Growth Theories and Asian Economic Growth - Essay Example

?Business in Asia Table of Contents Table of Contents 2 Lecture 2 3 Question 3 Question 2 3 Question 3 4 Question 4 4 ial 2 5 Question 5 Tutorial 3 6 Question 1 6 Question 2 7 Question 3 7 Lecture 3 8 Question 1 8 Question 2 9 Question 3 10 Question 4 10 Lecture 4 11 Question 1 11 Question 2 12 Question 3 12 Question 4 13 Tutorial 14 Question 1 14 Question 2 14 Lecture 2 Question 1 The three central questions for economic growth are 1. What is the reason for irregularity in wealth between countries? 2. What is the engine of economic growth? and, 3. For what reasons a few countries grow faster compared to other countries? These three are the major questions which can help to understand the economic growth and the reasons why it differs from one country to the other countries. It can be observed that the poorer countries are far behind in terms of Gross Domestic Product (GDP), Per Capita Income and other developmental indices. The growth of economy is directly related with income of people (Slide no. 3, 4 and 5). Question 2 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 (Slide 13). 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. Question 3 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 a credit or lending induced boom is unmanageable. Introducing money into the economic system can make the interest rate artificially low and can temporarily fuel the economic growth. These situations leave no path other than open market to amend the interest rates which can ultimately balance the savings and investment (Slide 52). Tutorial 2 Question 1 According to endogenous growth theory, economic growth can arise from the influence of outside factors of economy. It assumes that economic success is mainly impacted by external rather than internal aspects. This theory concentrates on technological development as a major engine for economic growth and depicts that a country cannot be developed unless it continues to improve in technology. According to neoclassical growth theory, the economic development can be achieved through investment, technology and employees. This theory defines economic development as unstable which is dependent on choice of people between savings and consumptions. In the long run, the productivity of per capital relies on the level of savings, but the rate of productivity growth should be balanced with savings. The classical theory assumes that supply of labor is endogenous and therefore argues that economic growth is dependent on people and resources. According to this theory, the factors such as labor and capital can determine the economic growth. The labor in this aspect is the physical labor which is dependent on the resources (Slides 40, 52). Tutorial 3 Question 1 Asian economic growth occurred mainly due to trade and investment. The investment rate and export orientation view is measured as the major aspect for growth of Asian economy. The private inland investment in Asia was effectively maintained though high degree of national monetary savings and comprehensive macroeconomic administration. It helped to maintain a stable economic atmosphere for private investment and reliability of banking system. The Asian countries had realized the influence of export for economic development and the exports in manufacturing sector had grown significantly. It facilitates absorption of foreign technology. Besides, the appropriate allocation of resources to high yield activities helped to increase the productivity. The High Performing East Asian Economies (HPAE) had successfully kept the price alterations within rational limits and was much open to adjustment with the foreign concepts and technology. The success of HPAE occurred mainly due to effective management of budget shortfalls, external liability, exchange rate and inflation (Slide 28). Question 2 In comparison with other Asian countries, in the countries like Japan, Korea and Taiwan, managerial resource distribution is convoluted in case of the private segments. The economic success of HPAE depends on less interfering paths taken by them compared to other countries in Asian region. Generally, the HPAE has maintained a macroeconomic constancy and achieved three functions of economic development which are accumulation, effective allocation of resources and prompt technological caching up. Besides, the macroeconomic significance relies on deficits of budget and how well they can be funded. The HPAE were capable of making shortfalls under the bounds enacted by their capability to finance without weakening the macro-economy (Slide 14). Question 3 East Asia is considered as one of the fastest rising economical geographies in the world. Economies of Hong Kong, Singapore, Japan have been addressed as models of development for other emerging countries. There is significant debate about the huge economic development of Asian countries, where a few economists view this as miracle. Several factors have been identified for the economic development of East Asian countries. The theorists have wondered whether the improvements in aspects such as capital accumulation, technological development, high savings and investment rates were the source of economic growth. Furthermore, the roles of government and macroeconomic policy were encouraging in Asian countries which had permitted and sustained the economic development. The other aspect of economic growth identified in East Asian countries is Total Factor Productivity Growth (TFPG) rates. South Korea, Hong Kong and Taiwan have positive TFPG rates in comparison with other Asian countries. On the other hand, the reasons for high standards of living in those countries were argued among governmental involvement, open market and productivity growth. East Asian economies do not reform better outer positioning; in fact they had applied free trade strategies with almost non-tariff obstructions (Slide 35). Lecture 3 Question 1 The pillars of the East Asian Miracle were studied by the World Bank. It was observed through their study that factors like export orientation, investment in human capital, inflation and budget deficits, effective control of the foreign debt, the management related to exchange rate and the government interventions acted as strong pillars which led towards the success of East Asia. The enhanced buildup along with distribution of resources within the industrial sectors which chiefly focused on exports were attributed as the vital and most contributing factor or pillar towards the success of the East Asian countries. The domestic investments got balanced and maintained with the help of increased degree of financial savings that was triggered in the domestic front. This increased degree of domestic savings in terms of finance was facilitated with the aid of superior macroeconomic management. There was a remarkable increase in the involvement or engagement of human capital in the industrial sectors which was considered necessary for the reason of implementing fresh technologies. The introduction of fresh technologies helped in attaining increased productivity by the organizations which again contributed to the economic development of the countries (Slides 12, 14, 15, 16, 17, 18, 20, 21). Question 2 The basic framework associated with the long economic growth could be mentioned to be guided by mainly three basic functions. These three basic functions could also be taken into concern as the vital sources that facilitate in initiating growth. The first function has been stated to be the effectual accretion of resources. The second function is related to the first one which entails the efficient distribution of the obtained of accumulated resources among the domestic industries and especially in those industries which mainly concentrated on exports. This helped the countries to earn increased revenues through these exports which further added to the development of the respective countries. The third function was stated to be the implementation of the latest technologies which helped the organizations to attain enhanced performance resulting in increased productivity (Slide 26). Question 3 Young’s view regarding the East Asian Miracle identifies the limitation in the Solow model of growth. According to the Solow model regarding growth, it has been stated that the rate of savings made needs to be increased and technological developments need to be adopted for the reason of attaining steady economic growth. However, it was stated in this regard by Young that this particular model fails to entail the factor of economic freedom that needs to be focused on and implemented with regard to the market of the East Asian countries. This factor of economic freedom in terms of the market was observed by Young to be the chief contributing factor as it triggers the attainment of complete productivity for the markets. The viewpoint of Young implies that there should be economic freedom in the markets (Slide 29). Question 4 The role of government and the formulation of macroeconomic policies were considered to be of vital significance for the reason of attaining Total Factor Productivity Growth (TFPG) or rather the technological development of the industries and the overall market. This particular factor triggered debate regarding the ascertainment of the growth factors for the East Asian countries. In this context, it was recognized by Hsieh that the both the approaches i.e. the Primal as well as Dual were needed to be considered for the reason of identifying the exact sources which led to the economic development of the East Asian countries. The Primal approach referred to the consideration of the quantities produced and the Dual approach referred to the consideration of the prices related to the factors of production that are the wages as well as the rates of interests that prevailed in the market. Young just entailed the inclusion and need of the primal factor to accomplish economic growth but Hsieh entailed the factors of primal as well as dual to attain growth (Slides 31, 31). Lecture 4 Question 1 Economic freedom refers to the basic right associated with the control or management of respective property as well as labor of the individuals. Economic freedom refers to the state where the individuals are considered to enjoy freedom to manufacture, work, invest and consume based on to their desire and satisfaction. This liberty is also sheltered and unimpeded by the government of that particular state where this economic freedom prevails. In this state of economy the rights of property of individuals are safeguarded by the government from any kind of hostility posed by others (Slides 21, 22). The economic freedom of a state could be gauged or measured with the application of the Economic Freedom of the World (EFW) index. This particular index entails the employment of 42 diverse components to gauge the consistency of the policies as well as institutions of around 141 countries with regard to the economic freedom (Slides 25, 26). Question 2 Economic development refers to the overall development with regard to a state. It implies to the ability of a state to earn revenues from its production functions along with trimming down poverty as well as inequality. Economic development could also be stated to be the degree of progress achieved by a particular state compared to its previous years (Slides 13, 59). It has been mentioned in this context that there exists no barometer or measuring tool for the economic development but it can only be gauged with the assistance of indicators. A way of measuring it has been mentioned to be with the help of Human Development Index (HDI). This way of measurement is recognized to be a standard way of gauging the welfare. This form of measurement entails three vital factors which help in the ascertainment of developing, developed and under-developed countries (Slides 16, 18). Economic growth is considered to be different from economic development as economic growth has been stated to be a facet and a division related to economic development. Development entails the lessening of inequality, poverty as well as unemployment whereas growth is a way of gauging or ascertaining the well-being of the humans or individuals in a particular society (Slides 11, 13). Question 3 The data indicates that higher degree of economic freedom would mean increased average income of individuals. It was observed from the provided data that the countries with higher degree of economic freedom prompted increased rate of economic growth. The well-being of the individuals of a country increases as a result of higher economic freedom implying economic growth. As a result of the economic freedom the poverty decreases which further implies economic growth leading it to overall economic development (Slides 36, 37, 38, 39, 40, 41, 42, 43). Question 4 Competitiveness has been defined to be the structure of policies, institutions and factors which ascertain the productivity level of a particular country. Prosperity of a country is ascertained with the help of productivity with regard to an economy which is calculated with the worth related to the goods as well as services that is produced in relation to each unit of the available capital, human and natural resources in that particular country. Productivity would thus encourage increased wages, strong value to the currency and lucrative income derived from the employed capital which in turn would result in the enhancement of the living standard. Therefore, it could be well understood from the explanation that competitiveness helps to promote and achieve enhanced economic performance (Slides 51, 52, 53). Tutorial Question 1 The government of the countries need to structure policies and regulations which would encourage free trade, production, consumption and investment. The competitiveness of the countries needs to be promoted for the reason of increasing economic freedom. The policies need to be structured in a way which would facilitate the personal choice of individuals and prevent it from getting manipulated. The government should follow an efficient political process to distribute resources. The availability of sound money should be promoted as it is considered to be a vital factor with regard to safeguarding of the property rights as inflation wears down the worth of the property that is possessed in the form of monetary instruments. The government should also formulate policies which would promote and increase the international trades or transactions. Regulation needs to be carefully laid down with regard to labor, business and credit (Slides 23, 24, 26, 27, 28, 29, 31, and 31). Question 2 The three stages related to economic development are the factor determined stage, the efficiency determined stage and the innovation determined stage. The three stages are believed to be interdependent. These three mentioned stages help in achieving sustained amount of prosperity as well as growth. Therefore, the various factors entailed in the stages would help to ascertain the economic development of a country and comprehend its economic performance. The economic development would also determine the competitiveness for the countries. The development of one stage would add to the development of the other owing to its inter-reliance. These stages would also help in ascertaining the level of competitiveness as the basic factors which decide that the amount of productivity is entailed in the three mentioned stages. The data from different reports would help us comprehend the level of competitiveness along with the degree with regard to the economic development attained by observing the performance of the countries according to the three stages (Slides 59, 60, 61, 62, 63, 64, 65, and 66). Read More