Question

You are the financial vice-president of Turnkey Corp, a large manufacturer of consumer durables that is considering expanding into two developing countries. Azmenistan and Turgistan recently split off from the former Soviet Union and may provide opportunities for both manufacturing and sales for your company. While the two countries have similar backgrounds and current GDPs, they differ substantially in economic policies. Because of limited resources, your company can only expand into one country. You would like to invest in a country that will be growing rapidly so that the citizens will be able to afford to buy your products. Your job is to assess the prospects for investing in the two countries. In making your decisions, you have met with the Minister of Commerce for Turgistan, Mr. Boris, and the Minister for Development for Azmenistan, Mr. Volkov. Your company has also sent a number of representatives to the two countries to gather data to help you make your decision.

Azmenistan has had a democratic and populist tradition. This has resulted in the people enjoying substantial civil rights after independence, including free speech and popular elections. However, the government has an inefficient civil service and a mixed record of enforcing property rights. Investment in education and physical capital is low even though public spending and the federal deficit are high.

Turgistan is run by a generally peaceful one-party government. The government budget has been balanced, with taxes and tariffs at a level typical for a developing country. Government spending has focused on education with the goal of universal primary education. The legal system is well developed and has been effective in supporting property rights (although less effective for political rights). Corruption is low. Unlike Azmenistan, Turgistan is more restrictive in terms of civil rights and democracy. There are no prospects for elections in the near future and a number of opposition leaders have been jailed. All television and radio are run by the government. Newspapers have a close relationship with the government and generally follow a pro-government line.

Which country is better to expand to and why?

Answer 1

Turgistan is better to expand.

The reason for this is that the government of Turgistan is paying full importance on the education and development of skill of the citizens of that country. This will result in development of human capital leading to development of the country.

Also low level of corruption leads to efficient working of the economic activities. This will also help in rapid development of the country.

The level of taxes is also not very high and suitable for a developing country. This will not affect purchasing power of the people of the country much.

All these things will help Turgistan to grow fast and will make it possible for the people to afford the products of the Turkney Corp. So it should invest in Turgistan.