Question

Variable Gross Savings % of GNI) Bolivia 16.7 Serbia 16.6 3.1 13.6 97.6 2.8 Inflation, consumer prices 2.8 (annual %) Deposit Interest Rate (%) Mobile cellular 97.9 subscriptions (per 100 people) Logistics Performance Index - Overall Rule of Law (percentile 9.6 rank) Control of Corruption 28.4 (percentile rank) Military Expenditures (% of 1.5 GDP) Source: World Development Indicators Use the data to answer the following questions. 48.1 43.3 a. Use the information on inflation and interest rates to calculate the real interest rate. Based on this data which country provides a better investment climate? b. In discussing the returns to capital, modern theories of growth also ascribe a role to complementary or infrastructure capital. Using the Logistics Performance Index as your measure, which country does better in terms of levels of infrastructure development? c. Poor institutional quality and corruption often act as a significant barrier to investment. Which of your two countries would be able to attract more investment based on these measures?

Answer 1

a) Bolivia 2.5-2.8 =-0.3

Serbia 13.6-3.1 = 10.5

Serbia's real interest rate is higher and hence it has a better climate for investment.

b) Serbia is performing better in terms of Logistics performance index.

c) On the basis of both these ranks, Serbia will be able to attract more investment. Percentile of Bolivia for Rule of law and control of Corruption is 9.6 and 28.4 respectively. These indices for Serbia are 48.1 and 43.3 respectively.