P56-3: What is the relationship between corruption in a country (i.e., government officials taking bribes) and economic growth? Is corruption always bad? High levels of corruption significantly reduce the foreign direct investment, level of international trade, and economic growth rate in a country. It hurts the economic growth and decreases both domestic and foreign business investment. Corruption is always bad for the economic growth. Some countries treated corruption as illegal and use the rule of law to minimize the corruption. P56-4: You are the CEO of a company that has to choose between making a $100 million investment in Russia or Poland. Both investments promise the same long-run return, so your choice is driven by risk considerations. Assess the various risks of doing business in each of these nations. Which investment would you favor and why? I would prefer to invest in Poland, rather than Russia. The decision is based on the economic and political environments of both Russia and Poland. Poland has embraced market-based economic policies, opened its markets to international trade and foreign investment, and privatized many state-owned businesses. Poland has a more open market with market economy. There is no supply restriction and investment environment is better than Russia. Russia operates with a civil law system, which is less flexible than the common law system. Russia doesn’t not have a safe protection for the property rights, including the intellectual property. It experienced the Mafia problem. The situation in Russia improved significantly since the 1990s, but it still slower the economic growth and foreign direct investment. Russia also has a higher corruption rate than Poland, which also decreases the economic growth and investment. Poland keeps improving. Steps are being taken to simplify tax laws, reduce tax rates, and remove bureaucratic hurdles to doing business in the country. Political economy impacts the benefits, costs,...
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