JAGANNATH INTERNATIONAL MANAGEMENT SCHOOL KALKAJI

PROJECT REPORT ON

THE GROWTH IN DEVELOPED ECONOMIES IS MORE DEPENDENT TO THE GROWTH OF EMERGING ECONOMIES

Submitted To: Mr. Pankaj Upadhyay

Submitted By: Amitesh (115) Babita (116) Himanshu (59) Nitish (60) Rohit (58)

ACKNOWLEDGEMENT

The success and final outcome of this project required a lot of guidance and assistance from many people and we are extremely fortunate to have got this all along the completion of our project work.

Whatever we have done is only due to such guidance and assistance and we would not forget to thank them.

We respect and thank Mr. Pankaj Upadhyay, for giving us an opportunity to do the project work on the topic The growth of developed economies is more dependent to the growth of emerging economies and providing us all support and guidance which made us complete the project on time.

We are extremely grateful to him for providing such a nice support and guidance though he had busy schedule managing the company affairs.

Thank You

OBJECTIVES OF THE STUDY

To

find out the effect of the growth of one country, the emerging one on the

growth of the developed one.

To find out how the emerging countries is contributing to the growth of developed
countries.

To find out the consequences faced by on one country due to the effect on the
growth of other country.

INDEX S.NO PARTICULARS PAGE NO.

Introduction

Emerging economies

economies

contribution

to

developed 9

Effect of the Growth of Emerging economies on the 16 Growth of Developed Economies

Conclusions

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Bibliography

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INTRODUCTION Developed Economy An economy enjoying sustained economic growth and security. Some of

the common characteristics of a developed economy are low birth rate and higher life expectancy, high level of literacy and a well trained workforce and the export of high value added goods. High gross domestic product is also a common measure of a developed
The CIA notes that the 33 Developed Countries are as follows: Andorra Australia Austria Faroe Islands Finland France Germany Greece Holy See Iceland Ireland Israel Italy Japan Monaco Spain Sweden Switzerland Turkey United Kingdom United States

economy.

Netherlands New Zealand Norway Portugal San Marino

Belgium Bermuda Canada Denmark

Liechtenstein Luxembourg Malta

Important features of Developed Economies Dominance of industrial sector:

Industrial and service sectors dominated the economy. Agriculture remains a subsidiary occupation. The major part of national income is obtained through industrial production.

Large scale production:

Commodities are produced and manufactured on very large scale; mechanization is adopted in the industrial production.

Division of work:
The work to be performed is divided and subdivided into small pieces and individuals or group is required to perform only a part of the work. The worker becomes specialized in his job by doing the same work again and again. Division of labor and specialization increase the quantity of work and improves the quality of production.

Supremacy of capital:
Capital plays a dominant role in the economy. Capital intensive industries are installed. Village, cottage and small scale industries are neglected.

Profit motive:
Human efforts are directed towards earning more and more income.

Dependence:
Individuals and even group are not self sufficient. They cannot produce all the commodities they use. Certain commodities used are imported from abroad.

Emerging Economy An emerging market economy (EME) is defined as an economy with low to middle per capita income. Such countries constitute approximately 80% of the global population, and represent about 20% of the world's economies. The term was coined in 1981 by Antoine W. Van Agtmael of the International Finance Corporation of the World Bank. Emerging markets are sought by investors for the prospect of high returns, as they often experience faster economic growth as measured by GDP. Investments in emerging markets come with much greater risk due to political instability, domestic infrastructure problems, currency volatility and limited equity opportunities.

Emerging Countries
China, Russia, India, Brazil, Thailand, U.A.E., Turkey, Mexico, Indonesia, Poland.

Important features of Emerging Economy Dominance of agricultural sector:

Major source of income in case of undeveloped and developing economies is agriculture. A large section of population earns living through agriculture. Agriculture is the primary sector of these economies.

Small and large scale of production:

Both the private and public sectors exist in the economy side by side. Goods are produced on large and also on small scale by public and private sectors.

Production for self-consumption:

A large amount of goods and services produced is consumed by the producers themselves. Majority of farmers grow props for their own consumption.

Illiteracy:
The important feature of developing economy is its illiteracy. Though efforts are made to eradicate illiteracy but there is still considerable illiteracy and unskilled labor.

Under utilization of resources:

Developing economies have got significant amount of natural resources and large number of labor force. Due to lack of technical knowledge, natural resources are not discovered and fully utilized.

Preference to labor intensive industries:

Unemployment and underemployment are also the problems of developing economies, so small scale and cottage industries which absorb large number of hands are preferred.

Vicious circle of poverty:

Poverty is the vicious problems of developing economy due to poverty there is low income, lesser investment, lesser product in and the result is the poverty again.

Q) How emerging economies are contributing to developed economies?

1.) Indias Growth contribution to USA

Being a developing country, India is not as economically prosperous as the United States. In this case study, we will observe factors of economic growth that allow the United States to be more developed and are being implemented by India in an effort to achieve economic progress.

Compares the purchasing power of the worlds five largest economies. Both the United States and India are projected to increase their purchasing power by 2020. Furthermore, India is shown to experience a relatively significant increase in purchasing power compared to the other countries; this is exemplified by the fact that even though India's purchasing power is less than that of Japan in 1995, India is expected to have equal purchasing power as Japan by 2020.India must be implementing certain factors, such as foreign investment, that allow for an increase in purchasing power and, thus, economic growth.

Comparison of the purchasing power of the five largest economies GDP (Dollars)

2.) USA signs declaration of dependence on China In what is certain to be regarded as a defining moment in the nations history, leading U.S. political figures gathered at the Capitol today to sign their names to the newly drafted Declaration of Dependence, formally proclaiming Americas total reliance on China. The revolutionary pronouncement, which was ratified unanimously by representatives from across the United States, calls for formal recognition of American dependence and enumerates more than two dozen of the countrys specific dependencies on China, including a $282 billion trade deficit, the $1.15 trillion in U.S. bonds held by Chinas central bank, and the fact that each of Americas 314 million residents would be utterly helpless without access to Chinese-produced clothing, plastic goods, and electronic devices every moment of every day.

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 USA says dependence on China for rare earth is economic

A report by an American think thank says that U.S. dependence on China for rare earths is extremely problematic and poses both economic and national security risks.

The report by American Security Project Research Assistant, Emily Coppel, noted that the United States has the second-biggest deposit of rare earth minerals in the world. North American mines alone could supply U.S. rare earth needs.

The U.S. will need to develop new technologies and invest in mining operations to solve the long-term supply problem, Coppel suggested. In the short-term, stockpiling rare earths metals is one of the best ways to prepare for a future shortage until these new mines and technologies become available.

Rare earth metals have a wide variety of applications. They are used in hybrid car motors, computer hard drives, cell phones, and wind turbines. They are also essential for military equipment. Jet engines, smart bombs and guided missiles, lasers, radar, night vision goggles, and satellites all depend on rare earth metals to function.

The report also asserts that the first nation or defense company which is able to develop an effective and reliable substitute for rare earths or new and more efficient technologies will gain a competitive advantage.

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This is one area where the U.S. has a significant advantage, having the most robust defense industry in the world, the report noted. The U.S. needs to capitalize on this advantage and regain its position as a producer and supplier of rare earth metals.

The report also notes that the Pentagon claims that the U.S. only uses 5 percent of the world's supply of rare earth metals for defense purposes,5 the fact is that the U.S. is completely reliant on China for the production of some of its most powerful weapons.

Reserves of rare earth minerals across world

The total reserves of rare earth in the world are estimated to be around 99 million tones. China and the United States control most of these reserves with individual endowments of 36 million tones (30 per cent of world's total) and 13 million tones (13 percent of world's total), respectively. Other countries which hold substantial reserves are Australia, India, the Commonwealth of Independent States, and Brazil. Over the years the supply patterns of rare earths have undergone fundamental changes. According to the US Geological Survey's Mineral Commodities Summary, whereas till 1995 USA and China produced equal quantities of rare earths, today China produces approximately 97 per cent of the world's rare earth. Of the 124,000 tones of ore mined in the year 2009, China produced 120,000 tones.

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The emerging world begins to seize the lion's share of global markets
REAL GDP in most rich economies is still below its level at the end of 2007. In contrast, emerging economies' output has jumped by almost 20% over the same period. The rich world's woes have clearly hastened the shift in global economic power towards the emerging markets. But exactly how big are emerging economies compared with the old developed world? This chart looks at a wide range of indicators:

The combined output of the emerging world accounted for 38% of world GDP (at market exchange rates) in 2010, twice its share in 1990. If GDP is instead measured at purchasing-power parity, emerging economies overtook the developed world in 2008 and are likely to reach 54% of world GDP this year. They now account for over half of the global consumption of most commodities, world exports, and inflows of foreign direct investment. Emerging economies also account for 46% of world retail sales, 52% of all purchases of motor vehicles and 82% of mobile

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phone subscriptions. They still punch well below their weight in commerce and finance, but they are catching up fast. Almost a quarter of the Fortune Global 500 firms come from emerging markets; in 1995 it was only 4%. The chart below shows more detail of how the economic clout of emerging economies has risen over time.

FM asks USA to invest, says India is growth oriented

The Union Finance Minister P Chidambaram has defended Indian policies as growth oriented as he invited American companies to establish manufacturing plants in India during his meetings with the industry leaders and lawmakers of the US.

Chidambaram, who is on a four-day US trip to attend the annual leadership summit of US-India Business Council, urged the leaders of the US corporate sector for substantial investments in India as he emphasized the need for US companies to set up local manufacturing bases in India, saying "it is in the mutual interest of both countries for India to become a large manufacturing economy".

CEOs and senio2 leaders of companies like Microsoft, Lockheed Martin, Boeing and International Lease Finance Corporation (ILFC) raised the issues of transfer pricing and the impact of the Comprehensive Immigration Bill, recently passed by the US Senate.

The companies were appreciative of the measures taken to address concerns relating to Transfer Pricing. Chidambaram apprised these executives of the recommendations of the Arvind Maya ram Committee on enhancing FDI caps in many sectors, and the steps being taken to implement the recommendations. Chidambaram also underscored Indian

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concerns about the provisions in the Comprehensive Immigration Reform Bill relating to skilled non-immigrant visas.

In his meeting with the Senator Baucus, Chidambaram mentioned that while some concerns have been expressed about the current business environment in India, the policies adopted by the Government are "pro-growth and WTO compliant".

Chidambaram stressed that New Delhi is committed to ensure a transparent, fair and non-discriminatory investment environment for foreign investors seeking to do business in India. Chidambaram is expected to deliver the key note address to the annual leadership summit of the US India Business Council today. Before flying back tomorrow, he is expected to meet his counterpart, jack Lew.

Chidambaram's visit to Washington comes at a time when there is an increasing disenchantment with Indian policies. In the last few weeks, more than 250 US lawmakers have written to Secretary of State, John Kerry and US President, Barack Obama, expressing their concerns over the Indian policies, which they allege are discriminatory and do not provide a level playing field to the US companies. Two Congressional committees recently held hearing on Indian policies and lawmakers and representatives of corporate sector sought Obama Administration's intervention with regard to Indian economic policies.

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Q) Effect of the Growth of Emerging economies on the Growth of

Developed Economies?

1) How India's Economy Affects the USA

At $4.761 trillion, India is the world's fourth largest economy, after the EU, U.S., and China. It recently surpassed Japan, whose Gross Domestic Product (GDP) is $4.704 trillion. India grew rapidly, despite the recession: 6.5% in 2012, 7.7% in 2011, 11.2% in 2010, 8.5% in 2006, 9.0% in 2007, and 7.3% in 2008. India has three comparative advantages. First, its cost of living is lower than the U.S. Its GDP per capita is only $3,900, giving India half the standard of living as Iraq or Ukraine. This is an advantage because Indian workers don't need as much in wages, since everything costs less. India's second advantage is its well-educated technology workers, while its third advantage is its English-speaking population. This combination attracts U.S. technology and call centers to India, resulting in job outsourcing. For example, an Indian call center employee only costs $12 per hour, almost half the American counterpart of $20 an hour. As a result, more than 250,000 call center jobs were outsourced to India and the Philippines between 2001-2003.

2) India's Economic Impact on the USA: A PR Opportunity

President Barack Obamas visit to India has had strong public relations impact, in that it delivered a message to business communities on both sides of the world that opportunity abounds and deeper engagement in nearly every sector is on the docket. But this trip was overdue, as actions between the two countries long before this trip
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have given credence to optimism about the future. The economic impact on the U.S. already has been significant.

Here, based on a report just issued by the India-US World Affairs Institute, are some facts which may surprise you. They explain why we at Makovsky are looking into establishing an India Desk in New York with Concept, our IPREX partner in India.

U.S. manufactured exports to India were linked to 96,000 jobs in the U.S. in 2009. From 2004 to 2009, U.S. exports to India grew by a total of 269% and have grown faster than exports to practically all other countries. Indias exports to the U.S. grew by 136%. During this same period, 90 Indian companies made 127 green field investments investment in a new factory or new business worth $5.5 billion and created 16,576 jobs here. 239 Indian companies made 372 acquisitions in the U.S. in these 5 years. We already know that 40,000 jobs have come from 85 of these transactions.

A Duke University-UC Berkeley study found that Indian immigrant entrepreneurs had founded more engineering and technology companies here between 1995 and 2005 than did immigrants from Britain, China, Japan and Taiwan combined. This is just the tip of the iceberg. According to The Economist, India is growing by 9%, compared with 3% for America and 2% for Europe. And its obvious that India has a defined U.S. investment strategy. The Makovsky Concept goal is to provide marketing services to companies in the expanding U.S.-India space, bringing benefit to all.
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3) Effect of the Growth of Chinas Economy on USA

China's economy produced $12.38 trillion in 2012, based on purchasing power parity. This makes it the third largest in the world, after the European Union ($15.7 billion) and the U.S. ($15.66 billion). However, after 30 years of double-digit growth, China's real growth rate slowed to just 7.8% in 2012, and 9.3% in 2011.

The Chinese economic miracle was fed by government stimulus spending, business investment in capital goods, low interest rates, and state protection of strategic industries such as banking. However, this success led to 5.5% inflation in 2011, a real estate asset bubble, growth in public debt, and severe pollution.

The government's emphasis on job creation and business development based on exports left little for social welfare programs. This forced the Chinese population to save for their retirement, strangling domestic demand. Most of the growth has occurred in the cities along China's east coast, attracting 250 million migrant workers to these urban areas. Chinese leaders must continue to stimulate growth and create jobs for all these workers, or face unrest. They remember all too well Mao's Revolution. However, at the same time, they must provide more social services, allowing these workers to save less and spend more. Only an increase in domestic demand will allow China to become less reliant on exports. In addition, leaders must crack down on local corruption, and find ways to improve the environmental impact of industrialization. For example, leaders have embarked on an ambitious nuclear and alternative energy program to reduce reliance on dirty coal and imported oil. The 12th Five-Year Plan,

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released in March 2011, outlines the reforms needed to increase domestic consumer spending and rely less on exports. Despite an amazing growth record, China is still a relatively poor country in terms of its standard of living. Its economy only produces $9,100 per person, compared to the GDP per capita of $49,800 for the U.S. This low standard of living allows China to pay its workers less, making its products cheaper, which lures overseas manufacturers to outsource jobs there.

China exports $2.021 trillion of its production, making it the world's second largest exporter. China ships 17% of its exports to the U.S., creating a$315 billion trade deficit in 2012. While China needs the U.S., it's increasing its trade with Hong Kong (14.1%) and Japan (7.8%).

It's encouraging trade with African nations, investing in their infrastructure in return for oil. Finally, China is increasing trade agreements with other Southeast Asian nations, and with many Latin American countries.

China Is the Biggest Banker to the USA

China is the largest foreign holder of U.S. Treasury bills, bonds and notes. As of January 2013, China owned $1.264 trillion Treasuries. This is 11% of the total $11.6 trillion of debt held by the public. China temporarily cut back on its holdings after July 2011, when it held $1.173 trillion. By June 2012, it only held $1.147 trillion.

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China buys U.S. debt to support the value of the dollar. China pegs its currency (the Yuan) lower than the U.S. dollar to keep its export prices competitive. China's role as America's largest banker gives it leverage. For example, China threatens to sell part of its holdings whenever the U.S. pressures it to raise the Yuans value. China counters by saying it did raise the Yuans value by 20% between 20052010.

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CONCLUSION
During the last two decades, the changes in the Indian economy have been staggering, and Indias rise has captured the imagination of the world. Enormous export and investment opportunities have arisen in Indias booming market as the size of its middle class multiplies and the need for infrastructure development intensifies. Although at times Indian and American firms may compete, the spirit of both countries is fundamentally cooperative, and the potential mutual gain in deepening commercial ties is profound. U.S. trade with India quadrupled over the last decade, with exports ranging from mining equipment and fertilizers, to steam and gas turbines and C-17 military aircraft. The United States is Indias top investor and, as a group, Indian firms are among the fastest growing investors in the U.S. economy and have contributed jobs, innovation, and support to communities throughout the United States. It is exciting and encouraging to see the energy, creativity, and dynamism of Indian firms taking root in and enriching the U.S. economy. There are many areas of mutual and complementary strengthsincluding in the technology, energy, health, medicine, and defense areaswhere both countries can promote further exports, partnerships, collaboration, and joint innovation. In reality, outsourcing is a small part of this very positive commercial and strategic bilateral relationship. How Does China Influence the U.S. Dollar? China has fixed the value of its currency, the yuan, to the dollar. Currently, a dollar is worth 6.8 yuan. Many analysts think it is artifically low. If China allowed its currency to float freely, it would be more valuable than the dollar because of China's strong economy, and it would rise. China does this to keep its products cheaper than U.S. products, thus increasing its exports to the U.S.

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The only way China can keep the yuan artificially low is to promise to redeem dollars for yuan at the fixed rate. To do so, it must keep a good supply of dollars in reserve. Instead of holding dollar bills, it holds U.S. Treasuries, which it can quickly sell for dollars. As China's economy grows, it must buy more and more U.S. currency to meet the growing number of yuan. What It Means to You China has warned the U.S. to cut back on its debt, which is at $11.6 trillion and rising. China negotiated currency swaps with other G-20 trading partners, such as Hong Kong and Argentina. As China's need for the dollar declines, so will its appetite for Treasuries. This could cause interest rates to rise, hampering the revival of the U.S. housing industry. With all the examples given in this report I can conclude that the growth of developed economies is more dependent to the gowth of emerging economies to certain level.

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Bibliography:
www.google.com Wikipedia.org sitemaker.umich.edu www.yahoo.com

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