2topic - 1st Lecture

Discussion: 

What are the benefits of the HDI measurement? Useful in recognizing that some countries may have rather low income levels but still have achieved a lot in terms of satisfying human needs



Though the HDI has been seen as a more accurate measure of development in a country what are its drawbacks?

1. Gross enrollment may overstate the amount of schooling (but does not consider the drop outs) 2. No attention to the role of quality of life (but on duration of life) 3. Bias to health and education (easier to obtain data) across nation

EGEE2102 M. Natasya Saufi Lecturer FEA UM

1

Discussion: 

1. 2. 3. 4. 5. 6. 7. 8.

What are the 8 MDGs? And why are these MDGs so important? Eradicate extreme poverty and hunger Achieve universal primary education Promote gender equality and empoer women Reduce child mortality Improve maternal health Combat HIV/AIDS, malaria and other deseases Ensure environmental sustainabiilty Develop a global partnership for development

EGEE2102 M. Natasya Saufi Lecturer FEA UM

2

How developing Countries Today differ from developing countries in their earlier stages 

Physical and HR Endowments – today LDCs population

are less educated, less informed, less skilled then their counterparts in the early days. The “ingenuity gap” (the ability to apply innovative ideas and solve practical problems) 

Relative levels of Per Capita Income and GDP –

todays developed nations were economically advanced than the rest of the world where as LDCs are subsisting on bare minimum. 

Climatic Differences –”temperate” vs “tropical” (heat and humidity contributes to deteriorating soil quality and rapid depreciation of natural goods, low crop productivity)



Population Size, Distribution and Growth – western nations experience very slow rise in population

EGEE2102 M. Natasya Saufi Lecturer FEA UM

3

How developing Countries Today differ from developing countries in their earlier stages 

Stability and fexibility of political and Social institutions – Globalization has increased the need for countries to be able to react quickly when faced with crises



Efficacy of Domestic Economic Institutions – The degree in which systems are in place



Growth Stimulus of international trade – LDCs

forced to use Terms of trades and face deteriorating trade position. 

Historical role of migration – ‘free movement’ of immigrants in the past (now there is very restrictive nature of immigration laws in developed countries)

EGEE2102 M. Natasya Saufi Lecturer FEA UM

4

EGEE2102 ECONOMIC DEVELOPMENT

Lecturer : Melur Natasya Saufi FEA UM

5



What is the Asian Growth Miracle?



What are the factors that led to the rapid growth? 1- Primary factors 2- Secondary factors

 



What are some of the development and growth strategies suitable for the developing countries?

EGEE2102 M. Natasya Saufi Lecturer FEA UM

6









One of the most outstanding features of the recent economics history A rapid change in the structure and economic growth in Asia in the past 30-40 yrs Incomes in developing Asia increased rapidly for a a sustained period of time (up to 4 decades) then anywhere else in the world Moved from very low level of economic activity in the late 50’s & 60’s, to fairly high levels of per capita income ( much faster then industrial countries outside Japan – during their rapid growth rate)

EGEE2102 M. Natasya Saufi Lecturer FEA UM

7



These changes in economic activities and income per capita were unusual and faster than Japan, US and UK.



In the 19th & 20th century, even developed countries like US & UK did not have growth rates more than 3% per yr.

8



It has been termed the “ Asian growth miracle”



World Bank classified “miracle economies” included: ◦ Japan & ◦ Newly Industrialized Economies (NIEs) – Singapore, Hong Kong, Taiwan & Korea. ◦ Indonesia, Malaysia, Thailand & China.

EGEE2102 M. Natasya Saufi Lecturer FEA UM

9



Quibria (2002) explanations to miracle growth:

1. Primary factors – present in all miracle economies at the time of economic take off 



outward looking policies macro econ policies & govt.role education, labour growth & productivity labour market flexibility

These factors are crucial in the sustenance of the rapid Asian economic growth. These factors are common denominator of the Asian growth experience.

EGEE2102 M. Natasya Saufi Lecturer FEA UM

10



Quibria (2002) explanations to miracle growth:

2. Secondary factors – were sometimes present and sometimes not 

Contribute to Asian economic growth but varied from country to country



Added variety to the growth experience

EGEE2102 M. Natasya Saufi Lecturer FEA UM

11

Dynamics of the Growth Process 





“Miracle” economies started with a policy matrix that stress “import substitution” across a wide range of industries. Up until the beginning of 1960’s the policy regime and development strategy of miracle economies and India were similar In 1960s “miracle economies” especially East Asia developed outward looking policies that focused on exports and acquisition of foreign technology which led to:  Economic efficiency Investment environment (upgrade in labor skills & acquisition of new technology)

EGEE2102 M. Natasya Saufi Lecturer FEA UM

12

Dynamics of the Growth Process As a result of these policies:  Both savings and investment rates increased.  Education and skills formation improved  Rapid shift from agriculture to industry  Flexible labor market quickly adaptive to market needs  Better educated labor force resulting in sound macroeconomic policies (low fiscal deficits, high growth and increase in FDI)  Growth no longer constrained on agriculture and adopting new technologies but able to look at world market for manufactured goods (imports).

EGEE2102 M. Natasya Saufi Lecturer FEA UM

13

What have we learn so far? 1. 2. 3.

4. 5.

Miracle Economies (more than 3% growth) NIEs Primary Factors – present in all miracle economies (common denominators) Secondary Factors – differentiators Dynamics of Growth Process – economic efficiency & provide investment environment

EGEE2102 M. Natasya Saufi Lecturer FEA UM

14



The East & Southeast Asia countries started the industrialization process by developing import substituting industries. Eg: food processing , textiles, apparel & footwear



In Korea & India pushed towards medium & heavy industry



1960s Economist emphasized on developing a wide range of domestic industries that could replace imports – “Bootstrap” development



It was believed that developing countries need large inflow of assistance to supplement domestic savings in order to accomplish this transformation of the production structure

EGEE2102 M. Natasya Saufi Lecturer FEA UM

15









India developed a wide range of industries (followed Soviet Union), Other countries in Asia (including Korea) reluctant and look to Japan instead (look east) on how to industrialize. Taiwan – adjusted Japans model to focus on small & medium industrial development which inbturn was channeled to some southeast Asian countries, HK, Singapore, Europe & North America focusing on apparels but shifted quickly to electronics. Korea model followed Japan most close, developed “chaebol” (industrial conglomerates) model after “Kareitsu” e.g. daewoo = honda.

EGEE2102 M. Natasya Saufi Lecturer FEA UM

16



The Southeast Asian countries ( Malaysia, Filipina & Thailand – initial emphasis was on agricultural based products). ◦ Eg: getah, gula, kelapa. dan produk minyak sawit & textile fabrics (silk)



Later, this gave way to labour intensive industries ◦









Eg: apparel, footwear & electronics assembly

Emphasis on exports were supported by the government policies which varied from country to country The policies assist in protecting these industries through import restrictions & tariffs (varied from country to country). Reason for this: Resource are allocated to them by the private sectors for an anticipation good potential profit. However taxes were lower in East & Southeast Asia than South Asia (more importantly reduced over time to correct the distortions- not so in South Asia)

EGEE2102 M. Natasya Saufi Lecturer FEA UM

17









The challenge in South Asia is not only to reduce rates of taxation but also to find revenue sources to replace tax on trade The combination of a shift toward export promotion policies with reduction in tariff rates and inflow of FDI and supportive macroeconomic policies produced an export boom that lasted over 20 years. By 2000 over 50% of GDP was generated by the export sector in East and Southeast Asian countries except Indonesia and Korea (close to 50%) Hongkong and Singapore exports 150% to 180% in 2000.

Taxes on Trade

Mean tariff rates

Economy  

1980  

 

HK China

99

 

0

0

0

0.3

0.4

0.4

74.3

79.2

32.9

99

102

22.1

Singapore India

90

Bangladesh

EGEE2102 M. Natasya Saufi Lecturer FEA UM

18

Technology plays an important role as the growth and income increase higher. 3 ways of getting access to technology: 1. 2. 3.

Buying it from foreign companies under licence Copying without licence Enter into a joint venture & import technology through FDI

In recent years much of the transfer in technology has been from FDI

EGEE2102 M.Natasya Saufi Lecturer FEA UM

19

Foreign Technology 







 

In the beginning, NIEs attracted & used foreign technology through licence Japan & Korea didn’t encourage FDI . They sent mission overseas to get the knowledge and skill and copied it and adapt to their R&D. This increased their competitive edge . Eg : automobile Southeast Asian countries mainly bought foreign technology through the process of FDI The FDI inflow increased rapidly after industrial countries agreed to enter foreign exchange market to increase the value of yen following the WTO, Plaza Accord. The value of yen in the industrial countries increase but the industries in Japan lose their competitiveness. Most Japanese firms, labour intensive manufacturing & electronics went offshore (Southeast Asia & China) to lower cost EGEE2102 M. Natasya Saufi Lecturer FEA UM

20