Analysis of the Trends of Economic Growth in Developing and Developed Nations - Essay Example

International Business Economics Table of Contents Introduction 3 A Brief Understanding About The Issue (Economic Growth) 4 A Detailed Analysis of the Trends of Economic Growth in Developing and Developed Nations 7 Impact of Economic Growth 11 Reasons for Developing Economic Growth 14 15 Recommendations and Conclusion 17 References 20 Introduction Economic growth or development has become a major concern within the global arena, considering the interplay prevailing between nations to gain international power. Contextually, the success rate of any nation is judged by its economic growth level. Economic growth can be defined as the notion of raising market value of goods and services overtime. The term ‘economic growth’ is often applicable in the context of describing short-term economic performances. In general, economic growth refers to an increase in capital over a comprehensive period. It is also defined as an increase in output, which an economy produces in two consecutive quarters. Thus, economic growth can be measured in nominal terms by taking into concern the factors like inflation and other economic indicators (Barro & Sala-i-Martin, 2004). Economic growth is usually calculated in real terms to eliminate the changing effect of inflation on the price of total goods produced. Whenever, one examines the modern economy and traditional development, the process of growth in an economy can also be identified at large. Identifiably, traditional economists have attempted to develop certain theories based on which the economic growth can be examined. This can be substantiated with reference to the fact that without the support of agriculture, industrialisation economic revolution cannot be made possible. The percent rate of increase in real Gross Domestic Product or GDP is measured as economic growth. The growth ratio of GDP is therefore called as per capita income. GDP growth indicates the increase rate in inputs such as capital, population or territory, which is known as extensive growth. On the other hand, an increase in growth caused by more efficient use of inputs is referred as intensive growth (Tahvonen, 2000). Based on the study of economics, one of the issues relating to international business economics i.e. “Economic Growth” typically refers to the growth of probable outputs like production at full employment in every field. Economic growth is generally eminent from the development in the sphere of economics. Meanwhile, economic growth is measured as the annual percent of GDP. Justifiably, GDP measures the market economy, which tends to exaggerate growth during the change from farming economy to household production. It is worth mentioning that the study of macro economics has a strong interrelation with economic growth, as it is fundamentally based on growth of agriculture and industrial production among others (Barro & Sala-i-Martin, 2004). With this concern, the prime intent of this essay is to discuss and analyse one of the international business economics based issues i.e. “economic growth” with consideration of varied significant aspects. These aspects mainly comprise the trends of economic growth in varied developing along with developed nations, its impact and the reasons for developing the same. A Brief Understanding About The Issue (Economic Growth) Based on the above discussed aspects, it can be affirmed that the issue of economic growth is incessantly becoming an important constituent towards changing the entire financial conditions throughout the globe. However, there exist certain critical factors that need to be taken into concern while designing effective polices for the promotion of economic growth in long run for reaping several significant benefits. These factors have been elaborately discussed in the following: High Rate of Consumption Economic growth is quite indispensable for raising the living standards of the people and generating maximum productivity from industrial concern (Alam, 2013). Owing to wider transformations in economic growth, major countries are apparently observed as using extra resources. It is quite obvious that the developing countries are not fortunate to use the accessible resources more effectively due to having certain financial obligations and most vitally having deficiency about the knowledge regarding the same. Over consumption is making the entire planet unhealthier in terms of disrupting political and most vitally financial conditions at large. Thus, to achieve the desired goals in the field of industrialisation, resource consumption has been increasing by major developing countries similar to the developed ones. It is often argued that due to unbalanced growth in economic indicators, rich countries are incessantly becoming quite richer and the poor nations are suffering with poor economic conditions (Douthwaite, 2014). High Rate of Population The global population rate is incessantly increasing in this modern day context. Thus, this high population growth rate has certainly created pressures in varied world economies. As per the economic theoretical analysis, high population growth rate generally reduces private and public capital formation and divert capital resources in multiple forms. For this particular reason, the stock of capital per worker has increased at large. It can be ascertained that modern economics has become more updated as compared to the traditional one. This can be justified with reference to the fact that in the traditional period, population growth rate was noted to be quite low as compared to this modern time. Specially mentioning, the uneven distribution of wealth leads to a situation, wherein the per capita income with reference to population growth rate does not match even with significant economic growth. In this regard, it can be asserted that due to the persistence of high level of dependency of the developing countries on the developed ones, the per capita income is not raising as per the expectations. This factor also contributes in generating maximum pressure on global economy (Easterlin, 2013). Unsustainability The issue relating to international business economics i.e. economic growth is identified to undergo through an unsustainable situation. These situations generally emerge at the time when the GDP rates get fluctuated and the people of developed as well as developing countries are undergoing through unsustainable states like disrupted living conditions in a community. It is quite obvious to the fact that the GDP rate generally raises at the time when people consume as well as spend more to certain goods or services. At the time of inflation, GDP rates often slope downwards, resulting in creating wide uncertainly level. This level of uncertainty has been creating an unsustainable growth in economy. Due to change in ecological environment, unsustainability in the global economy is identified to be emerged. This can be supported with reference to the fact that high consumption rate of natural resources create an unsustainable situation for economic growth level. Due to economic pitfall, a major portion of the businesses have not been able to sustain in this competitive market because of the rising prices of raw materials and other energy resources among others (Berg & Ostry, 2011). A Detailed Analysis of the Trends of Economic Growth in Developing and Developed Nations Developing Nations China China is recognised as one of the developing nations throughout the globe in this recent global economic scenario. At the end of Cultural Revolution in China, it can be apparently observed that new Chinese leadership began to reform the economy of the nation, making it more market- oriented mixed economy under one-party rule. Economic policies like Special Economic Zone (SEZ) have influenced the economic growth of China at large. Specially mentioning, as a member of World Trade Organization (WTO), China possess the largest trading power with international trade value of US$3.87 trillion in the year 2012. It can be apparently observed that in the year 2010, the GDP rate of China was recorded at 1.97 %, which reached to the level of 2.5% in the year 2011. However, in the year 2012, the GDP rate fall to the level of 1.4%, which seemed to be quite low as compared to other years GDP rate (Acemoglu, 2008). The below diagrammatical representation depicts the GDP rate of China during the period 2012 to 2014. Source: (Trading Economics, 2014) Colombia With the increased level of globalisation and internationalisation, the economy of Colombia is identified to be rapidly growing. Justifiably, the market of Colombia grew steadily with increasing amount of GDP rate over 4% during the period 1940-1998. Due to the global recession, which occurred in the year 1999, Colombia suffered with lessened financial growth. However, in the year 2007, the adverse economic conditions of Colombia got recovered by a considerable extent. As a result, the GDP rate of Colombia can be recorded as 6.9% in the 2007. As per the estimation of International Monetary Fund, the GDP rate of the nation reached to US$ 500 billion in the year 2012. Colombia is enriched with natural resources like minerals, fuels, precious stones and other essential products, which contributed in making the nation to sustain in the global business markets. It is worth mentioning that the Colombian economy is regarded as the combination of long and short-run financial process, which seeks to raise the GDP rate with immense development. Presently, Colombia is known as the resource supplier of several nations. It will be vital to mentioning that the growth of credit and other positive performance of Colombia Stock Exchange created a positive level of GDP rate. Tourism industry of Colombia is another important source of its economic growth. In the year 2013, Colombian tourism industry has gained 2.2 million as revenue. The GDP rate of Colombia, which shows a positive trend, can be better understood with the help of the following pictorial illustration: Source: (Trading Economics, 2014) Developed Nations United Kingdom United Kingdom is known as the sixth largest economy in the world and third biggest in the entire Europe. In the year 1997, the monetary policy of Committee of Bank of England can be held responsible for setting high interest rate during inflation period. Tourism industry of the UK has been ranked as sixth major destination throughout the world and in this regard, London is viewed to be the most popular international tourist destination. In the year 2005, service industry of the UK has contributed nearly 7% GDP to its economic growth. Manufacturing industry has been playing a significant role in developing the UK economy. In addition, the automobile sector also plays a decisive part in developing the financial growth of the UK. Notably, UK has been enriched with multiple industries such as BAE systems, UK Space Agency, Pharmaceutical and Aerospace industry that contributed maximum level of GDP for raising the economic growth of the nation at large. The below graphical representation depicts the GDP rate of the UK during the period 2004-2014. Source: (Trading Economics, 2014) Germany Germany is a place of social economic market with the employment of highly skilled workforce and large capital. In Germany, corruption level is identified to be quite low and innovation level is much. German economy is regarded as the fourth largest in terms of GDP throughout the globe. Germany was duly considered to be the biggest contributor to EU budget in the year 2011. It is the service sector of Germany, which contributed 71% of total GDP to its economic growth. On the other side, industry and agriculture provide 28% and 1% GDP respectively to its economic growth. Germany is also known for its leading trade fair place. The automobile sector of Germany is principally viewed to be one of the prime sources for developing GDP (Easterlin, 2013). A pictorial representation has been depicted below for acquiring a brief idea about the GDP rate of Germany during the period 2004-2014. Source: (Trading Economics, 2014) Impact of Economic Growth After acquiring a brief idea about the trends of economic growth in various developing and developed nations throughout the globe, it can be ascertained that this particular issue relating to international business economics impose positive as well as negative impacts on the developmental procedure of any nation (Neuhaus, 2006). Economic growth has been changing the living standards of an individual. Now, in this present day context, people of different economic background are enjoying greater access towards varied technological advancements with gaining higher wages. It is strongly believed that a developed economy will bring substantial capital and improve quality of life of the people by a considerable degree. The issue concerning economic growth is noted to impose greater positive as well as negative impact on the developmental procedure of nay nation. In this similar context, equitable growth and fare income distribution generally falls under the positive impact segment of economic growth. On the other hand, resource reduction and negative environmental effect comes under negative impact section of economic growth. Due to positive economic growth, various beneficial aspects can be apparently observed that encompass quality life style, better medication facility and higher education among others. Positive economic growth has been creating a negative effect on environment (Acemoglu, 2008). It is worth mentioning that the continuous search of employing better technology is regarded as one of the negative impacts of economic growth. It can be affirmed that continuous use of natural resources minimizes the chances of maintaining long-term sustainability. Thus, to make effective use of natural resources, new alternative resources are required to be used that will balance the ecological system of environment. However, depletion of natural resources may affect the economy growth at large (Miles and Scott, 2005). In this regard, the seeking for varied alternative sources might aid in addressing the above stated adverse situations by a certain level. To maintain the sustainability aspect, every developed and developing country needs to seek for alternative resources. Based on several researches, it can be ascertained that globalisation and increased level of using varied technological interventions have been affecting economic growth by a considerable extent. Besides the environmental impact on economic growth, the factor concerning the charge of higher interest rates with regards to foreign direct investment also affects the economic growth. The crucial factors that entail recession and unemployment have certainly created steady difficult situations for all countries. These situations eventually hindered the economic growth in terms of lessening GDP rates of the developed as well as developing nations. The potential importance of foreign direct investment in less developed countries can be determined in the form of strengthening economic growth in a positive way by various ways. These ways comprise designing favourable free trade policies and most vitally promoting international trade among others (Easterlin, 2013). Specially mentioning, the positive impact of economic growth can be represented in terms of increasing aggregate income of per capita GDP rate for developed as well as developing nations. Economic growth is mainly based on industrial economy and its improvement level. It can be affirmed from a broader understanding that based on GDP rate and purchasing power of developed along with developing countries, economic growth moves in a positive direction (Tahvonen, 2000). It has been witnessed that due to negative impact of economic growth, entire global economy is shrinking at large. Contextually, to preserve the natural resources, every industrial firm is noted to adopt varied effective measures to retain sustainability. At the time of inflation, economic growth is primarily concerned with the application of long-run based free trade policies. Due to higher economic growth, new companies are often observed to be forming by a considerable extent. Specially mentioning, in this regard, during the Inflation period, most of the new industries appear in the market whose respective business cycles are observed to last for a minimum period. To obtain maximum profit within a short time, the above stated companies or industries often design as well as follow short- run policies during the inflation period (Hanley & et. al., 2013). However, maximum economic growth is imposing positive impact on the development of economies in the form of changing per capita income rate of workforce. The positive impact of economic growth simultaneously increase opportunities in employment and enhance labour productivity. With the help of introducing varied technological innovations, it can be ascertained that the productivity level of the unskilled labours has increased. This improvement in the level of productivity has certainly contributed in creating a new path for development in global economy. As per the study conducted by Overseas Developing Institute, out of 24 countries, 18 nations experienced immense growth and stable GDP rate with the help of following distinct innovative technological interventions. Most of the developed countries are blessed with skilled labour, which helps in raising per capita GDP rate. Besides, certain countries possess semi-skilled as well as non-skilled workforce, which certainly aids in generating average level of GDP rate. As per the study of economics, working labour always generate high rate of GDP and create positive impact on economic growth (Douthwaite, 2014). Reasons for Developing Economic Growth Economic growth does not follow any particular rule for developing the growth of an economy. Thus, the reasons for developing economic growth have been discussed in detail in the following: Increase In total Demand The elasticity of demand gives an idea about the financial aspect of total revenue. Most importantly, it helps in understanding the purchase behaviour of the buyers and also about changes in prices. It will be vital to mention in this regard that increase in total demand creates a negative situation at the time of inflation period. Justifiably, at the time of inflation, raw materials and labour charges raise higher for which the companies or the industries are not able to meet the high demand of products. In short-term economy, increase in total demand situation is mainly formed when only one producer has full capacity of utilising maximum resources to meet such demand. Notably, sources of demand have been increasing, on the other side, producers of the goods are not able to meet product demand due to lack of resources, which eventually results in affecting economic growth. In this situation, market has been faced increase in total demand, due to limited number of producer economic growth is hampering (Aquinas College Economics Department, 2012). Market Failure and the Environment Market failure occurs at the time when markets do not deliver economic efficiency. Apart from this, market failure also occurs due to the reasons of monopoly power of firms, high transaction costs and asymmetric information about business environment. Economic pitfall contributes in promoting inflation due to which, the GDP rate is deemed to be sloping downwards. Level of consumption and spending lowered down due to market failure. Thus, in order to address this adverse situation, utmost focus is laid on developing the economic or market growth at large (Douthwaite, 2014). Environment Policy To preserve natural sources for maintaining long-term sustainability, governments of different respective countries have introduced quality along with effective environmental policies. Environment policies also affect long as well as short-run economies. Changes in environment policies have certainly raised the production resource prices (Douthwaite, 2014). Improvements to the Labor Force Highly skilled labours always raise the production standards, which eventually results in augmenting the quality as well as the quantity of the goods produced within an economy. Globalization and technological innovation have certainly urged the need of developing economic growth for the developed as well as the developing nations. Due to lack of funds and old machinery, labours usually do not get a chance to improve their respective skills. This can be duly considered as one of the critical factors, which contributed in affecting economic growth at large (Douthwaite, 2014). Progression in Technology Technological improvement always creates a positive aspect in every field. Contextually, improved technology always helps in to yielding more revenue and ensuring high level of productivity in every sphere. Increased productivity is a fuel to economic growth. High-level of productivity helps in increasing GDP rate. Thus, with this concern, it can be affirmed that progression in technology creates positive as well as negative impacts on economic growth at large (Berg & Ostry, 2011). Investment Investment is another important factor of making extensive economic development. Investment called as fuel to economic growth. With the help of investment industrial sector enhance its production level. Investments have two characteristics such as capital was widening and capital depending. Capital widening occurs when investment level rises with the raise in labour force. On the other hand, capital deepening represents the situation when level of investment rises and the labour force remains same. In this regard, capital deepening has played an imperative part in developing economic growth based on short-term perspective (Cyert & Mowery, 1998). Underdevelopment Trap The situation of underdevelopment trap generally occurs at the time when low level of production outputs lead to low wages. Due to this particular reason, savings level of firms is lacking. Moreover, the firms are facing huge difficulties in investing into future projects. This situation leads the firms to fall in trap and thus their development process slows down. Likewise, GDP rate also get reduced for underdevelopment trap (Berg & Ostry, 2011). Debts High rate of debts is also regarded as an issue for which there lays the requirement of developing economic growth. This can be justified with reference to the fact that several under developed countries have borrowed financial help from developed countries in a high rate. This high rate of financial help has been generating debts for that under developed countries. To minimize the debt rate, underdeveloped countries has been paying to developed nations for which, their economic growth level has not reached to high level, making the GDP rate to bend downwards (Aquinas College Economics Department, 2012). Recommendations and Conclusion From the above analysis, it can be ascertained that economic growth imposes positive as well as negative impacts on the developmental procedure of any nation. By taking into concern the positive impact of economic growth, individuals can enjoy high quality of life, standard education and technological improvement. With the help of positive economic growth, countries are developing their GDP and economic trades for global recognition (Sloman and Garratt, 2013). The quality of work force has been improving and people are different sections are now more educated and skilled compared to past. Due to innovative technology and skilled workforce, the economic conditions of the countries are developing at large. This economic growth eventually imposes a positive impact on the future development and growth. This positive influence of economic growth has been creating a new path for developing countries. Thus, to maintain this growth level in future, developing countries need to remain much conscious about different economic investments and commitments with developed countries. Moreover, developing countries have to minimize their respective debt levels and generate surplus situations based on which, GDP rate will be increased and other issues like unemployment and poverty among others will get minimized in future. Likewise, economic growth positively as well as negatively influences the society and nature as well. Thus, to protect the natural resources for maintaining balanced ecological system of environment, every industry must took the initiatives of implanting trees and most significantly minimising the energy consumption level. In relation to the above context, to reduce the energy consumption level, deliberate efforts need to be made for seeking varied alternative resources in order to maintain long-term sustainability in future. The increase in trade in developing countries creates a positive economic growth. To keep this economic growth level higher, developing countries need to work according to the strategies formulated. Positive environment in industrial level create good amount of productivity as well as enriched GDP rate. These suggestions might help in ensuring wider economic growth in the future (Barro & Sala-i-Martin, 2004). Based on the above discussion, it can be comprehended that economic growth has helped in developing the financial position of a country by improving not only its GDP but also economic trade. The factors including progression on technology, market failure and increase in demand have contributed in making economic growth stagnant. However, economic growth still made an impact in the global market. Long and short-run economic growth paves the way towards making significant financial improvement. This can be justified with reference to the fact that short-run economic growth encourages business cycle and allows forming high GDP rates in the market. Conversely, long-run economy provides a steady process in raising the level of GDP rates. Thus, in conclusion, it can be affirmed that the issue concerning economic growth imposes positive as well as negative impacts in current ecological environment. Thus, to balance the ecological pattern, industries require protecting the atmosphere and reducing any sort of societal harm. It is worth mentioning that the development of the economic growth will not only support the developed as well as well developing nations towards advancing their respective societal conditions, but will also ensure their long-term sustainability in future. References Acemoglu, D., 2008. Introduction To Modern Economic Growth. Princeton University Press. Alam, D., 2013. Impact of Economic Growth on Income Inequalities. GRIN Verlag. 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Economic Indicators. [Online] Available at http://www.tradingeconomics.com/china/indicators [Accessed October 31, 2014] Read More