Country Analysis Paper

Governors State University

Managerial Economics

Dr.Andrews

Jennifer Lundgren

“Country Analysis of Italy and Spain”

Jennifer Lundgren 1

Executive Summary

In the proceeding sections I will discuss a brief history of Italy and Spain, and why this analysis is important to conduct. I will educate the reader about the political information and socio-economic information about each country in order to make sense of trends and breaks in the annual data. Each set of data will have a corresponding graph that will illustrate the trends more easily. I will then compare and contrast each country to look at why these trends have occurred, as well as look at major advantages and resources that each country possesses. Finally, I will perform a regression analysis of Italy and assess all the information given, in order to provide an educated evaluation of the information.

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Table of Contents

1. Introduction

1.1 The Country Analysis1.2 Purpose of the Analysis1.3 Brief on Country1.4 Discussion of Forthcoming Chapters

2. The Country2.1 Political Information2.2 Socio-economic Information2.3 Summary

3. Economic Analysis 3.1 The purpose of an Economic Analysis3.2 Country Performance Indicators

3.2.1 Macro Performance3.2.2 Sector Performance: Value Added3.2.3 Trade Performance3.2.4 Investment

3.3 Summary

4. Production and Resource Structure4.1 Major Companies4.2 Major Resources4.3 Competitive Advantages4.4 Locational Advantages4.5 Human Capital Advantages4.6 Social Capital Advantages4.7 Summary

5. Summary5.1 Critical Strengths and Weaknesses5.2 Critical Weaknesses5.3 Univariate of Forecast of GDP or Per Capita5.4 Summary

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Table of Figures

Fig 3.2.1 GDP

Fig 3.2.1 Population

Fig 3.2.1 Globalization

Fig 3.2.2 Agriculture

Fig 3.2.2 Industry

Fig 3.2.2 Manufacturing

Fig 3.2.2 Services

Fig 3.2.3 Exports

Fig 3.2.3 Imports

Fig 3.2.3 Net Exports

Fig 3.2.4 Gross Fixed Capital Formation

Fig 3.2.4 Gross Capital Formation

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1. Introduction

1.1 The Country Analysis

The country analysis provides an analysis of multiple factors concerning Italy and Spain that affect the economies of each. These factors include information regarding Agriculture, Gross Capital Formation, GDP, GDP per Capita, Gross Fixed Capital Formation, Industry data, The Imports and Exports, Manufacturing data, Population and Services that affect each country.

1.2 Purpose of the Analysis

The purpose of this paper is to compare and contrast each country, and evaluate any breaks or trends in the data that are present about the economies. In addition, we evaluate how/why each country differs from the other countries around the world. It is important to have some sort of understanding of how other economies are different from ours and what makes them different.

1.3 Brief on Country

The Italian Republic, became a nation-state in 1861 under the rule of King Victor EMMANUEL (The World Factbook)1. Italy has been a very strong country and the front-runner of European economic and political unification (The World Factbook). Throughout Italy’s history there have been multiple changes of government in order to better the country for their people. Recently, the country has struggled with sluggish economic growth, high youth and female unemployment, organized crime, corruption, and economic disparities between southern Italy and the more prosperous north (The World Factbook).

The Kingdom of Spain, joined to European Union in 1986. With the death of Dictator Francisco FRANCO in 1975 and the rapid economic modernization of this country, these two factors gave Spain a dynamic and rapidly growing economy and made it a global champion of freedom and human rights (The Worl Factbook). With the economic recession that began in mid-2008, Spain’s government has been focusing on reversing this recession and bringing the country back to their previous, great economic standards. Similar to Italy, the country is experiencing slow growth but not to the degree experienced by Italy.

1.4 Discussion of Forthcoming Chapters

In the following chapters, I will discuss Italy and Spain’s economies and any trends that are present along with why the trends are present. We will see if there are any cycles or structural breaks in the annual data and determine if a factor is similar or different between the two countries. This will determine if there is an international affect or if the country is experiencing this change alone. Chapter 3 provided a comparative view of both economies and the past and present economic conditions.

1 See https://www.cia.gov/library/publications/the-world-factbook/geos/it.html

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2. The Country

2.1 Political Information

In past years Italy has evolved through multiple forms of government. Before the 1920’s Italy operated with a parliamentary government, which is a cabinet of members from the legislature who have the power over all decisions, then proceeded to a Fascist dictatorship. This type of dictatorship occurs when a single person has control over everybody and makes all decisions, which usually leads to many problems. In 1946 a democratic republic replaced the dictatorship and this form of government currently takes place in Italy. This republic is a representative democracy in which the citizens elect representatives who then vote for the people of Italy on legislation (The World Factbook). There are 3 main political parties in Italy; the Center-right parties, The Center-left parties and The Centrist parties. The Center-right parties are similar to the United States’ Republican Party. The Center-left parties are similar to the United States’ Democratic Party. The Centrist parties are in the middle of the two parties and don’t take any specific side of a topic. There are more than 16 total combined parties under these three main political parties.

Spain currently operates with a parliamentary monarchy. This form of government has a leader who is not actively involved in policy formation or implementation (The World Factbook). The government is carried out by a cabinet and its head- a prime minister, premier, or chancellor- who are drawn from a legislature, also known as a parliament (The World Factbook). Spain has many different political parties but I will only name a few. The Amaiur is a collective leadership political party that is a separatist political coalition that advocates Basque independence from Spain (The World Factbook). Another party is The Ciutadans which is an anti-separatist party. The Convergence and Union party or CiU is a multiple democratic party (The World Factbook). Finally, there is the opposite party, The Republican Left of Catalonia party, which is a republican party.

2.2 Socio-Economic Information

According to the United Nations Development Programme (UNDP), the UNESCO Institute for Statistic’s (2013) ranks countries on the number of students enrolled in primary, secondary and tertiary levels of education, regardless of age, as a percentage of the population (The Human Development Report, HDR, 2014). As of 2000, Italy had 82% of the population enrolled in education programs and by 2012 that number increased to 90%. This statistic indicates that a very high human development is present. The life expectancy for Italy was previously about 74.1 years of age and has increased to about 82.4 years of age, from 1980-2013(HDR). This data is also a very high human development indicator. Another source of information about a socio-economy is income. According to HDR, Italy’s income index increased from .822 to .874 between 1980 and 2013; that is the HDI grew 6.3%. This indicates Italy has a high to very high human development in the country. Italy’s HDI of .874 is above Spain’s HDI, but Spain’s index is growing faster. Overall, Italy is doing very well in regards to their economic growth and the sluggish economy is moving along faster now.

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Spain is similar in many ways to Italy. Both countries have very similar data with regards to socio-economic information. Spain’s overall combined gross enrolment in education for both sexes increased from 92% to 106%, respectively (HDR). This statistic indicates that their gross enrolment for the country is in the very high human development area for years 2000-2012 and also exceeds this area by a good amount. Life expectancy for Spain started at about 75.1 years of age in 1980 and increased to 82.1 years of age in 2013. If we compare Spain and Italy’s life expectancy, Spain had a higher life expectancy in 1980 but progressed slower as time went on. Spain is below Italy’s life expectancy by .3 years of age for 2013. Finally, the Income Index for Spain increased from .789 to .864 between 1980 and 2013, or increased 7.5%. The income index of Spain’s population seems to be increasing faster over the years compared to Italy, even though Spain is still under Italy’s index.

2.3 Summary

Overall Italy and Spain share many similarities but also possess very distinct differences. Each country operates with a different form of governments and has a variety of different political parties. Italy functions on a democratic republic where the citizens elect one person to vote for the population but Spain is the opposite. Spain’s form of government is a parliamentary monarchy, where the leader does not make the decisions. The decisions are made by the cabinet and the head of the monarchy. Other than the above differences, Italy and Spain are very similar in the socio-economic sector. Both countries are increasing in different areas at about the same rate and also share similar levels of the data that is presented. Each country is increasing and decreasing at similar rates.

3. Economic Analysis

3.1 The Purpose of an Economic Analysis

I want to conduct an economic analysis to look at trends, breaks and cycles, within Italy and Spain’s economic data. During this process, we will acquire critical information regarding each country and make an educated guess of why something is happening as well as distinct differences and similarities that are present.

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3.2 Country Performance Indicators

3.2.1 Macro Performance

Figure 3.2.1Gross Domestic Product for Spain and Italy

Spain and Italy are growing at a very similar rate but Italy has a significantly higher GDP than Spain. There seems to be a cyclical fluctuation that occurs very gradually over these 54 years. This cycle occurs from normal economic fluctuations. There is an international effect present as well because around 2007, both of the country’s GDP decreases which means the economy is not growing anymore. This decrease could possibly be from the economic recession that hit each of these countries equally.

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Figure 3.2.1Population for Spain and Italy

In the above graph, both countries have increasing populations and are rising by a secular trend. This type of trend exhibits a growing population for both Spain and Italy over time. At about the year 2000 Spain’s population drastically increased by 5 million people in just 7 years. Italy’s population increased a little faster than in the past, but still wasn’t as steep at Spain’s increase. A rapidly growing population could be a result of an increase in birth rates and immigration, and/or a decrease in the death rate.

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Fig 3.2.1Globalization for Spain and Italy

Starting with the year 1960 both countries have experienced increasing/growing globalization, which is when businesses in a country “move beyond domestic and national markets to other markets around the globe” (Investopedia.com). If we analyze the overall trend of both Spain and Italy we can see that the domestic market is not growing and both countries are growing in markets outside of the homeland. Around 2007 though both Spain and Italy experience a decrease in globalization and an increase in domestic and national markets. This event might have happened because of the recession that hit countries such as Spain and Italy, so these countries limited exports and imports during this hard time.

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3.2.2 Sector Performance: Value Added:

Fig 3.2.2Agriculture for Spain and Italy

Starting around 1990 Italy started recording their Agricultural data and Spain followed only five short years later. The trends presented in the annual data occurred from irregular influences. This type of fluctuation results from events such as wars, natural disasters, strikes or other unique events (Salvatore).


Fig 3.2.2Industry for Spain and Italy

From about the half point of the 1990’s Spain’s Industry was steadily growing until about 2007 and started decreasing/not growing up until 2014. Italy on the other hand started Industry growth at a much higher rate but has many more fluctuations over the years. It seems that both countries encountered a problem, such as the recession, which affected each country’s industry. Since 2007 Spain has been steadily decreasing and not growing. Italy on the other hand started off in 2007 decreasing but at about 2010 Industry rates started growing at a constant rate for about two years, become constant with no change, and then started decreasing/not growing again in 2012.


Fig 3.2.2Manufacturing for Spain and Italy

In the above graph only Italy’s annual data is provided for us. In this data there are random influences that is affecting manufacturing in Italy. The manufacturing sector started decreasing but in 1998 Italy saw a spike in manufacturing rates. After this point in time Italy’s manufacturing sector started growing overall but as soon as 2007 came, the recession, these numbers declined drastically.


Fig 3.2.2Services for Spain and Italy

In the above graph Italy’s growth in Services is significantly higher than Spain’s growth but each country has been growing at a similar rate. Italy has a higher rate of fluctuation over time though. Both Spain and Italy’s services increase until about 2007 and after this point Spain begins to level off/not grow. Italy’s services also begin to not grow after 2007 and decrease but that sharply changes over the next few years.


3.2.3 Trade Performance

Fig 3.2.3Exports for Spain and Italy

In the above Exports graph Spain and Italy start off exporting goods at the same rate. Over time Italy’s export rate increases a lot faster and experiences minor fluctuations over the years. Once again, both countries seem to be affected by the recession that occurred in each country by a decrease in exporting goods. The economic recession has been an international affect thus far.


Fig 3.2.3Imports for Spain and Italy

This graph illustrates the amount of movements of imports for Spain and Italy. Italy has a higher rate of importing goods and is growing at a higher rate overall. At about the year 2007 both Spain and Italy are affected by the recession, therefor import rates decrease for a few years, increase for a short time after, and then begin to decrease and/or not change. Besides the recession, many other factors can affect imports/exports over time.


Fig 3.2.3Net Exports of Spain and Italy

The above graph of Net Exports is very interesting. As we interpret this graph we have to notice that 0 is when exports equal imports. If we start looking at Spain, we can see that net exports are mainly positive until 1988. A positive number means that the country is gaining money from a large amount of exports that is happening, therefor Italy is doing well at exporting goods up until this point. After about 1988 Spain’s Net Exports falls drastically (negatively; the country is not making money) but increases to above zero for a short amount of time, then decreases farther than ever before in the country’s history (in 2007). After 2007, Spain worked on bringing Net Exports back up into positive numbers and making money which they accomplished. Next, Italy starts off with negative/declining Net Exports but over time is affected by many irregular influences within the country. Overall, Italy started off below Spain’s Net Export’s rate but is now ahead of Spain’s Net Export’s rate, and is making more money for the country than Spain is.


3.2.4 Investment

Fig 3.2.4Gross Fixed Capital Formation for Spain and Italy

The trends in the Gross Fixed Capital Formation (GFCF) graph are experiencing a cyclical fluctuation. While both Spain and Italy are growing over time, “major expansions and contractions” in the country “seem to recur every several years” (Salvatore). GFCF is the “improvements on land; plant, machinery and equipment purchases; and the construction of roads, railways, and the like...” (The World Bank). In the above graph we can interpret that Italy is improving and growing at an elevated rate and at a more constant speed over time. On the other hand, Spain’s GFCF started growing at a lower level and at about the year 1998 GFCF increased at a greater rate than ever before. At about the year 2007, both Spain and Italy’s GFCF decreased in growth drastically because of the recession that took place. Both countries are still trying to recover their Gross Fixed Capital Formation at this time.


Fig. 3.2.4Gross Capital Formation for Spain and Italy

When looking at the data presented for the Gross Capital Formation (GCF) for Spain and Italy, we can interpret that Italy has a higher rate of GCF. GCF consists of the amount of money spent on “additions to fixed assets of the economy plus net changes in the level of inventories” (The World Bank). As mentioned in the graph of the GFCF, all the mentioned factors contribute to an increase or decrease in GCF. Italy and Spain experienced irregular influences that affected each country.


3.4 Summary

In this overall section of Economic Analysis, Spain and Italy were greatly affected by the recession. The recession turned out to be an international affect. Both countries had very similar trends of increasing and decreasing growth as well as similar cycles/fluctuations in all categories. Spain and Italy also had a few distinct differences. In almost all categories/sectors of the economy, Italy had significantly elevated data when compared to Spain. This expresses that Italy has a more advanced economy and is more developed when compared to Spain.

4. Production and Resource Structure

4.1 Major Companies

4.1.1 Italy

Arnoldo Mondadori Editore S.p.A. is a publishing business that produces books, magazines, radio broadcasts and sells advertisement spaces (Mergent Online, MO). This company also carries out retailing activities through directly owned stores and franchised stores, and a direct marketing and mail order selling activity for publishing products (MO). As of December 31, 2013, this publishing company had owned 19 book stores, 322 franchised stores, 190 newsstands and 23 book clubs (MO). Ernesto Mauri, the CEO, and Enrico Codde, the director, have a staff of over 3,000 employees working at this company and an annual revenue that totals over $1.27 billion. Their NAICS code is .

CNH Industrial is a holding company and through its subsidiaries, is engaged in the construction of farm machinery and equipment manufacturing (MO). CNH constructs a number of different items such as trucks, commercial vehicles, and vehicles for firefighting, as well as parts for these different vehicles such as engines and axels. This company is divided into 3 different operating segments: Agricultural Equipment, Construction Equipment, Commercial Vehicles, Powertrain and Financial Services (MO). Richard Tobin, the CEO of CNH Industrial, has over 69,000 employees as of 2014, and an annual revenue of over $32 billion. Their NAICS code is 333111.

Juventus Torino is an Italian football club from Turin, Italy and has about 92 employees, as of 2014 (MO). Their main business is their participation in competitions nationally and internationally, as well as the organization of different matches around the world. Most of Juventus Torino’s $315.7 million revenue comes from sporting events, the Juventus brand and image, sponsorships, and the selling of advertisement spaces (MO). An interesting piece of financial information about Juventus is that the revenue per employee is $3,432,425. We can assume that this company’s employees hold a lot of value for the chairman, Andrea Agnelli, and CEO, Giuseppe Marotta. The NAICS code for Juventus Torino is 711211.

Sorin SpA is a company in Milan, Italy that provides services and products that treat cardiovascular diseases. Sorin develops, produces, and distributes medical devices for cardiac surgery and the treatment of cardiac rhythm dysfunctions (MO). The CEO, Andre-Michel Ballester, has over 3,000 employees as of 2013 and an annual revenue of $738.4 million.


Ballester and the company are focused on two main therapeutic areas: cardiac surgery and cardiac rhythm management. The devices in these areas include pacemakers, implantable cardiac defibrillators, and cardiac resynchronization therapy systems (MO).

4.1.2 Spain

Banco De Sabadell is a bank holding company in Barcelona, Spain and provides a range of financial and banking services in country and internationally. Sabadell provides investment banking, private banking, portfolio management, mortgage loans, commercial loans, as well as other financial products, and deposits and international banking operations (MO). The chairman, Jose Oliu Creus has over 127,000 shareholders in the company and employs over 16,000 full-time people as of 2013. This company has a revenue of $7.6 billion and their NAICS code is 522110.

Construcciones y Auxiliar de Ferrocarriles is a construction company in Beasain, Spain and provides railroad equipment and railroad rolling stock manufacturing around the world. This company is engaged in the manufacture, repair, maintenance, purchase, sale, lease, import and export of all equipment, materials and activities that Ferrocarriles carries out (MO). The chairman, Jose Baztarrica Garijo, operates the business with over 7,000 employees and has an annual revenue of over $1.55 billion. The Ferrocarriles Company has about 25 main competitors and falls close to the middle when comparing revenues. Their NAICS code is 336510.

Papeles y Cartones de Europa is in the rubber products sector and they create products from raw materials and chemical products. They also produce cellulose fibers and by-products, as well as manufacture paper for printing, packing, tissue, and writing paper (MO). Their chairman is Jose Isidro Rincon and his company has annual revenues of over $803 million. Papeles y Cartones has aover 2,000 employees as of 2013. Through their substidies, they are also involved in the generation of high steam pressure and electric power from the fuel of natural and liquid gases (MO). Their NAICS code is 325221.

Zeltia SA Vigo is placed in the Biotechnology sector, as well as the Chemical sector, and is positioned in Vigo, Spain. This company is a biotechnology group that is engaged in the discovery and development of marine derived compounds focused on the treatment of medical needs such as cancer and the Nervous Central System (MO). Zeltia SAVigo’s subsidiaries are involved in the development, discovery, and commercialization of marine derived anti-cancer drugs (MO). This company roughly has 628 employees as of 2013 but has an annual revenue of over $141.8 million. After looking at their company financials from 2009 to 2013, it looks like the company is shrinking and making less money or funds are decreasing overall. This could create a problem within the company and officials might have to lay off employees. Their NAICS code is 325412.

4.2 Major Resources

Italy has a very diverse economy that is divided into two parts; the developed industrial north is dominated by private companies and the agricultural south is less developed, highly subsidized and has higher unemployment (The World Factbook). A large part of this economy is


driven by small and medium size businesses that produce high-quality consumer goods. Italy’s economy can be broken down into 3 sectors of origin: agriculture, industry and services. The agriculture sector accounts for 2.2% of Italy’s GDP and includes products such as fruits, vegetables, grapes, potatoes, sugar beets, soybeans, grain, olives, beef, dairy products and fish (The World Factbook). This sector seems to be the least important in terms of making money for the country because little production is present. The second most important sector of origin for Italy is Industry. Industry accounts for 23.9% of Italy’s GDP and includes tourism, machinery, iron and steel, chemicals, food processing, textiles, motor vehicles, clothing, footwear and ceramics (The World Factbook). This sector accounts for about ¼ of Italy’s economy but is very important because even though this is a small portion of the entire GDP, a large part of Italy’s labor force works in this sector, 28.3% (The World Factbook). The most important sector of origin in Italy is their services. Services account for 73.9% of Italy’s entire GDP. The services sector drives Italy’s overall economy and includes imports, exports, transportation in the country, as well as services from small, medium, and large businesses that make consumer goods. Italy is a rapidly growing country and greatly depends on their services and industry sectors to work together, and produce goods and services for the whole country as well as countries around the world. Italy and Spain are similar in terms of GDP composition of the sectors, but each sector varies and is different between each country, specifically each industry sector.

As of 2009, Spain experienced a decrease in GDP which ceased the country’s 16 year growth trend and continued to decrease through 2013. Late into 2013, the economy started to grow again but high unemployment was still a problem and weighed heavily on domestic consumption (The World Factbook.). Spain can be broken down into 3 sectors: agriculture, industry and services. Agriculture accounts for 3.2% of Spain’s total GDP and includes products such as grain, vegetables, olives, wine grapes, sugar beets, citrus, beef, pork, poultry, dairy products and fish (The World Factbook). Even though agriculture is a small portion of their total GDP, Spain uses agriculture for exporting goods in their services sector. The second most important sector of origin is industry. Industry accounts for 25.4% of Spain’s total GDP and includes textiles and apparel/footwear, food and beverages, metals and metal manufactures, chemicals, shipbuilding, automobiles, machine tools, tourism, clay and refractory products, pharmaceuticals, and medical equipment (The World Factbook). This sector accounts for about ¼ of Spain’s total GDP and even though this is a small portion, Spain relies on how much its country can produce and distribute. The most important sector of origin is services. Services account for 71.4% of Spain’s total GDP and include imports and exports, and business production and distribution in the country. Services accounts for 58.4% of the labor force in Spain and is extremely important for the country (The World Factbook). Towards the end of the recession that took place in Spain, the country was able to use their services sector, specifically exports, to bring their current account in surplus in 2013 for the first time since 1986 (The World Factbook). Each sector is very important for Spain and I believe it is a necessity for all 3 sectors to work together in order to continue to increase and improve Spain’s economy.

4.3 Competitive advantage


One competitive advantage that Italy possesses, at least throughout Europe, is that they have the third-largest economy in the euro-zone (The World Factbook). Italy’s large, growing economy holds many advantages and opportunities for the thriving country because the more money Italy can generate, the more money the country can use to further develop. Another competitive advantage Italy holds when compared to countries around the world, is that Italy is ranked #12 of the top 223 countries when comparing amount of exports. Italy exports $500 billion worth of goods and services, and the top exporting country, China, exports $2.252 trillion worth of goods and services (The World Factbook).

A strong competitive advantage that Spain possesses is how much the country imports. Spain ranks as #17 on the list of country comparisons of imports (The World Factbook). The United States ranks #1 on this list. It is important for Spain to increase their spot on this list as well as increase their exports because these two factors, imports and exports for the country, are important to increase revenue for the country. An increase in imports and exports would in turn increase revenue, and therefor would boost the country’s economy, and increase the speed of development for Spain. Overall, Spain imports commodities such as machinery and equipment, fuels, chemicals, semi-finished goods, foodstuffs, consumer goods, and measuring and medical tool instruments (The World Factbook).

4.4 Locational Advantages

Italy’s main locational advantage is that the country is mainly made up of 7,600km of coastline (The World Factbook). This long coastline means that it is easier for the country to import and export goods and services. Italy ranks #36 in the world for waterway use for commercial traffic (The World Factbook). Italy takes great advantage of the geographies of the country and could use the waterways more to improve businesses inside the country. Also, Italy’s coastline draws in many tourists each year which generates a lot of money for the country.

Spain possesses a very strong locational advantage because the country controls a number of territories in northern Morroco including the enclaves of Ceuta and Melilla, and the islands of Penon de Velez de la Gomera, Penon de Alhucemas, and Islas Chafarinas (The World Factbook). Spain can control, restrict and allow any activities that go on within these territories. Spain also possesses 4,964 km of coastline that the country uses for importing and exporting goods and services, as well as drawing in thousands of tourists a year.

4.5 Human Capital Advantages

Italy is ranked #26 by producing goods high on the value chain with one of the world’s best business clusters (Global Competitiveness Report, GCR)2. Italy continues to succeed in the more complex areas measured by the Global Competitiveness Index, GCI, of having sophisticated businesses in the country (GCR). The overall intelligence and growth present in these businesses relies on Italy’s citizens who operate these companies. Italy has a human capital advantage when it comes to the businesses inside the country.

2 http://www3.weforum.org/docs/WEF_GCR_CountryProfilHighlights_2011-12.pdf


Overall, Spain ranks #3 at secondary enrollment and #18 at university level enrollment for high education around the world (GCR). Even though it is reported that Spain has an inadequate educational system, it is important to first look at the enrolment rates for school classes. Spain first needs to improve their education system while these enrolment rates are very high, and then their overall leverage of educational enrolment will increase and benefit the country even more.

4.6 Social Capital Advantages

One social capital advantage that Italy possesses is their citizen’s abilities to work together efficiently and effectively, and operate the county’s businesses very well. Italy remains the third-largest economy in the euro-zone. I believe this high ranking is a result of positive social networking between employees and businesses, as well as positive coordination and cooperation between employees.

Spain does not have many social capital advantages but I believe Spain can improve their social capital by measuring and improving ways of social networking and norms that affect their communities (The World Bank)3. By measuring these factors, Spain can ultimately measure productivity between their citizens and improve their social capital within the country.

4.7 Summary

Italy and Spain are affected by a variety of factors that affect their individual advantages. Italy has 3 times as many companies inside the country compared to Spain, and therefore, Italy has a bigger and faster growing economy. Both Italy and Spain share similar major resources such as agriculture, industry and services. Both countries use services the most throughout each country, but Italy uses services about 20% more than Spain does. Spain uses each sector of origin more equally distributed. Overall, Italy and Spain rely heavily on their coastlines as a competitive advantage, and this drastically improves each country’s ability to export and import goods and services.

5. Summary

5.1 Critical Strengths and Opportunities

Italy and Spain have strong governments which is a strength of each country. Both governments have a group of head individuals that are ultimately selected by the citizens of each country and I believe this is the best way for a country to be run. Next, both Italy and Spain have very high and increasing rates of educational enrollments within each country, and this is a very important factor to each economy. Italy is a bigger, faster growing economy and there are many more small to medium businesses that support the economic growth of the country, and these businesses are an important factor to Italy’s success. Spain has been in a slump over the last few years with their declining economic growth but now their economy is starting to increase and improve more. Both Italy and Spain rely most on services to generate money for the economy

3 http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSOCIALDEVELOPMENT/EXTTSOCIALCAPITAL/0,,contentMDK:20185164~menuPK:418217~pagePK:148956~piPK:216618~theSitePK:401015,00.html


but by improving this sector as well as improving agriculture and industry, Italy and Spain could drastically boost revenue and the overall quality of the economy.

5.2 Critical Weaknesses

Both Italy and Spain’s economies were hit hard by the recession in the late 2000’s and Spain specifically is struggling to regain its strength and growth compared to countries around the world. Spain is a smaller country compared to Italy, and struggles with different problems within the country such as controlling the coastlines and limiting refugees inside the country (The World Factbook). Even though Italy is a more developed country, the country itself is a lot bigger than Spain so Italy has a few problems as well. Italy has an issue with controlling the amount of illegal immigrants that enter the country from southeastern Europe and northern Africa (The World Factbook). Italy also has a problem with the amount of illicit drugs that enter the country, which has raised crime and increased smuggling across the borders.

5.3 Univariate of Forecast GDP or Per Capita

Dependent Variable: LOG(GDP_ITA)

Method: Least Squares

Date: 04/09/15 Time: 20:26

Sample (adjusted): 1990 2013

Included observations: 24 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C -8.04E-07 2.03E-07 -3.965315 0.0011

LOG(M_ITA) -8.53E-10 1.08E-09 -0.791984 0.4400

LOG(X_ITA) -6.32E-09 1.76E-09 -3.595677 0.0024

LOG(GDPPC_ITA) 1.000000 7.03E-09 1.42E+08 0.0000

LOG(POP_ITA) 1.000000 1.06E-08 94094987 0.0000

LOG(GCF_ITA) -6.53E-09 3.27E-09 -1.996951 0.0631

LOG(GFCF_ITA) -1.80E-09 2.45E-09 -0.732596 0.4744

LOG(MAN_ITA) 7.47E-09 2.37E-09 3.155469 0.0061

R-squared 1.000000 Mean dependent var 28.17565

Adjusted R-squared 1.000000 S.D. dependent var 0.078139

S.E. of regression 1.28E-10 Akaike info criterion -42.45971

Sum squared resid 2.62E-19 Schwarz criterion -42.06702

Log likelihood 517.5165 Hannan-Quinn criter. -42.35553

F-statistic 1.23E+18 Durbin-Watson stat 1.927669

Prob(F-statistic) 0.000000


The above graph displays the least squares model of regression analysis using logarithms. If we look at the t-statistic, the absolute value of the value should be above 2 so we can eliminate M (imports of goods and services), the GCF (gross capital formation), and the GFCF. Next we look at the P-values and all values should be less than 5%. We don’t have to eliminate any more variables than we have. Now we look at the R2 value which measures the success of the regression in predicting the values of the dependent variable within the sample. R2 is 1 which means that the regression fits perfectly. We can finally look at the variance inflation factor, which tests for multicollinearity, and test for this value by solving the equation 1/1-R2. I get a value of 0, which means there is no multicollinearity. Overall, X, GDPPC, POP, and MAN are good predictors and belong in the regression equation.

Dependent Variable: GDP_ITAMethod: Least SquaresDate: 04/11/15 Time: 14:51Sample (adjusted): 1990 2013Included observations: 24 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C -2.01E+12 9.25E+10 -21.72117 0.0000GCF_ITA -0.029363 0.059352 -0.494727 0.6275

GDPPC_ITA 58402999 977975.1 59.71829 0.0000GFCF_ITA 0.007005 0.038298 0.182903 0.8572

M_ITA -0.012025 0.016519 -0.727936 0.4772POP_ITA 34247.85 1226.663 27.91952 0.0000

X_ITA -0.066893 0.025240 -2.650229 0.0175MAN_ITA 0.193217 0.061276 3.153231 0.0062

R-squared 0.999984 Mean dependent var 1.73E+12Adjusted R-squared 0.999977 S.D. dependent var 1.33E+11S.E. of regression 6.33E+08 Akaike info criterion 43.63221Sum squared resid 6.42E+18 Schwarz criterion 44.02489Log likelihood -515.5865 Hannan-Quinn criter. 43.73639F-statistic 143825.2 Durbin-Watson stat 1.784382Prob(F-statistic) 0.000000

The above graph displays the least squares regression analysis of levels. We can first look at the t-statistic and this value should be greater than the absolute value of 2. We can eliminate GCF (gross capital formation), GFCF, and M (imports of goods and services). Next if we look at the p-values which should be less than 5%, we do not have to eliminate any more variables than we already have. R2 is the fraction of the variance of the dependent variable explained by the independent variables. Our R2 value is .99 which means the regression almost fits perfectly. Finally if we look at the variance inflation factor, that value is less than 0 which means that there


is no multicollinearity. Overall, GDPPC, POP, X and MAN are good predictors and belong in the regression analysis.

5.4 Summary

Even though Italy and Spain have vastly different economies, different rates of growth, and different levels of population, both countries are very similar as well. Both Italy and Spain have long coastlines that aid importing and exporting goods and services, and both countries rely heavily on services within the country for financial leverage. Spain was affected by the recession a lot more than Italy was, and is just now positively improving their economy. Overall, both countries are constantly improving and looking for better, more efficient ways to grow and provide more for their citizens.


Works Cited

1. The World Factbook (Online)

2. The Human Developmental Report (http://hdr.undp.org)

3. Globalization Definition. Investopedia." Investopedia. N.p., 20 Nov. 2003. Web. 09 Apr. 2015

4. Salvatore, Dominick (2015) Managerial Economics In a Global Economy (Oxford: Oxford University Press)

5. The World Bank (2008) World Development Indicators

6. Mergent Online


http://hdr.undp.org/

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