The_Economist

Title: Is there any hope without Iron?
Author: Omniscient
Language: En

Acknowledgements: Before I start writing, I would like to thank everyone who participated in the constructive input from my last article (“Development Strategies”) and contributed with ideas. Especially (but not only): Augustus Maximus (who besides providing me with useful sources also donated 2 Gold! ) ); Capitanul Panait; Heaven Inc; pui de dakay; Seductive Group; and not the last M3talik (who was generous enough to give me a gift for the article).

Last article was about Macro-policies, this article is more inclined into Micro, but with some tangencies toward policy perspectives. I decided to write this article in English for two reasons: First, so that others could read it too (not only from Romania) and Secondly because of the very “polite” way of pointing out Romanians use when you make a silly mistake .

Abstract:
From a political perspective, this article is as a response to the common belief that withot a highly productive region of Iron, there's no hope for a country!
From an Economic perspective: I will try to show the theoretical gains from a highly productive region using the productivity per worker. I also try to present why the decision-making based "solely" on the productivity of the region might not be always the best idea.
I will NOT try to present some policy perspectives for a country, but I assure they are self intuitive, depending on your objective and your political views (there is no Right and Wrong). I will provide (maybe) some of my views for policies in another article and IN ROMANIAN (so that Hungarian SPIES won't understand us! hehe *joke )
Conclusions: Don’t consider the mere Regional Productivity Factor.
The gains from a highly productive regions are high, however in terms of profitability for a rational entrepreneur it should not be "the only" guideline.
For the question: "How much is a highly productive region really worth?" The ONLY thing we have to analize is actually the derivative of the productivity function.
We can get the productivity function from the Wiki pages of the ERepublic:

W = 1/4 * A * B * C * D * E * F

Where D is the Regional Multiplier. Ceteris paribus, We are interested in the RELATIVE advantage of having a company in Region X (Where X has High Natural Resources coefficient (Iron in our example) and Region Y has Medium or NONE.

D = Regional Multiplier
No Regional Productivity = 0.01
Medium Regional Productivity = 1.00
High Regional Productivity = 2.00

Therefore, taking the derivative dW/wD = 1/4 * A * B * C * E * F
IT"S VERY easy to see that In relative Terms: W(x)/W(y) =2
Therefore a move from a region with Medium productivity to High productivity gives your firm a Boost of +100%!

The FIRST thing that comes into mind is WOW! You should NEVER invest ANYWHERE Else BUT regions with high Iron productivity and then you start searching them on the map!

Well... HOW BIG IS THAT in RELATIVE TERMS?
The thing that "many" of the entrepreners DO NOT observe however, is the boost you get from switching from a NO Regional productivity to MEDIUM Reginal Productivity. It's easy to fall in the trap of thinking that 1-0.01 = .099 therefore you get a 99% increase in productivity! WRONG!!!
You need to make the Ratio!
The Boost you get from No RP to Medium RP is 1/0.01 = 10000%!

Therefore, Investing in an Iron ore (Or Any other natural resource) in a region with NO RP is really DUMB! You;ll be amazed how many do that! You wonder who are they? just take a look at "Companies for Sale" that extract natural resources, you'll see a lot of them placed in a region with NO RP at all. They also try to convince you that you;ll get a "fair" price and the only reasone they are selling the company is because "they don't have time"! Don;t be fooled! Those companies are worth nothing! (I don;t know if there are moving tickets for the companies as well in this game, because if there are then they migh be worth something)

Should you invest your money ALWAYS in Regions with High productivity?
To answer this question, you also need to take into consideration also the WAGES!
You are not interested in the mere productivity, a Ratio you would really CARE when considering the production process is the Pr/W ratio:
Pr/W = (Productivity per Worker) / Wages
For example: To compare Ukraine (Podolia) with Romania (I forgot the region's name where productivity of Iron is Medium).
Let's take the average skill of a citizen being 3.5 on Land (and assume a constant Welness level (which by the way is MORE important than the Reg. Prod Factor)
The Market wage in Romania is 7.10 RON and
in Ukraine: 13.44 UAh
The Exchange rate: 1 RON = 0.6 UAH
Therefore the wages in Ukraine (in RON) = 13.44/0.6= 22.4 RON
22.4/7.10 = 3.15! >2

Therefore, from an economic perspective, it costs you less to extract Iron from Romania than from Ukraine, even though Ukraine has a HIGH RP but Romania does not!
Of course, this is NOT an Exhaustive list of things you should check when deciding should you invest or not!
You should also check HOW MANY PPL are residing in that country and How many firms are in that country that USE Iron? Are there a lot of workers with the skills you NEED? (in order to determine the elasticity.. which I admit is hard to do) What is the current price of the product in that country?
And most importantly: What are the country’s IMPORT TAXES to that respective resource (IRON)?
If the import Taxes are 0 or 1%, it means you'll have to basically COMPETE on productivity and wages with the whole world! Therefore you should be precarious when investing in a country that has a VERY LOW IMPORT Tax rate on that specific natural resource.
Thanks for reading, I hope for some ideas, critiques and so on. 
What policies should be DONE by a Government in oder to make an industry competitive (once it has a Medium region) and What should a country's policies be to mitigate the RISK of losing one region with HIGH RP is left to the reader as an exercise! But it shouldn't be that hard once u know the workings of Supply, Demand and Gov subsidies. I will also not say weather eRomania is on the "right" track and what should be changed. The reader should be able to deduce it for himself!


ps
Some MORE REALISTIC things for the Game Developers I would find cool:
"Creation of TRADE UNIONS" = Where a group of countries sets a specific import tax rate between them, and a DIFFERENT Import tax for the Enemy countries.
UNFORTUNATELY, there are NO Trade Unions in this game (as every country is free to decide its own trade policies), however I suggest that once a trade union is implemented in this game, countries with lower natural resource endowments will tend to improve their standings on the military level.