NEW GENERATION INNOVATION, INC.

You are the financial vice-president of New Generation Innovation, Inc., a large manufacturer of consumer durables that is considering expanding into two developing countries. Mountainia and Desertia recently split off from the former Soviet Union and may provide opportunities for both manufacturing and sales for your company.While the two countries have similar backgrounds and current GDPs, they differ substantially in economic policies. Because of limited resources, your company can only expand into one country.

You would like to invest in a country that will be growing rapidly so that the citizens will be able to afford to buy your products. Your job is to assess the prospects for investing in the two countries.

In making your decisions, you have met with the Minister of Commerce for Desertia, Ms. Andrei, and the Minister for Development for Mountainia, Mr. Vlad. Your company has also sent a number of representatives to the two countries to gather data to help you make your decision.

Mountainia

Mountainia has had a democratic and populist tradition. This has resulted in the people enjoying substantial civil rights after independence, including free speech and popular elections. However, the government has an inefficient civil service and a mixed record of enforcing property rights. Investment in education and physical capital is low even though public spending and the federal deficit are high.

Desertia

Desertia is run by a generally peaceful one-party government. The government budget has been balanced, with taxes and tariffs at a level typical