Question

ANSWER IN DEPTH WITH EXAMPLES!

Evaluate the statement: “The least favorable business environment is a politically unstable, developing nation with a command or mixed economy, and an unsecured legal system.” What does it mean? Provide examples.

Answer 1

Business activities are undertaken to earn and maximize profits. there are few preconditions that must be satisfied to attract business investment.

Following are preconditions:

• Stable political environment.
• Lack of Excessive government intervention.
• Well developed infrastructural development

Politically unstable environment does not attract investment. For example, politically unstable African countries do not attack investment for fear of facing massive losses in these countries.

Further, Venezuela is also country where many times government forcibly nationalized private firms. So business firms do not want to make investment in such countries. Further, under command economy, all economic decisions are taken by the government designated authority. India is mixed economy example, where many times government nationalised private banks. Thus, all these examples show that there are scant incentives for private firms to carry out investment activities in such countries.