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Business in asia - Essay Example

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The discussion will attempt to address the primary question framed as follows: What is the reason for irregularity in wealth between countries? What is the engine of economic growth? For what reasons a few countries grow faster compared to other countries?…
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Business in asia
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Business in asia

Download file to see previous pages... The researcher states that the classical growth theory argues that economic growth can negatively impact on the rising population and inadequate capitals. The classical theorists believe that short-term increase in actual GDP can result in population explosion which can ultimately reduce the actual GDP. The neoclassical theory depicts that steady economic growth can only be achieved with correct amount of labor, money and technology. It was the extension of “Harrod Domar Model” which tells that higher amount of savings and higher minimal production of capital can increase the growth rate of economy. In developing countries, labor is plentiful, but the capital is limited, which in turn reduces the amount of savings and leads to low investment and low economic growth. The endogenous growth theory depicts that economic growth is mainly the consequence of endogenous force and not due to external impact. According to this theory, investment in labor capital, invention and information are the significant elements which can determine economic growth. Endogenous theory also shows that policy actions can also influence on the long-term development of economy. In this theory, the engine of growth is the labor capital because endogenous theorists believe that if labor capital accretion increases then the productivity of employees and physical resources also increase. The endogenous theory observes innovation as one of the major determinants of technological development and productivity growth. Therefore, developing countries that invest more on research and development are able to accomplish higher paybacks. The Simple AK Model which is developed by Paul Romer (1990) is the modest endogenous model. This model shows that exclusion of lessening return can result in endogenous growth (Slide 40). Question 4 Austrian Business Cycle Theory seeks to clarify the economic succession which indicates variations in production or economic movement in a country. These variations happen around a long-standing development tendency and usually comprise alterations over a period of time between stages of boom and burst. The Austrian Business Cycle Theory observes business cycles as the unavoidable result of extreme development in bank credit, aggravated by integrally harmful and ineffectual central bank strategies which cause lower interest rates for longer period of time. It can result in unnecessary credit formation, hypothetical economic bubble and reduced savings. According to this theory, low interest rate for a constant period of time and extreme credit formation can result in unpredictable and uneven balance between savings and investment. The increase of credit can result in higher money supply and higher money supply leads towards un-maintainable boom during which the artificially induced lending reduce the investment prospects. Thus, the Austrian Business Cycle Theory denotes that bursts can happen if the lending or credit formation becomes unmanageable. A saving induced boom is maintainable, but ...Download file to see next pagesRead More
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