The Asian Growth Miracle PDF

THE ASIAN GROWTH MIRACLE JHANSSEN T. TAN, PH.D.  The Miracle In the past four decades, a number of East Asian economies have recorded extremely high rates of economic growth and achieved spectacular improvements in the quality of life: The “Tigers” and the Newly Industrializing Economi...

THE ASIAN GROWTH MIRACLE JHANSSEN T. TAN, PH.D.  The Miracle In the past four decades, a number of East Asian economies have recorded extremely high rates of economic growth and achieved spectacular improvements in the quality of life: The “Tigers” and the Newly Industrializing Economies (NIE).  The Miracle From 1965 to 1990 the twenty-three economies of East Asia grew faster than all other regions of the world. Most of this achievement is attributable to seemingly miraculous growth in just eight economies  The Tigers The NIEs 01 Japan 06 Indonesia 02 Republic of Korea 07 Malaysia 03 Singapore 08 Thailand 04 China 05 Taiwan, SAR, China We now call all of these countries as the High Performing Asian Economies (HPAE). The essence of the Miracle The 8 HPAEs are highly diverse in natural resources, population, culture, and economic policies. Highly equal income distributions Rapid demographic transitions High Rates of Investment Exceeding 20% Real GDP Growth High and Rising Human Capital Endowments due to education Improved Productivity (GNP) Technological improvements What are economic policies? To stabilize prices but with consideration for factors outside of An economic policy is a course of government’s control. action that is intended to influence or control the behavior of the Near full employment because full employment economy. Economic policies are is deemed impossible to typically implemented and achieve. administered by the government. The economic policies can either Economic growth in terms be Monetary or Fiscal policies. of higher GDP. Monetary Policy It consists of the actions of a central bank that determine the size and rate of growth of the money supply, which in turn affects interest rates. Monetary policy is maintained through actions such as modifying the interest rate, changing the amount of money banks are required to keep in the vault (bank reserves). Monetary Policy Bank reserves are central bank regulations employed by most countries in the world that sets the minimum reserves that must be held by commercial banks in order to cover for customer deposits and possible customer withdrawals. The most common reserve requirement for big banks is 10%. But different banks have different reserve ratios depending on liquidity. It could be way higher than the usual 10%. Liquidity means how quickly you can get your hands on your cash. Monetary Policy The primary objective of central banks is to manage inflation. The second is to reduce unemployment, but only after they have controlled inflation. By RAISING reserve requirements, it shrinks down potential money supply and money lending ability by banks. By LOWERING reserve requirements, it expands excess reserves and leads to the increase in the potential money supply and money lending ability by banks. Monetary Policy Expansionary monetary policy increases the money supply in order to lower unemployment, boost private- sector borrowing and consumer spending, and stimulate economic growth. Contractionary monetary policy slows the rate of growth in the money supply or outright decreases the money supply in order to control inflation; while sometimes necessary, contractionary monetary policy can slow economic growth, increase unemployment and depress borrowing and spending by consumers and businesses.  Fiscal Policy is the means by which a Fiscal Policy government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply. Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known as Keynesian economics, this theory basically states that governments can influence macroeconomic John Maynard productivity levels by increasing or Keynes decreasing tax levels and public spending.  Let's say that an economy has slowed down. Unemployment levels are up, consumer spending is down, and businesses are not making profits. A government may decide to fuel the economy's engine by decreasing taxation, which gives consumers more spending money, while increasing government spending in the form of buying services from the market such as building roads or schools. Unfortunately, the effects of any fiscal policy are not the same for everyone. Depending on the political orientations and goals of the policymakers, a tax cut could affect only the middle class, which is typically the largest economic group. In times of economic decline and rising taxation, it is this same group that may have to pay more taxes than the wealthier upper class. Similarly, when a government decides to adjust its spending, its policy may affect only a specific group of people. A decision to build a new bridge, for example, will give work and more income to hundreds of construction workers. A decision to spend money on building a new space shuttle, on the other hand, benefits only a small, specialized pool of experts, which would not do much to increase aggregate employment levels. Economic Policies There are several explanations for East Asias success. Geography and culture were dearly important; however, they do not entirely account for the high-performing economies' success, as the presence of unsuccessful economies in the same region attests. There are two main theories as to why the HPAEs are the way they are right now: the Neoclassical Counter Revolution and the Revisionist View. The Miracle The East Asian Tigers The Principle of Shared Growth and HPAEs have had Creating a an institutionally- Business Friendly Environment built basis for their Using Deliberation Councils growth, following Accumulating both the Human and Physical Capital Neoclassical Counter Increasing Savings and Revolution and the Investment Revisionist Views. The Miracle Getting the fundamentals right was essential. Without Flexible Labor high levels of domestic Markets savings, broadly based Capital Markets human capital, good and Allocation Openness to macroeconomic Foreign management, and limited Technologies price distortions, there Promoting Specific would not have been any Industries basis for growth, and no Export Push means by which the gains of rapid productivity change could have been realized. Thank You Sources: Oxford University Press. (1993). The East Asian Miracle: Economic Growth and Public Policy. Accessed from: https://documents1.worldbank.org/curated/en/975081468244550798/pdf/mult i-page.pdf https://www.cliffsnotes.com/study-guides/economics/introduction/economic- policy https://www.cliffsnotes.com/study-guides/american- government/economic-policy/the-goals-of-economic-policy https://www.investopedia.com/terms/n/normativeeconomics.asp https://www.investopedia.com/terms/p/positiveeconomics.asp https://www.investopedia.com/terms/m/monetarypolicy.asp https://www.investopedia.com/insights/what-is-fiscal-policy/ https://www.youtube.com/watch?v=93_Va7I7Lgg