Overview Of The Economic Growth Of Poland Economics Essay

Overview Of The frugal addition Of Poland Economics EssayPolands economy looked pitch-black during the 1980s. Few would consider Poland as a business hub due to its low scotch maturement and soaring inflation ordain (Nuti, 1986). Fast-forward to the 21st century, Polands economy has tiltd tremendously. It is non righteous the only European country to survive the current recession but it is still experiencing rapid growth1. What could have possibly instigated Polands this drastic agitate in the time span of only 2 decades?This essay leave alone use the PESTLE2analysis to understand the positive force that initiated the economic growth and also examine the causes that power hinder Polands future economic growth. Porters Diamond will be used for the critical evaluation and support of the PESTLE analysis. governmental ReformThe fall of communism in 1989 had led to vast reformments in Polands economy. One might disagree with that because the event took place over 20 historic period ago, however, the effect of political change does non happen overnight and there would be a time lag involved (Gillespie, 1999). The most signifi bottomlandt change after the fall of communism is in stabilising the country. Poland is the 29th politically most unchanging country with the index score of 4.5 (Economic Intelligence Unit, 2009). This provides a sentience of security for investment and business, for example, if Poland is in an unstable situation akin to the current Libyan crisis, commonwealth would avoid investing in the country.In contrast to a communist state, a democratic country allows the voice of people to be heard, and their opinions and views to be realised. Citizens in democratic countries tend to have greater respect for the leading they chose for themselves comp ared to otherwise. For example, in a company, a bottom-up leadership has a better effect than a top-down leadership because workers would respect the leader and this allows employees to bri ng push through best of their skill set and experience. Similar principle applies for macroeconomic levels. Additionally, a democratic country is highly likely to prosper due to reduced frictional social interactions among citizens (Kariel, 1956).Furtherto a greater goal, the Polish government has developed a radical program known as the Shock Therapy to curb hyper inflation. Poland was once ruled under a planned economy system. Shock Therapy is a transition from a planned economy system to market economy. It is a sudden release of price, followed by the remotion of subsidies and large scale privatisations of previously publicly owned companies (Murell, 1993). This program has some(prenominal) short and long term effects. The planned economy provided employment to almost each citizen but with inflation rates of around 600% (Cottarelli Szapry, 1998), low wages and severe shortages of basic necessities. This Shock Therapy suppressed the hyperinflation and stopped the food shortag e (Haggard Webb, 1996). However, all these problems are only short term problems. The ideal result lies in the long term measure. One of the linchpin reasons of why Poland economy growth has been so sweetheart in the past few years was because of its market economy (Kornai, 2000). This has provided opportunities for small service firms to contribute to Polands economy (Nunnally, 2010), which was unachievable during the communist era. Market economies encourage supranational business because the barriers to entry are subverted increasing the opportunity for success and minacious sunk costs.Poland also has excellent relations with foreign countries allowing it to benefit from several(prenominal) advantages such as enjoying tax free zones at bottom the EU since fall in it in May 2004 (Papazoglou, Pentecost, Marques, 2006). This is important because imported goods within Europe are seamyer, accordingly lowering production costs. Another vital factor of entering the EU is curb ing the high unemployment rate. Since adopting the free market policy, Poland has high unemployment rates3. By joining the EU, Polands unemployed workforce is able to look for jobs outside Poland. Lowering unemployment rates is crucial in reducing social problems and creating a better environment for investors.Economic AdvantagesIn addition to political factors, economic factors have also enhanced economic growth. The first step was implementing a floating exchange to curb hyperinflation (Sachs, 1996) which, in addition, helped Poland to survive the current economic crisis by facilitating economic adjustments. During the economic crisis, the Zloty depreciated against the Euro and Sterling. This meant Polish goods were more competitive than European goods both at home and abroad. One might think that there are so many countries with lower exchange rates, so why would investors invest in Poland? The answer lies in the nature of its funds- Zloty is precise stable as a currency4, it o nly oscillates within a certain range. This is very important for a business because cost of production would not fluctuate and there would be less uncertainty. Investors tend to avoid the risks arising from uncertainty and the Zloty provides a sense of security to businessmen and investors. In planning to adopt the euro in 2015 (Dnevnik.bg, 2010), Poland will be forgoing the competitive advantage of its currency. To evaluate, this is a good option as the global economy grows as the Euro will provide more advantages (Gulde, Kahkonen, Keller, 2000).Many things have changed since the transitional period of Poland. Polish people have become richer over the years and Poland is one of the richest nations, second only to the Czechs in the primaeval Europe (Credit Suisse, 2010). Also, an average Polish is three times richer than an average Russian (Jedrzej, 2010). Their wealth leads to strong internal consumption within Poland5which led to strong economic growth especially during the re cession. Export based countries, such as Singapore, suffered greatly during the recession. The impact of the recession is less in the case of Poland because the domestic market within Poland is large and accounts for more than half of Polands market.Although it is hard to believe, the initial high unemployment rate also boosted economic growth. Polish people are highly educated with 99% of their citizens being educated (TradingEconomics, 2009). Skilled and educated workers tend to be more expensive. However, due to the high unemployment rates, labour costs in Poland are comparatively lower than other countries, such as Germany. This is a strong selling point for investors abroad. These investments are crucial because it has reduced unemployment rates and increased economic activity in Poland, subsequently enhancing economic growth.FDI has increased steadily since 1995 with the exception of 2008 and 2009 due to global economic crisis (United Nation Conference of Trade and Development , 2010). It has boosted economic activities greatly. Other than a cheap but skilled labour force, Special Economic Zones established by the Polish government has also attracted foreign investors. At present, there are 14 Special Economic Zone in Poland (KPMG, 2009). Different areas have different geographical landscapes allowing wide-ranges of businesses to be set up. These areas provide opportunities for tax exemption. The amount of tax exempted will depend on the size of the investment (Nam, 2004). The Special Economic Zones have attracted investors from all over the world, in particular investors from the EU as the benefits are greatly to their advantage to invest. The regulations are more flexible and they share the same benefits as Polish firms. These, combined with the stability exchange rate of Zloty, have attracted FDI from the EU as all investors stand an equal chance.Porters Factor ConditionsAlthough Poland has enjoyed steady economic growth in recent years, there are stil l a few factors hindering their growth, for example, having poor transportation systems. Having good infrastructures enables a country to fully utilise their resources efficiently and effectively boosting the economy. Therefore for Poland to improve on their economic growth, they must improve on their infrastructure. In my opinion, the infrastructure would not be a concern because Euro 2012 will be held by Poland and funds had been provided by the EU as an serve to improve on their infrastructure (Szafranko, 2010). ratingAs previously mentioned, political stability is key to economic growth but there are factors that jumble Polands stability such as corruption6. This is a significant disadvantage, for instant, if the government invested in a 10one thousand thousand project but due to corruption, only 2 million is injected, the project would either be substandard or incomplete due to the amount of money lost. Furthermore, safety will also be a key concern due to the substandard un dertakings. With this kind of uncertainties, investors will have their doubts when investing in the country. However, Poland has taken several measures to reduce corruption, and with more effort, corruption can be reduced.Besides that, the countrys high unemployment rate can also be a concern for the country7. While it is true that the high unemployment rate saved Poland during the recession, it cannot be a long term plan for the country. A high rate of unemployment would cause stress within the country and crime rate would increase cause instability. Furthermore, it would also prevent the country for optimising their resources. Despite the current high unemployment, recent reports show that the unemployment rate is steadily decreasing over the years8.ConclusionIn conclusion, there are many factors driving Polands economic growth such as political stability and stable exchange rates. Polands external competitiveness has been tried by the rise of the BRIC, notably China. There are numerous reasons why Poland has been able to attract large volumes of FDI, one of which is the Special Economic Zones with tax exemptions lowering business costs. Sound macroeconomic policies have sharpened Polands competitive edge and positioned it well to seize opportunities from joining the EU, therefore attracting more FDI leading to further growth. The main(prenominal) difficulty Poland now faces is corruptions. However, the extent to which this has affected Polands economic growth is hard to determine but the pull factors of economic growth outweighs this problem. There is also way of life for supplementary improvement to further boost the economy especially the developments of infrastructures. Nonetheless, the growth for Poland is sure to build up with the adoption of Euro and Euro 2012.Critical ReflectionThe PESTLE analysis allows realise insight of the country in the macroeconomic level. The political and economic aspects of the PESTLE provide a clear framework on how i t affects the economical growth and the extent of the influence. However, the usage of PESTLE is limited to the present and does not give a wider picture of the future such as Poland is planning to adopt Euro in 2015. under(a) some circumstances, analysing the PESTLE is insufficient in certain aspects such as the infrastructure in Poland. Nevertheless, the Porters Diamond Factor Conditions are used to complement the weaknesses of this issue. However, both models fail to address one major factor, the regulatory factor given in the STEER9analysis which is important given the recent financial crisis. Furthermore, in my opinion, safety of a country is important as well. Safety is indispensable because it provides certainty for foreign investors. Although the PESTLE analysis is widely used and it provides information on various factors, I think a new model that incorporates more factors should be introduced.There are many factors driving Polands economic growth, however, the level of p art of each factor is uncertain. One might wonder how Hungary suffered from a different fate from Poland despite both having floating exchange rates. In my opinion, it is not just the floating exchange, but the different factors that complement each other that exist only within Poland to have boosted Polands economic growth.Lastly, research was made based on recent statistics for data accuracy. However, sources from research using resources that date back to 20 years were also used. The results are important because this data provides an insight to the initiation of Polands economic growth after the downfall of communism. Some resources are subject to biased views, making it impossible to obtain a perfectly accurate reasoning. Mixed responses can be seen regarding the countrys progress. According to local Polish people in the university, it is said that Polands economy is not very promising. However, according to other reports, the results say otherwise. In my opinion, Polands progr ess is very promising but the government should provide more social benefits to the local Polish to prevent outward migration which may lead to brain drain.Bibliography task monitor lizard International. (2011). Poland Infrastrucuture Report Q1. Warsaw Business Monitor International.Cottarelli, C., Szapry, G. (1998). Moderate inflation the experience of transition economies. Hungary International Monetary Fund.Credit Suisse. (2010). Poles getting rich sprightly. Warsaw Global Wealth Report.Dnevnik.bg. (2010). Bulgaria, Romania, Poland, Czech Republic to adopt euro in 2015 analysts. Sofiaecho , 50.E, P. M. (1990). The Competitve Advantage of Nations. Harvard Business Review , 73-93.Economic Intelligence Unit. (19 March, 2009). 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Poles are at the forefront of nations increasingly rich. Retrieved 7 April, 2011, from Gelda Waluty Finanse, FT http//forsal.pl/artykuly/458053,polacy_sa_w_swiatowej_czolowce_bogacacych_sie_narodow.htmlKariel, H. S. (1956). Democracy Unlimited Lewins Field Theory. The American Journ al of Sociology , 280-289.Kornai, J. (2000). Ten Years After The Road to a barren Economy The Authors Self-Evaluation . SSRN , 29.KPMG. (2009). A Special Economic Zone in Poland. Warsaw Invest in Poland.Laposte. (4 January, 2010). Polands Consumptio. Retrieved 7 April, 2011, from Laposte.McKEEVER INSTITUTE of ECONOMIC POLICY ANALYSIS. (December, 2004). POLAND Economic polity Analysis. Retrieved 7 April, 2011, from McKEEVER INSTITUTE of ECONOMIC POLICY ANALYSIS http//www.mkeever.com/poland.htmlMurell, P. (1993). What is shock therapy? What did it do in Poland and Russia? Post-Soviet Affairs , 111-137.Nam, C. W. (2004). 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Evaluation of a Possible Development of the Transportation Network in Poland Supported by the EU Funds. Olsztyn Economic Journal , 357-379.TradingEconomics. (2009). Literacy rate youth total (% of people ages 15-24) in Poland. Retrieved 7 April, 2011, from Trading Economics http//www.tradingeconomics.com/poland/literacy-rate-youth-total-percent-of-people-ages-15-24-wb-data.htmlUni ted Nation Conference of Trade and Development. (22 July , 2010). World Investment Report 2010. Retrieved 7 April, 2011, from Invest in Poland http//www.paiz.gov.pl/files/?id_plik=13224 adjunct vermiform appendix 1Polands economic growth has been steady with the exception of the economic crisis in 2008.Source Adapted from (Eurostat, 2011)Appendix 2PESTLE AnalysisIn this essay, I utilised the Political and Economical factors in the PESTLE analysis. The PESTLE analysis provided me a clear framework to facilitate my research on the essay.Appendix 3Polands have high unemployment rate. However, over the last few years, unemployment has been decreasing steadily.CUsersNicoDesktopunemplo.pngSource Adapted from (Eurostat, 2011)Appendix 4The Polish currency, Zlotych had depreciates against the Euro from 2008 to 2009 which caused the Polish currency to be more competitive in the market. Low currency value reduces the cost of borrowing hence it attracts investors to invest more in the country. Furthermore, the exchange rate is very stable, making it a reliable currency.Source Adapted from (National Bank of Poland, 2011)Appendix 5Polands domestic consumption is much bigger than the export. The high domestic consumption is one of the reasons that allowed Poland to enjoy a positive GDP despite the current economic crisis.Source Adapted from (Laposte, 2010)Appendix 6Polands is generally stable politically with the exception of corruptions.Source Adapted from (McKEEVER INSTITUTE of ECONOMIC POLICY ANALYSIS, 2004)Appendix 7Porters Diamond Factors ConditionThe Porters Diamond factors condition analyses nations position in factors of production (E, 1990). From there, the key opportunity and threats can be highlighted clearly. In this case, the infrastructure is examined because it is the weak link in Polands economic growth. However, Poland infrastructure has been growing steadily (Business Monitor International, 2011).Appendix 8STEER AnalysisThe STEER analysis is the updated ver sion of the PESTLE framework. The main factor that differentiates STEER from PESTLE is the regulatory factor.