AQA A-Level Economics 25 mark essay (Paper 3)Watch
The company should invest in Brazil due to the macroeconomic advantages it brings. If the company were to invest where 68.5% of the population are of working age it can lead to a reduction in unemployment. With this initial investment, the government can benefit by having increased tax receipts from income tax. As a result of increased tax receipts, the government can invest that money into the healthcare system, which according to Extract B, ranks 125th out of 190 countries. This increase in government spending (component of AD) will be able to keep workers away from hospitals and keep them at work earning an income which can be taxed. An improvement in the healthcare system will reduce infant mortality rates which is 19.8 per thousand births. The government spending can also lead to an increase in GDP per capita which as of 2013 is $12,100 adjusted for inflation. Consequently, the Brazilian people will see a rise in their living standards. This then leads to a multiplier effect of increased spending. This inevitably leads to inflation rising above real wages, this means that people are worse off. With more people working, their disposable income increases and as a result of this they are spending more which leads to demand-pull inflation. This could be counteracted though through an increase in income tax rates which aims to reduce consumer disposable income.
The company should not invest in Brazil due to the instability that exists regarding the workforce. For example, their literacy rate and years of schooling show that potential employees are not skilled enough to carry out tasks from a car manufacturer. This can lead to lower productivity if investment were to be made. This also means that the FDI, of which Brazil attract a third of, will not see the benefits in the short run. In addition to no short run benefits of FDI, it can be seen from Extract C that the industry and services split in terms of GDP as a percentage shows that Brazil are heavily reliant on services which is 68.1% of GDP. Being a car manufacturer thinking about the potential investment, it can be seen tat when it comes to manufacturing that Brazilians perhaps lack the skill to be generating more GDP from the manufacturing sector. However, long run benefits may be worthwhile for a country who has not really seen much from the manufacturing sector with regards to GDP. This could perhaps lead to greater benefits that may not have been possible without the initial investment.
In conclusion, the car manufacturing firm should invest in Brazil due to the long run benefits the firm could achieve. Due to the lower costs for labour in Brazil, it means that the firm will have lower costs and higher supernormal profits. These supernormal profits could then be reinvested into R&D where they can innovate with self-driving cars. At the same time, they could also invest in more specialist machinery which can lower unit costs. Consequently, this leads to lower priced goods of high quality which increases living standards. Simultaneously, this leads to shareholders being happy with the firm because of reduced unemployment, profit levels being high which pleases shareholders and consumers because of the quality and innovation of cars coming from the firm. This therefore shows how of a car manufacturer were to invest in Brazil, it could lead to many benefits in the long run like a more specialist workforce after working with a British car manufacturer. Especially, after satisfying those who have an interest (stakeholders), the benefits are easily derived from an initial FDI.
[Anyone who wishes to give a mark out of 25 and feedback is more than welcome]
This is my attempt at a 25 mark essay.