Question

​If countries’ economies are highly integrated, the correlations of their economic growth levels would likely be ____. A firm would benefit ____ by diversifying sales among these countries relative to another set of countries whose economies are less integrated

Answer 1

Answer:

Positive & High; Less

Explanation:

For Example:

The economic growth of countries in the Middle East are highly depended on international oil prices, the decline in the international oil prices led to the lower growth rate in all these countries; thus their growth are positively correlated.  

The diversification benefit for a firm would be less beneficial in these countries as change in any common macro variable of these highly correlated countries would have an impact on economic growth of these countries. However, the diversification benefit would be higher in those set of countries that are less integrated .