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Asian Economic - Essay Example

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Name of the of the professor Course number Date Asian economic and financial crisis Introduction Asia had been recognized, in the twentieth century, as an economic zone that is capable of depicting miraculous growth rate. The “real per capita income” (Wong 391) in the countries of Asia have increased on an average at the rate of 4 percent to 6 percent each year, since the mid 1900s…
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Download file to see previous pages “The 1993 World Bank policy research report” (Ryan 802) named The East Asian Miracle, identified eight “high-performing Asian economies (HPAEs)” (Ryan 802) and classified them into three distinct groups according to the duration of uninterrupted “positive real economic growth rates between 1960 and 1990” (Ryan 802). Japan alone occupied the first group. By the 1960s, Japan had already become matured as an economy by maintaining a remarkably high focus on economic development. Hence it had become a leader with an enviable record showing sustained economic growth for thirty consecutive years. The second group consisted of four countries recognized as ‘four Asian tigers’; namely, Singapore, Hong Kong, Taiwan and South Korea. All these four economies had witnessed soaring economic growth rates consistently since the mid-1960s until the mid 1990s. Three other countries, Thailand, Malaysia and Indonesia, were referred to as “newly industrializing economies (NIEs)” (Ryan 802) by the World Bank. These countries that made the third group of HPAEs had been included in the list of the HPAEs in the beginning of 1970s. The outstanding growth rates and economic performances reflected by the eight nations had one thing in common. Excepting Japan, which had been categorized as a developed country by the 1960s, all the other seven countries had adopted strategic macroeconomic policies and implemented them to manage their economic activities, coupled with carefully selected policy interventions by their individual governments. Research reveals that in all these cases, the government played a decisive role in mobilization of resources. Government policies were assisted by foreign direct investment (FDI) and technological transfer from other industrialized nations of the world, particularly Japan and the USA (Ryan 802). Causes of the financial collapse in Asian economies Heavy dependence on cheap labor input Initially, competitive advantage of these countries was founded on their endowment of abundant labor. Since supply of labor was abundant in these countries, labor input was cheap, which created competitive advantage for these countries in adopting labor intensive technologies of production. However, as the knowledge intensity increased in the exports made by these countries they increasingly started to rely on highly skilled labor force that was more productive than low skilled laborers and was also more disciplined. Krugman had made a controversial contention on the phenomenon of economic growth of the Asian economies (65). The renowned economist had put that these countries would inevitably face a downfall in their economic growth. Since the lofty growth rates of these countries were achieved principally through incorporation of higher amounts of labor input along with capital input into the production process of these economies. This led to higher output and hence higher GDP, but, did not increase the net level of productivity. This was a stage when the economies were moving along the revenue curve in the zone of increasing returns. According to Krugman, it could be anticipated that these economies would reach the range of diminishing returns (Krugman 65) that would ultimately ...Download file to see next pagesRead More
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