Many Asian countries such as Singapore, HK, and South Korea have achieved tremendous economic growth in the last forty years of development. One of the key success factors has been macroeconomic stability in these countries. Multiplier effect — population
Talk aboit the characteristic of Asian countries-past 40 years –deveoping country –vast raw material
1. Economic growth is defined as an increased in the level of production of goods and services by a country over a certain period of time. Economic growth can be in terms of real economic growth or potential economic growth. I agree with the author that one of the key factors that have allowed many Asian countries to have achieved economic growth has been macroeconomic stability such as low inflation, low unemployment rate and stable exchange rate in the currency market. However these Asian Countries have achieved tremendous economic growth are also due to other supporting key success factors such as globalisation and political stability enjoyed in these countries which I will explain in this essay.
I agree that macroeconomic stability due to low inflation is one key success factor that leads to economic growth in many Asian countries. Inflation is defined as the sustained increased in general price level. When there is low inflation in these Asian countries, it helps to ensure a competitive export industry. This implies that its exports will have a higher price competitiveness over their trading partner hence its export will increased. For example, Singapore, a small and open economy with no natural resources depends mainly on its trade for its economic growth. Hence having a low inflation allows Singapore goods to be relatively cheaper than foreign goods and this cause the net export of Singapore to increase.Low inflation protects domestic industry away from foreign goods competition as the price of the domestic goods is cheaper than foreign goods will cause the demand for imports to fall.
Thus low inflation would result in an increased in net export (X-M Low inflation also leads to an increase in the investment expenditure. Since Singapore has low inflation ,it implies that Singapore tends to be more stable and there is less uncertainty, firms and foreign direct investors will find it easier to estimate the costs and revenues of investments. Hence when inflation is low it will give a good business sentiments and this leads to an increase in investment expenditure. Since net export (X-M) and investment expenditure are components of aggregate demand when net export (X-M) increased and investment expenditure increased, AD will also increase. ( Graph figure1 ) As seen from figure 1,when AD curve shift right from AD1 to AD2 the general price level increase from p1 to p2 and real GDP increases from Y1 to Y2.Thus,Singapore experience real Economic growth as a result of macroeconomic stability due to low inflation. Thus, I agree with the author that one of the key success factors leading to economic growth in many Asian countries is due to macroeconomic stability.
3. Low unemployment
Another key success factors that leads to economic growth has been macroeconomic stability due to low unemployment rate. Unemployment is defined as the number of people who is willing and able to work but is unable to find a suitable job and is contantly searching for a job. Asian countries for example Singapore have a low unemployment rate. The low unemployment rate allow the economy in Singapore to produce a larger amount of output and implies a large amount of people in Singapore have income. Thus, having low unemployment rate that the consumers in Singapore have higher spending powers due to higher disposable income and more people having the ability to spend as they holds a job. Thus consumption level in Singapore will increase.
In addition, when the unemployment rate in Singapore is low, the government will be able to collect more tax revenue. Also, lesser unemployment benefits is needed to be given to the unemployed and these tax revenue and unemployment funds could be used by government to improve the infrastructure of Singapore which would attract more foreign direct investor. Since consumption( C ) ,(G) government expenditure and (I) investment which are components of AD, when C,G and I increase, AD will also increase. An initial increase in AD will leads to a more than proportionate increase in the real national income through the multiplier process. However for Asian countries like Singapore the mulitiplier size is small due to a small population size and large leakage of the circular flow of income. Hence the extent of shift of the AS curve is greater than the extent of shift of the AD curve.
As seen from figure 2 ,when AD curve shift from AD1 to AD2 and AS curve shift from AS1 to AS2 , the general price level decrease from P1 to P2 and the real GDP increases from Y1 to Y2.Thus , there is econonomic growth where hence there will be increased in real GDP thus there is in the short run there is real economic growth in the short runwhereas In the long run, the increase in investment expenditure will cause an increase in potential economic growth due to the increase in productivity and productive capacity as a result of the increase in capital goods.
Hence , Asian countries like Singapore experience real economic growth in the short run and potential economic growth in the long run as a result of macroeconomic stability due to low unemployment. Thus I agree with the author that macroeconomic stability due to low unemployment is one of the key success factors that leads to economic growth in many Asian countries.
4. Stable exchange rate
Another key success factors that leads to economic growth in many Asian countries like Singapore has been macroeconomic stability due to stable exchange rate. Stable exchange rate provides good business sentiments for firms and investor as the outlook of the economy is optimistic. Also, stable exchange rate is important especially to investors who depend heavily on importing raw materials for production of their goods. This is because stable exchange rate allows these firms and investors to estimate ahead the costs of operations and the returns in the long run. Thus having stable exchange rate in Asian countries like Singapore provide confidence to investors and hence stable exchange rate serve as an incentive to attract foreign director investor. Since investment expenditure is a component of AD when investment increased, AD will increased in the short run and AS will increase in the long run as investor brings in new technology and more efficient production methods which helps to improve the productivity and increase the productive capacity.
As seen in figure 3,when AD curve shift right from AD1 to AD2 and AS curve shift right from AS1 to AS2 ,the general price level decrease from P1 to P2 and the real gd* increases from Y1 to Y2.Since real GDP increased,it implies that there is economic growth. For Asian countries like Singapore, where we are small and open with no natural resources we depend heavily on foreign direct investment apart from trade to achieve economic growth.( Investment revenue statistic how much Investment contribute to GDP……)Thus, I agree with the author that macroeconomic stability due to stable exchange rate is one of the key success factors that leads to economic growth in many Asian countries.
However, to achieve tremendous economic growth in many Asian countries based solely on macroeconomic stability is not enough, hence there are other supporting key success factors such as globalisation and political stability that helps to contribute to the tremendous economic growth in many Asian countries. Globalisation is a phenomenon where the markets of global economy become more integrated. With globalisation it also means that there will be faster diffusion of ideas, information, and technology across the world. Globalisations have led a reduction in trade barriers. Globalisation helps to increase international trade between countries which is especially important for countries like Singapore who depends heavily on export revenue for economic growth. Globalisation has allow the production costs to lower because countries specialise in goods which they have comparative advantage in producing and allow them to import the cheapest raw material helps them to lower their cost of production.
Singapore has no natural resources this means that Singapore import all of its raw materials. Thus, the process of globalisation helps Singapore to lower its cost of production and allow the price of its final goods and services to be cheaper. This will increase the price competiveness of Singapore exports as they are relatively cheaper than foreign goods. Since the export revenue will be higher than the import expenditure net exports(X-M) will increased. Net export is a component of AD, thus AD will also increased. As seen from figure 4,when AD curve shift right from AD1 to AD2 the real GDP increases from Y1 to Y2.Thus,Singapore experience Economic growth as a result of macroeconomic stability due globalisation. and real GDP will increased hence economic growth is achieved. Thus globalisation is undeniable playing as key success factors that leads to economic growth in many Asian countries.
Political stability provides the outlook of the economy of the country. Many Asian countries like Singapore has very good governance with strict rules and regulations together with the sound infrastructure making it a conducive place for investment. When there is political stability there will be good business sentiments as investor are able to plan ahead their expected costs of operations of the business and the returns in the long term. Politically stable country means the likelihood of civil war or political war is low hence the operation of the firms will be stable and there will be low risk of facing the possibilities of shutting down.
Hence foreign direct investors are attracted to politically stable country because of the stability of the business outlook. Since investment expenditure is a component of AD an increase in Investment expenditure will lead to an increase in real GDP and help Singapore to achieve economic growth. Thus Asian countries that are politically stable acts as a key success factors to support other factors to help Asian countries like Singapore to achieve economic growth.
I agree with the author that one of the key success factors has been macroeconomic stability that leads to economic growth in many Asian countries. However with macroeconomic stability alone, without globalisation and political stability in these Asian countries,it is unable to achieved tremendous economic growth.This the tremendous economic growth is achieved as these key success factors exist together and support each other.If not the tremendous economic growth if based on macroeconomic stability will only be in the short terms but globalisation and political stability allows the tremendous economic growth to last in the long run.