You are the financial vice-president of New Generation Innovation, Inc., a large manufacturer of consumer durables that are considering expanding into two developing countries. Mountainia and Desertia 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 Desertia, Ms. Andrei, and the
Minister for Development for Mountainia, Mr. Vlad. Your company has also sent a number of representatives to the two countries to gather data to help you make your decision. Mountainia Mountainia 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. Desertia Desertia 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 Mountainia, Desertia 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. Write your report to the President of New Generation Innovation using the report guidelines found on the
course website and incorporating answers to the five questions below.
Q. 1. Statistics provided by developing countries are not always reliable. Data can be hard to gather and is sometimes reported incorrectly. From your analysis of Desertia, you conclude that citizens there average
$1,000 per month in household disposable income. The Minister of Development for Mountania says that disposable income is the same in his country. To see if the data supports this, your company has sampled
100 households from Mountania and obtained data on household disposable income. Use the Excel file ngi-data.xls, found on the course website to:
a. Derive a frequency distribution of income b. Create a histogram of income c. Obtain and interpret the sample mean, standard deviation and coefficient of variation d. Test the hypothesis, at the 5% significance level,
that Mountania also has a mean of $1,000 Q. 2. Suppose Mountania’s govemment now reports that its population mean disposable household income is $900 per month, with a standard deviation of $100.
Desertia’s population mean is $1,000, with a standard deviation of $300. a. Which country has more variation in income? Explain using popular phrases, such as “gap between rich and poor.-
b. Each country defines the poverty level to be $750. If you assume that income has a normal distribution, find the probability that a household’s income is below the poverty level in
i. Desertia Mountania
Does it seem reasonable to assume a normal distribution? Is income symmetric or skewed? Forthe first part please use Excel.
