Economics for Managers

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Significance of Paradox of Thrift on Developing Economies:

Situation for a developing economy is quite different compared to developed economies. In developing economies unemployment is not entirely caused due to the absence of effective demand. It is mainly due to low quantity of capital goods to work with. Unlike developed economies, unemployment in a developing economy cannot be effectively reduced by increasing spending. Any increase in spending will only lead to a spike in price levels.

In a developing economy, more capital goods should be available to increase income and employment. More capital goods could be obtained only through capital formation in the economy. Hence it is only through savings, which would lead to capital formation, the level of income and employment can be increased in such an economy. Hence paradox of thrift is not applicable to developing economies.

Investment opportunities in Emerging Markets

- Foreign Direct Investments commonly known as FDI: Can be done by either controlling ownership of another business entity in the target country either fully or partially or setting up a new plant to expand operations in the target country. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans".

- Investments in Equity and Debt Instruments in Emerging Economies: Equity Market Cap and Debt Market Cap for Emerging Markets is 15 % and 7% only while the GDP ratio in the pie for Emerging markets corresponds to 41%. Since huge gap is present between the market cap and GDP, there is huge opportunity for these instruments to provide a good return.

- Agriculture

- Energy

- Infrastructure

References:

- http://trak.in/tags/business/2012/02/07/high-savings-rate-bad-economy-growth/

- www.indiainbusiness.nic.in

- http://whistlinginthewind.org/

- http://www.economicsdiscussion.net/keynesian-economics/

- http://data.worldbank.org/

- http://www.wsj.com/articles/

- http://www.economicview.org/tips/204-THE_PARADOX_OF_THRIFT_AND_SAVINGS

- http://www.mindfulmoney.co.uk/investment-insight/investing-strategy/

- https://blogs.cfainstitute.org/investor/