined in this paper.

3.2 Gantt Chart

s6

Chapter 4: Conclusion

It can be concluded that, it needs to be find out the effectiveness of green GDP as a measure of wellbeing and the difficulties that the conventional GDP posses as evaluating the happiness of the people. Secondary data would be collected from various works of previous authors and from several websites. Those would be analyzed using statistical tools to answers of the research questions. It is known that GDP does not measure the wellbeing of the society but it needs to be find out the relevance of the difficulties of using GDP for evaluating the well being of the nation. 

References:

Bartelmus, P., 2014. Green accounting: Balancing environment and economy. Creating a Sustainable and Desirable Future: Insights from 45 Global Thought Leaders, p.175.

Costanza, R., Daly, L., Fioramonti, L., Giovannini, E., Kubiszewski, I., Mortensen, L.F., Pickett, K.E., Ragnarsdottir, K.V., De Vogli, R. and Wilkinson, R., 2016. Modelling and measuring sustainable wellbeing in connection with the UN Sustainable Development Goals. Ecological Economics130, pp.350-355.

Coyle, D., 2015. GDP: A brief but affectionate history. Princeton University Press.

Decancq, K. and Schokkaert, E., 2016. Beyond GDP: Using equivalent incomes to measure well-being in Europe. Social indicators research126(1), pp.21-55.

Easterlin, R.A., McVey, L.A., Switek, M., Sawangfa, O. and Zweig, J.S., 2010. The happiness–income paradox revisited. Proceedings of the National Academy of Sciences107(52), pp.22463-22468.

Fahey, M., 2015. Money can buy happiness, but only to a point. [online] CNBC. Available at: http://www.cnbc.com/2015/12/14/money-can-buy-happiness-but-only-to-a-point.html [Accessed 12 May 2017].

Giannetti, B.F., Agostinho, F., Almeida, C.M.V.B. and Huisingh, D., 2015. A review of limitations of GDP and alternative indices to monitor human wellbeing and to manage eco-system functionality. Journal of Cleaner Production87, pp.11-25.

Indexmundi.com, 2017. IndexMundi – Country Facts. [online] Indexmundi.com. Available at: http://www.indexmundi.com/ [Accessed 12 May 2017].

Kubiszewski, I., Costanza, R., Franco, C., Lawn, P., Talberth, J., Jackson, T. and Aylmer, C., 2013. Beyond GDP: Measuring and achieving global genuine progress. Ecological Economics93, pp.57-68.

Kumar, P., 2017. Innovative tools and new metrics for inclusive green economy. Current Opinion in Environmental Sustainability24, pp.47-51.

Lábaj, M., Luptáčik, M. and Nežinský, E., 2014. Data envelopment analysis for measuring economic growth in terms of welfare beyond GDP. Empirica41(3), pp.407-424.

Monni, S. and Spaventa, A., 2013. Beyond GDP and HDI: Shifting the focus from paradigms to politics. Development56(2), pp.227-231.

Page, M., 2015. How much does your salary really affect your happiness?. [online] Michaelpage.co.uk. Available at: https://www.michaelpage.co.uk/minisite/salary-vs-happiness/ [Accessed 12 May 2017].

Rees, E., 2017. Personal well-being in the UK. [online] Ons.gov.uk. Available at: https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/bulletins/measuringnationalwellbeing/2013to2015 [Accessed 12 May 2017].

Stiglitz, J.E., Sen, A. and Fitoussi, J.P., 2010. Mismeasuring our lives: Why GDP doesn’t add up. The New Press.

Thoma, M., 2016. Why GDP fails as a measure of well-being. [online] Cbsnews.com. Available at: http://www.cbsnews.com/news/why-gdp-fails-as-a-measure-of-well-being/ [Accessed 12 May 2017].

World Bank, 2017. GDP per capita (current US$) | Data. [online] Data.worldbank.org. Available at: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD [Accessed 12 May 2017].