The Development of the Fast Growing Asian Economy - Coursework Example

Date Table of Contents I. Introduction II. Role of Trade in Economic Development III. Nature of Economies of Asian Countries IV. Conclusion V. Bibliography I. Introduction Trade is one of the important factors of any economy. Trade can be simply defined as commercial exchange of goods and services. It is also called “commerce”. The appropriate policies, reforms, tariff structures, demand and supply analysis and coherence of trade policies with the developmental goals of the countries supports the development of the economy. Trade is probably as old as human civilisation. Many of the Asian economies like China, India, Taiwan, Hong Kong, Singapore and others have experienced substantial and sustainable growth in their economies. This resulted due to appropriate policies, efforts towards maintaining the governance and reduction of corruption, proper analysis of development goals and markets. Asia has seen a remarkable increase in its share of world trade. In 1980, this continent accounted for just under 16% of world merchandise exports: by 2003 that figure had risen to over 28%. You will not be surprised to learn that China accounted for a sizeable part of that increase: its share of world trade rose from less than 1% to nearly 6% over the period.1( Krueger: 2004) The first section of the paper deals with the role of trade in the economic development, discusses various trade theories, role of governments for trade strategies and various factors of any economy that gets influenced by the trade. The next section discusses some features of the economies of Asia. In this section the factors of production i.e capital, labour and technology along with the other factors have been discussed. At conclusion summarises the important points discussed in the paper at the end. II. Role of Trade in Economic Development Trade is an important factor for social and economic development of any country. From initial barter system to the present days complex trading system trade have changed and developed along with the growth of human society. Several economic theories have been developed to explain the concept and the complexity. Neo-classical theory explained that international trade could fulfil the gap of low domestic aggregate demand. It focuses on the integration and increased specialisation in trade (Venable 2003). Structuralist theory focused on inadequacy of investment infrastructure, focus on developmental growths and requirement of the perfect markets for the proper flow of resources among various sectors in response to individual profit maximisation. Autarchy on the one-hand closes the local market for any trading practice with outside the market like export and import whereas mercantilism opens trade for national advantage. In Mercantilism Government can restrict imports and subsidise the export to protect the local industries. Protectionalism, strategic trade, fair trade and free trade are some other theories for the roles of Governments. Balance Trade is considerably safe options for the Governments where they maintain equilibrium between the exports and imports. For sustainable development of any country it is important to have an open economy. The open economy brings opportunity to grow; increases competitiveness that further leads to increase in efficiency and effectiveness of the product and services offered and increases the employment opportunities. Trade Reforms have impact on the following factors: Cost: The cost of products and production gets influenced with the trade reform policies. Protection and promotion of Industries: Trade reform policies are the tool through that Government protect and promote any particular industry. Growth and Poverty: The trade reforms have direct impact on growth and poverty. Opening the sector or industry of country specific opens growth avenues, new markets and provides employment opportunities. Economy results in accumulation of human and physical capital and improves the production and manufacturing that leads to overall growth of economy. The debate among economists and policy makers over the relationship between trade and growth has risen to prominence during the last few years, owing on the one hand to the mixed growth outcomes of developing countries that have undergone extensive trade liberalization and, on the other hand, to differences over data, econometric techniques, and model specifications among professional economists.2 (WTO) Impact on employment: The opening of economies provides employment opportunities, better wages, training and working conditions. Price and affordability: When economies open the competition increases that have positive impact on pricing. The competitive market reduces the price of the product and increases the affordability of the consumers. Government revenues: The trade reforms have impact on Government and consumer revenues. Social Spending: The overall growth of economies increases the per capita and disposable income of society. The wide choice of product and services increases the options among the consumers. The social spending increases. Income Differences: The income of the poor and rich increases. This also widens the gap of wages and salaries. Factors of Production: The factors of production include the capital, labour and technological advancements. Opening the economies increases the inflow of the investments. Consumption: The availability of the goods and services in demand or for the goods and services where demand can be created increases the consumption rates and reduces the price. The trade reforms have been used as a tool of growth and development for the policy makers by different governments. These along with the factors like globalisation, industrialisation and technological advancement have contributed to the economies of various countries. Trade is an opportunity, not a guarantee. While trade reforms can help accelerate integration in the world economy and strengthen an effective growth strategy, they cannot ensure its success.3 (WTO) The technological advancement has contributed in the production and distribution processes. The fast communication system helped the organisations tow grow and industries to improve their efficiency and effectiveness. Apart from that open economies invites the foreign investments. These foreign investments contribute to the socio-economic development of the region specific to the investment. It provides opportunities for the skilled, semi-skilled and unskilled labour. The trick has been to combine the opportunities offered by world markets with a domestic investment and institution-building strategy to stimulate the animal spirits of domestic entrepreneurs. Almost all of the outstanding cases—East Asia, China, India since the early 1980s—involve partial and gradual opening up to imports and foreign investment.4 (Rodrik: 2001) III. Economies of Asian Countries The Asian economies are the fastest growing economies in the world. The trade reform policies for the countries have been based on developmental goals. The characteristics of East Asian Tigers have been their focus on exports to richer industrialized nations, trade surplus with these countries, sustaining and increasing the grwoth rates, high tariff on imports and high saving rates and others. The recent and ongoing changes in international trade, with respect to both product composition and direction of trade, is affecting developing countries in different ways, depending on the product composition of their exports and imports. On the export side, the impact differs according to the shares of manufactures and primary commodities, and on the import side, it is especially the dependence on fuels and industrial raw materials that determines the outcome for individual countries.5( Trade and development, report, 2005) The role of trade in the development of Asian economies has been tremendous. Opening up economies for various sectors supported growth and development of overall economies. Countries like China and India have initially attracted manufacturing and labour intensive firms due to cheap labour and attractive policies. In one study Wood have concluded that China’s actual share of skill intensive exports within manufactures in 1990 stood at 33 percent, compared to a predicted ratio of 40 percent in 1991.6 The shares of trade in the GDP have contributed to the economic developments of Asian economies. The reforms policies are based on the industrial, institutional and political conditions of the country. The growing economies have shown some similar characteristics. Most of the fastest growing economies that has sustained their developments have certain common characteristics that ranges from the markets and industry chosen for the trade reforms, protection and promotion provided to the specific industries, democratic or autocratic structures and other factors. The open economies impact the competitiveness, employment, cost, demand and supply, facilitate technology and knowledge transfer and factors of productions. In the fast growing economies of Asia have their trade reform policies aligned with the growth policies of the countries. These relied on the public enterprises. Direct credit, trade protection, export subsidisation, tax incentives and other interventions have encouraged the foreign direct investments and development of industries. The degree of liberalisation and privatisation and the properly managed efforts in this direction have been one of the crucial factors in the growth of Asian Economies. This countries worked on making the work force available for the demanding sectors by opening new institutes, introducing specialised courses and ensured the availability of trained and skilled human capital. The technologically equipped and educated work force contributed positively. Financial sector holds the responsibility of allocation of resources and circulation of funds and finances to the needed sectors within the market. Appropriate strategies to manage, promote or demote savings to circulate money in the market, promote consumption and expenditure, taxation policies, subsidies are relatively important aspect. The savings, investment within economies, share of gross domestic investments in the GDP and openness to the international trading are influence the economic growth of countries. The available infrastructure, tariff and tax rebates attract the foreign direct investments and influence the growth of economies. Asian economies have done well in capitalising the international opportunities. They leverage on these opportunities for their economic growth and succeeded in that. It is very challenging to state the factors have contributed to the success of the growth of Asian Economies. Each country has their specific trade issues, developmental goals and social structure. On one hand country like India have democratic structure and enormous demographic differences the East Asian Tigers have non-democratic and relatively authoritarian political system. The perfect model of Trade will take care of the following issues: Developmental and growth issues: Trade goals aligned with the developmental goals of the country Attractive infrastructure to attract foreign direct investments Trade surplus Sustainable growth Investment in health and education Financial Issues: Effective tariff on imports Appropriate saving rates Policies: Attractive Industrial Policies to attract foreign direct investment Trade reform policies Land reform policies IV. Conclusion The paper discussed various aspects of the growth of the Growing Asian Economies. Some of the factors are directly in relation with trade. These factors are the forces of production, financial and fiscal policies, capitalisation on the international opportunities and others. The forces of production includes capital, human resource and technology. Opening the economy for the foreign investors allows the inflow of the funds within the economy. Most of the growing countries worked on their trade policies with clear goals and objectives of developments in their minds. Their trade policies are aligned with their developmental growth. These countries try to fulfil the human resource requirements by providing opportunities for technological education. These worked on the literacy and education. They promoted export. They used trade reforms to promote or protect any particular industry. The restriction on the one hand helped in the development of that particular domestic sector as per the international standards on the other hand promotion of the any particular industry by opening it for international players increased the competitiveness. Legal protection, market access and chances of better recognition have also attracted international companies to invest in particular economy. The trade played a very important role in the development of the fast growing Asian economies. This is possible due to the synchronisation of the developmental and economic growth, safe guarding the growing sectors, attracting more investors, promoting investments, providing legal security and appropriate infrastructure. All these were done in a thoughtful and manageable manner. V. 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