Question for discussion:
Should a government only pursue economic growth as its macroeconomic goal?
Tasks: Each group is to read the link in Webquest:
http://zunal.com/webquest.php?user=37349
and research on the respective countries assigned below as the context to respond to the above question:
Group
(1) Singapore
(2) China
(3) Thailand
(4) India
(5) S. Korea
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Singapore GROUP
ReplyDeleteBenefits.
Economic growth would help increase National Income as the increase in economic activity would result in the generation of more income. Thus national income increases and the government can gain more tax by taxing the national income. This increase in tax would give the government more revenue to work with to help improve standard of living of the country or improve infrastructure or help business improve their products by giving them grants to invest in research and development or new and improved technology.
Economic growth results in a better quality of life. Economic growth leads to an increase in national income, thus leading to an increase in the standard of living. Citizens of the country now have a higher purchasing power and are able to buy more premium products. Thus having the capability to enjoy life to a greater extent materialistically.
Economic growth can also lead to having a better environment. With the increase in economic activity and thus national income, both the government and the citizens are able to spend more money on policies to save the environment. With the additional income, both parties are able and more likely to choose to invest in products that are more environmentally friendly. Thus saving the environment.
Economic growth also leads to larger economies of scale. As the economy grows, companies are able to exploit economies of scale and enjoy lower production costs and thus able to sell goods at a lower price. This would increase consumer welfare as they get to enjoy their goods at a lower price.
Singapore group part 2
ReplyDeleteCosts.
Although pollution may not be a significant problem in Singapore due to the many measures taken to reduce it and to clean it, Singapore’s natural environment has suffered greatly in its path towards economic growth. In a short time span of 50 years or so Singapore has transformed from a country covered with dense jungles and swamps to the urban jungle it is now. The environmental impact can be seen in the loss of biodiversity through the extinction of many species such as tigers, leopards and elephants. As the aim of economic growth requires the country to promote an increasing population, even more constrain is being put on the already scarce land making Singapore one of the most densely populated countries in the world. As more land is required for housing and factories, the few remaining “green pockets” of undisturbed land are continuously being depleted.
By pursuing economic growth, one of the ways to increase actual growth is to increase aggregate demand. An increase in aggregate demand may lead to rising prices of goods and services especially in the long run if the country is already at the full employment level. This can be seen in the jump in the cost of living in Singapore from the 1960’s. Certain goods such as housing and cars in Singapore are now one of the most expensive in the world. Nonetheless, this rise in prices have also corresponded to a rise in average incomes and therefore, is not a very significant problem.
Although pursuing economic growth is actually a means to an even bigger goal of achieving an increase in standard of living and quality of life, in certain aspects, it may actually contribute to a decrease in these. As Singapore moves towards a more knowledge based economy, greater emphasis is put on education and skills. Our education system has been frequently criticized for being too demanding and placing too much emphasis on grades. As students have to cope with increasing amounts of stress and have less time to spend on leisure, they may actually suffer a decrease in their quality of life. The same can be said about adults who have to cope with the fast-paced nature of the working environment as a result of the emphasis in economic growth. Thus, their quality of life may not be even as good as a farmer in a country such as Malaysia who may not have as much wealth, but enjoys and is contented with his daily lifestyle.
It can be seen, that in Singapore, one of the government’s most important goals is to achieve a high and sustainable economic growth. Thus, Singapore would put in a lot of resources into maintaining a healthy economy. However, these resources could have been used to also develop other areas of the country such as defence or social cohesion.
Economic growth also tends to lead to a widening of the income gap as demand for highly skilled professionals is increased. This leads to a rise in their wages. On the other hand, lowly educated individuals will find it harder to find jobs and wages would tend to remain stagnant. This is worsened by the fact that in pursuit of economic growth, Singapore has a policy to attract foreign talent and hence making the labour market much more competitive. Nonetheless, Singapore, does have measures to reduce the income gap such as tax incentives and subsidies that help to alleviate the problem.
Singapore group part 3
ReplyDeleteIn the pursuit of economic growth, Singapore has also greatly embraced globalization and hence, many of the negative effects of economic growth are correspond to the negative effects of globalization. One of them would be the erosion of tradition and culture as Singapore changes into a modern nation. Many of the traditions and practices no longer have a place in society where they do not generate any wealth for the individual or society. As Singapore also continues to be increasingly affected by Western influence, materialism could also be another social impact of economic growth. This is because economic growth itself places emphasis on increasing the output of material goods and services and this may actually have an undesirable effect on the values of society.
In Singapore, given its mainly dominant reliance on the trade industry, it is also essential to observe the flow of inflows and outflows in the form of money, goods and services. This is known as Balance of Payment (BOP). As trade helps to facilitate and improve the flow of money, the direction in which the money moves then becomes important. For example, if Singapore keeps importing goods such that the total inflows exceed that of the outflow, it is said that Singapore’s economy is experiencing BOP deficit. Large deficits have to be financed and as a result, economic growth could suffer. Similarly, having more outflows than inflows may not be a good thing also as large surpluses might lead to retaliation from trading partners in the form of increased taxes. Thus for a trade intensive economy like Singapore’s, it is also key to focus on BOP equilibrium as a macroeconomic goal because BOP is very sensitive to trade.
Another macroeconomic goal that Singapore may consider looking into is the employment rates. High employment rates would mean effective utilisation of human resources, hence with everyone earning a certain income, the country’s GDP can be increased. High employment rates would also mean less unemployment benefits being given, hence this would also prevent economic strain on the government. Nonetheless, Singapore has a very small domestic labour force given its very small land size. As a result, even if the government focuses on employment rates, such as providing training and specialization courses for jobs, not much of a difference can be made as opposed to focusing its attention and resources on another macroeconomic goal which affects the economy to a greater extent.
Thailand group
ReplyDeleteEconomic growth is best defined as a long-term expansion of the productive potential of the economy. Sustained economic growth should lead higher real living standards, rising employment, fiscal dividend, improved public services, increased business confidence and money can be spent on protecting the environment. Short term growth is measured by the annual % change in real gross domestic product (GDP). Economic Growth means an increase in real GDP. This increase in real GDP means there is an increase in the value of national output / national expenditure.
Growth is an important avenue through which better living standards and lower rates of poverty can be achieved in Thailand. This is particularly true for countries who regard growth as a key route for poverty reduction among their population. According to a report published in August 2004 by the Asian Development Bank (ADB), rapid growth in many of the countries in the Asian region has reduced the number of people living on less than $1 a day fell to 22% of the region's population in 2002. That compares with 34% in 1990 and shows "considerable progress in the fight against poverty." Hence it caused an increase in real national income per head of population, resulting in a higher living standard.
Growth stimulates higher employment. The Thailand economy has been growing since 1997. The percentage of Sector Employment Shares for industry and services increased from 11% to 22% and from 22% to 38% respectively. Moreover, as more people get employed, there will be less need to spend money on benefits such as unemployment benefits.
As for fiscal dividend, growth has a positive effect on government finances. When the households’ income increases, the government is able to increase tax without worrying about the households. Hence, it boosts tax revenues and provides the government with extra money to finance spending project. This is because government finances are cyclical in nature because a growing economy boosts the tax revenues flowing into the finances for government.
Economic growth has a positive impact on company profits and business confidence as more people are able to afford stuff. Hence the market will grow in size. This is good news for the stock market and for the growth of small and large business. As more companies are willing to invest in the country due to increased business confidence, Thailand is able to increase the amount of exports. As exports are a component of aggregate expenditure (AE), a rise in exports will cause a rise in AE and real GDP subsequently.
Richer countries have more resources available to invest in cleaner technologies. And, as nations move to later stages of development, energy intensity levels start to fall. Much depends on how many resources an economy is willing to devote to environmental improvement and protection. Over the last thirty years, the ratio of energy consumption per unit of GDP has fallen quite significantly. The reduction in energy intensity is a reflection of improvements in production technologies and also a gradual switch towards a low carbon economy. Much more progress needs to be made. Organisations such as the Carbon Trust sponsor research into low carbon technologies and many environmental groups believe that greater investment should be made in alternative sources of energy.
Thailand group 2
ReplyDeletePursuing goal of high GDP growth could push macro-economic stability into jeopardy.
Over the course of several decades, the Thai economy was growing at a very satisfactory rate. Between 1960 and 1995, the average real GDP growth rate was about 7.7 per cent per annum. This led to substantial improvements in the welfare of the Thai population. In the early 1990s, the country's economic performance was regarded as an example of the so-called "East Asian Economic Miracle" (World Bank 1993). However, just a few years after this categorization, the country experienced a severe financial and economic crisis. The 1997 crisis reflected Thailand's cumulative balance of payment problems, which shows that the pursue of high GDP growth is insufficient.
In 1996, a weakening economy and a decline in export growth created a current account deficit that amounted to 8% of GDP. The government was forced to pursue a high interest-rate policy to protect the currency. When the cost of doing so got too high, the government let the currency float against the dollar, which resulted in a 20% devaluation. By mid-1997, Thailand's debt had reached a staggering $23.4 billion, consuming three-quarters of its foreign reserve holdings. Currency speculators and Thai residents alike were trying to sell the baht and buy the US dollar, causing and worsening capital flight out of the country. The Thai government was running out of its foreign reserves and losing market confidence in maintaining the currency value and financial stability. In the process, interest rates increased substantially as the outflow of short-term capital intensified. The previously inflated stock and real estate markets went on to collapse and led to Thailand's worst recession in the post war period with sharply rising unemployment and business failures. The decision to devalue the baht affected other neighbouring countries in the Southeast Asian region. This Asian Financial Crsis affected Thailand severely and shows that economic growth cannot be the only macroeconomic indicator employed. As such, debt surged significantly and there was not enough useable foreign reserves left to meet foreign obligations. Assistance from the International Monetary Fund (IMF) was therefore needed.
With budgetary expenditure rising, government's expenditure will reach an alarming level as well as the government employs the fiscal policy to increase consumption to ensure growth. Subsidies will further add to the burden of the Government and borrowing will be required.
Rapid growth in Thailand during 1988-92 contributed to substantial and widespread reductions in the incidence and severity of poverty. This shows anther con of perusing economic growth itself as a macroeconomic goal. Although economic growth benefitted workers in the formal and informal sectors causing real labour earnings to rise on average, however, wages and salaries have contributed to aggregate income inequality for two reasons. With structural change, formal-sector employment has grown rapidly, thereby increasing the wages in total incomes. And, these increased formal-sector jobs have not been allocated equitably across households. Therefore, there is a need for a policy to remove the main supply-side constraint to participation in wage employment, which remains the lack of adequate education for almost half the population that who leave school without a junior secondary education. Expanding access to secondary education for those from poorer households and in lagging regions not only would help sustain growth, but would also promote equity across income groups and regions. This shows that the over emphasis on economic growth per se could led to an income gap which only benefits a particular sector.
Thailand group 3
ReplyDeleteBesides focusing on economic growth only, the government of Thailand should also place focus on improving Balance of Payments (BOP). The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It is the sum of the balance of trade (BOT) (net earnings on exports - payments for imports), unilateral transfers and net property income from abroad.
The capital account records the net change in ownership of foreign assets. It includes Short Term Capital Flows (e.g. speculative money) and Long Term Capital Flows such as Foreign Direct Investments (FDI). Therefore, it is important to focus on BOP as it will affect economic growth and economic development of the country.
First we will be looking at the current account of the BOP of a country. It should ideally be in surplus in the long run as it represents a country earning revenue. A major component of BOP, BOT refers to the net earnings on exports - payments for imports, to maintain BOT surplus, exports are crucial as the revenue earned from exports affect BOT. Thus, in the context of Thailand, governments should focus on increasing export volumes. Thailand is a country with vast amounts of natural resources such as tin, rubber, natural gas, fish as well as fertile land. In the past, Thailand exports mainly labour intensive goods and raw materials such as rice, canned pineapples, canned tuna, rubber, chilled fish and prawns, precious stones, etc. These consumer goods do not command high prices as they are fairly price elastic. Thus, Thailand exporting these goods will not earn much revenue. The content of the exports do not raise the BOT by much.
Hence, after many years of exporting price elastic, labour intensive consumer goods, Thailand is slowly moving from a labour-intensive economy, to a service and skill based economy. This is mainly due to investments from other countries such as Japan, which set up car manufacturer Toyota’s production there. 32.5 percent of all direct investment in Thailand is coming from Japan (based on the 2007 figure approved by the Board of Investment). By producing more manufactured goods, Thailand’s exports are able to command higher prices now which increases export revenue and improves BOT. Thus, Thailand should continue to shift their economy in this direction where they produce manufactured goods. With increased BOT, BOP will improve. Improved BOT will also attract investors to invest in Thailand as they will see that the business prospects in Thailand are good. Thus, FDI will increase which also improves the capital account of BOP. To further increase FDI, Thailand’s government should also give tax incentives to foreign firms and set up more Free Trade Areas (FTA) with other countries. With more FTAs, firms would want to capitalize on Thailand’s bilateral links with other countries, in this case Thailand’s FTAs with other countries. FTA aims to eliminate taxes on exports from the countries in the agreement. Therefore, firms will find it very attractive to set up their operations in Thailand and export their goods from Thailand. Due to the FTA, the firm’s goods will be more price competitive in foreign markets as the goods have little or no tariffs placed on it. The firm will earn more revenue as more of its products are consumed. Thus, if Thailand sets up more FTAs , it will attract more investors and FDI will increase.
Thailand group 4
ReplyDeleteRather than focusing solely on economic growth as is only macroeconomic growth, the government of Thailand should also place emphasis on other macroeconomic goals, namely unemployment rate. The unemployment rate refers to the percentage of people in the labour force who are unemployed. While the definition of a country’s labour force would be the number of people who are willing and able to work (excluding school children and retirees). A high unemployment rate signifies an underutilization of human resources, hence, productive efficiency is not reached and production occurs below a country’s production possibilities curve. High unemployment rate also means that excessive unemployment benefits are being given out, resulting in a further drain on government finances. In addition, high unemployment could result in social tension and instability, further reducing the country’s productivity. Therefore, it is important to focus on employment rates as it indirectly affects the economic growth of the country.
Ideally, a country should pursue full employment to maximize production potential. Currently, Thailand’s unemployment rate is 1.4% which is considered low for a developing nation. However, various factors may actually cause unemployment rate to increase in the long run. The first being with greater FDI inflow into Thailand, firms may experience technology transfer and would result in increased automation and more efficient production methods. With production processes becoming increasingly automated, workers may be retrenched due to their relative ineffectiveness. Hardest hit would be low skilled workers such as those working in production lines. Being low- skilled, they would be substituted for machines easily. With greater FDI, firms would be able to acquire better and more sophisticated capital, causing the production process to be further streamlined, and the unemployment of even more workers. Secondly, as Thailand opens up to international trade, structural unemployment would result. This is based on the theory of comparative advantage, where a country would specialize in the production of a good if it has a lower opportunity cost incurred. As a result of specialization, countries would be able to consume out of their consumption possibilities due to mutually advantageous trade. Thailand exports mainly labour intensive goods such as canned pineapples, rubber, prawns and canned tuna. However, Thailand is slowly moving toward a skill and service based industry, with greater emphasis on the tourism and manufacturing industries. As Thailand specialized in manufacturing and tourism industries, productive factors such as labour, capital and land will shift from sunset industries into such newly developing industries. However, due to the relative immobility of certain resources such as labour, this would lead to structural unemployment. Workers in low-skilled industries such as subsistence agriculture would have to undergo substantial retraining in order to be employable by the manufacturing or services industries. The high cost and duration of retraining prevents low-skilled workers from entering specialized industries, resulting in structural unemployment. Furthermore, as the government focuses on more important industries, sunset industries such as fishing and agriculture will receive less government funding and subsidies. As such, these industries might have to retrench workers to cut cost.
THailand group 5
ReplyDeleteThe Government of Thailand could undertake certain measures to address the problem of unemployment. Firstly, they could improve mobility of labour. This can be done through subsidizing or encouraging companies to co-pay for the retraining of workers, while drawing a salary. This would encourage workers to acquire new skills and upgrade themselves, allowing them to experience better employment opportunities. With more skills and greater efficiency, demand for trained workers would be relatively inelastic. Hence, retrained workers would gain higher wages and job stability. The government could also foster a positive business environment for the startup of SME’s by local entrepreneurs. As local SME’s employ a large portion of the workforce, encouraging the startup of more SME’s would reduce unemployment. To foster a positive business environment and local entrepreneurship, the government could provide low interest loans for business ventures as well as tie up with institutions to encourage creativity, individuality, and critical thinking, which are essential factors in entrepreneurship.
(4) India (part 1)
ReplyDeleteShould the India government only pursue economic growth as its macroeconomic goal?
Economic growth refers to the annual percentage increase in an economy’s level of real output over time and is measured by the change in real GDP. Economic growth can be actual or potential. Actual growth is the annual percentage increase in national output, while potential growth is the annual percentage increase in the capacity of the economy to produce or develop. Besides economic growth, the other macroeconomic goals that the India government should pursue are low unemployment rate and inflation, and balance of payments equilibrium, which would all be further elaborated on in this essay. In addition, economic growth may also lead to other costs. Thus, the India government should only pursue it as its macroeconomic goal if the benefits outweigh the costs.
The rate of India’s economic growth improved in the 1980s, from FY 1980 to FY 1989, the economy grew at an annual rate of 5.5 percent, or 3.3 percent on a per capita basis. Industry grew at an annual rate of 6.6 percent and agriculture at a rate of 3.6 percent. A high rate of investment was a major factor in improved economic growth. Investment went from about 19 percent of GDP in the early 1970s to nearly 25 percent in the early 1980s. Due to rising real income per head when economic growth outstrips population growth in India, there would be an increase in consumption for the people in India, increasing the standard of living of people in India. The increase in agriculture growth has also saw an increased demand for rural labour that raised rural wages and, together with declining food prices, reduced rural poverty. Besides that, India’s Government is able to redistribute incomes from the rich to the poor without the rich losing in absolute terms. For example, when income rises, the taxes which accompanies it would rise too; allowing more revenues to be spent on programs to alleviate poverty.
As mentioned in the point under income and wealth distribution, after the government has redistributed incomes from the rich to the poor, the extra revenues from taxes can be used by the government to increase the overall welfare of the Indians by increasing consumption by providing subsidies. With the provision of subsidies, price of goods decrease, hence they become cheaper to the Indians and so they can afford to consume more. For example, the Public Distribution System (PDS), a public food subsidy programme, on consumption poverty in India has greatly increased the consumption of food by 80% from 1993 to 2004. Welfare is also increased when government or organisations uses the revenue generated due to economic growth to improve the safety standards of the country. For example in India, the government spent part of their budget on training the employees of hospitals. As such, healthcare standards of Indian hospitals have increased, thus improving the welfare of Indians.
Standard of living refers to the level of material well-being and is determined by the quantity of goods and services enjoyed by an individual. Thus, by considering the monetary value or the purchasing power of an average person in the country from the value of GDP per head, the living standard can be gauged. The higher the amount of GDP per head and hence the purchasing power, the greater the amount of material goods an individual can consume. Due to economic growth, the purchasing powers of Indians increase, hence they can enjoy a higher level of goods and services.
One other benefit of economic growth would be the possibility of improving the environment. As mentioned above, the when the government has extra revenue from the collection of taxes, measures to improve the environment can be implemented. One such example is the Indian Network for Climatic Change Assessment (INCCA), which involves a network of 120 research institutions and 250 scientists to help alleviate the problems of climate change. These projects thus bring about benefits to the environment.
(4) India
ReplyDeleteShould the India government only pursue economic growth as its macroeconomic goal?
Economic growth refers to the annual percentage increase in an economy’s level of real output over time and is measured by the change in real GDP. Economic growth can be actual or potential. Actual growth is the annual percentage increase in national output, while potential growth is the annual percentage increase in the capacity of the economy to produce or develop. Besides economic growth, the other macroeconomic goals that the India government should pursue are low unemployment rate and inflation, and balance of payments equilibrium, which would all be further elaborated on in this essay. In addition, economic growth may also lead to other costs. Thus, the India government should only pursue it as its macroeconomic goal if the benefits outweigh the costs.
The rate of India’s economic growth improved in the 1980s, from FY 1980 to FY 1989, the economy grew at an annual rate of 5.5 percent, or 3.3 percent on a per capita basis. Industry grew at an annual rate of 6.6 percent and agriculture at a rate of 3.6 percent. A high rate of investment was a major factor in improved economic growth. Investment went from about 19 percent of GDP in the early 1970s to nearly 25 percent in the early 1980s. Due to rising real income per head when economic growth outstrips population growth in India, there would be an increase in consumption for the people in India, increasing the standard of living of people in India. The increase in agriculture growth has also saw an increased demand for rural labour that raised rural wages and, together with declining food prices, reduced rural poverty. Besides that, India’s Government is able to redistribute incomes from the rich to the poor without the rich losing in absolute terms. For example, when income rises, the taxes which accompanies it would rise too; allowing more revenues to be spent on programs to alleviate poverty.
As mentioned in the point under income and wealth distribution, after the government has redistributed incomes from the rich to the poor, the extra revenues from taxes can be used by the government to increase the overall welfare of the Indians by increasing consumption by providing subsidies. With the provision of subsidies, price of goods decrease, hence they become cheaper to the Indians and so they can afford to consume more. For example, the Public Distribution System (PDS), a public food subsidy programme, on consumption poverty in India has greatly increased the consumption of food by 80% from 1993 to 2004. Welfare is also increased when government or organisations uses the revenue generated due to economic growth to improve the safety standards of the country. For example in India, the government spent part of their budget on training the employees of hospitals. As such, healthcare standards of Indian hospitals have increased, thus improving the welfare of Indians.
Standard of living refers to the level of material well-being and is determined by the quantity of goods and services enjoyed by an individual. Thus, by considering the monetary value or the purchasing power of an average person in the country from the value of GDP per head, the living standard can be gauged. The higher the amount of GDP per head and hence the purchasing power, the greater the amount of material goods an individual can consume. Due to economic growth, the purchasing powers of Indians increase, hence they can enjoy a higher level of goods and services.
One other benefit of economic growth would be the possibility of improving the environment. As mentioned above, the when the government has extra revenue from the collection of taxes, measures to improve the environment can be implemented. One such example is the Indian Network for Climatic Change Assessment (INCCA), which involves a network of 120 research institutions and 250 scientists to help alleviate the problems of climate change. These projects thus bring about benefits to the environment.
(4) India (part 2)
ReplyDeleteWhile there are many benefits that bring about in economic growth, there are costs that would follow as well.
Firstly, despite an increase in wealth overall in the country, poverty in rural areas are still common, as despite large expenditures in rural development, a highly centralized bureaucracy with low accountability and inefficient use of public funds limit their impact on poverty. In 1992, India amended its Constitution to create three tiers of democratically elected rural local governments bringing governance down to the villages. However, the transfer of authority, funds, and functionaries to these local bodies is progressing slowly, in part due to political vested interests. The poor are not empowered to contribute to shaping public programs or to hold local governments accountable.
Secondly, rapid growth may result in greater rate of change. However, the skills and knowledge of the labour force may be unable to improve as quickly as technology advances, resulting in unemployment when the latter replaces labour or lowly-skilled workers taking on even lower paying jobs. Despite so, the rich would get rich due to greater incentives to specific sectors of the economy which would not benefit the poor too. This can be seen in the Green revolution in India where jobs are lost due to increasing technology which replaces labour work despite being able to salvage the Belgian Famine in 1943 greatly.
Besides that, higher income generated would encourage higher demand as people become more materialistic and less fulfilled. The society would degenerate to become greedier and less caring, resulting in more crimes and stress. In India’s case, unequal distribution of opportunities and wealth have caused much instability in the country. India’s educated elite are reveling in their new found status on the global stage, inequitable distribution of wealth and opportunities are shaking the very foundation of India’s new economy. For example, workers demanding a raise tried to form a labor union, but management fired four union leaders and suspended 50 workers. When the workers went on strike to demand that their colleagues be reinstated, a clash with the police led to 700 injured workers, and the episode was broadcast worldwide. The problem of such inequitable distribution of wealth can be seen even in smaller cities, where there are signs of economic boom everywhere in the city – shopping arcades, multiplexes, pubs, and luxury clubs. Yet, right outside the city, farmers are committing suicide due to their inability to repay debts as small as $100. In the last five years, almost two thousand farmers in the region have killed themselves.
Moreover, there are increased external costs involved due to the economic growth. For example, in Andaman Island, India, forests are cleared for land to sustain economic growth. Although the value of timber is counted and the land can be used to generate profits by building factories or to increase the welfare of Indians by building houses, the benefits (eg. Production of oxygen by trees) of having a forested land area would be lost. Hence, economic growth may or may not bring about an increase in living standards, depending on whether the costs or benefits of economic growth are greater.
(4) India (part 3)
ReplyDeleteEvaluation
In the case of India, the costs and benefits of economic growth differ from sub-Saharan Africa, and South America. This is because countries situated in different continents have different natural resources and environments. For example, the case of INCCA mentioned above could not have been a benefit to the environment in other regions not affected as greatly by the climatic changes. The costs brought about by deforestation would not affect countries with little areas of forests as well.
Moreover, external costs such as pollution, environmental degradation and a reduction in biodiversity are likely to affect developing countries like India more than developed countries. This is because more forested areas must be cleared to make way for land in developing countries than developed countries, whose land-use are already planned and executed. In addition, developed countries tend to have more stringent environmental protection rules and regulations due to the extra revenue that they have already generated. On the other hand, developing countries are more focussed on making way to economic growth so as to catch up with other developed countries, and would hence neglect the importance of environmental conservation.
Thus, the specific costs and benefits brought about by economic growth as discussed above are distinctive to India and it is likely to experience greater external costs than developed countries.
Besides the costs and benefits of economic growth, the India government should also consider the other macroeconomic goals such as Balance of Payment (BOP) equilibrium, low unemployment and low inflation rate which are of grave importance in ensuring growth of an economy. BOP is the record of trade transactions of a country and the total currency flow is measured by export revenue minus import expenditure. BOP equilibrium is important as a BOP deficit needs to be financed, impacting the economic growth negatively. Conversely, a BOP surplus can invite retaliation from trading partners. Unemployment on the other hand measures the percentage of people in the labour force who are unemployed. This is needed to be kept under control as a high unemployment rate will mean an underutilization of human resources and a drain on the government finances by the unemployment benefits given out. Lastly, inflation rate measures the rate of increase of the general price level (GPL). It is a significant goal to be achieved as a high inflation rate, a situation whereby there is a persistent increase in the GPL, can disrupt market mechanism.
Factors that hinder growth
Although India should pursue economic growth, there are certain limitations that hinder them from doing so and being successful.
One of the factors which hinder economic growth of India is its flawed bureaucratic system. According to an article by BBC News, India’s government has a notoriously corrupt and poor tax collection system. Out of India's population of a billion people only 2%, which is 20 million, pay taxes. The reason this occurs is that income earned from farms in India, for example, is exempt from income tax, resulting in a large number of rich farmers who earn much more than salaried employees in cities, not having to pay any taxes at all. The lower-salaried employees in cities bear the tax burden. This renders are relatively minute amount of taxes available for the government to spend on promoting economic growth.
Also, the people often avoid paying taxes because the current tax collection system is so complicated that they need to hire a tax consultant, which costs them more money.
Furthermore, there is corruption in the bureaucratic system, which causes the amount of taxes that can be actually spent on government spending to be even lower. With fewer taxes, gross investment cannot increase and net investment thus, also does not increase. The country’s PPC will be unable to shift to the right, thus lesser potential growth for India.
(4) India (part 4)
ReplyDeleteAnother factor which hinders India’s growth is the education level of its labour force. More than half of India’s billion-plus population is below the age of 25, who are unable to work. The low percentage of working population hinders the country’s potential output as national income would be less and hence less money to spend on promoting growth. Furthermore, about 40% of its work force of about 400 million people is illiterate and another 40% comprises of school dropouts. This renders their work force to be less skilled than other countries and their working population would have lower salaries. This also results in a lower national income than if their work force were to be highly educated and skilled, which would allow them to draw higher salaries.
To allow India to achieve more economic growth, the government has to deal with the above limitations. In response to the flawed tax collection system, India’s government should have tax rates rationalised and compliance systems made simple so that more people are encouraged to pay taxes, not avoid them, and that the most efficient amount of taxes can be collected without putting a heavy burden on just the lower-salaried city employees. When taxes are collected more efficiently, the money can be spent on supporting developing industries and investment projects that offer the highest rate of returns, allowing the country’s PPC to shift right and hence more potential growth.
To deal with the lowly-skilled labour force, India should promote skills upgrading and implement policies which would aid or finance the upgrading of skills of the current labour force. This would help India’s labour force to stay competitive and draw higher salaries, causing national income to increase and at the same time, upgrading of skills might make it more probable for the people to innovate and enterprise. Singapore set up the Skills Development Fund to finance the upgrading of skills of the labour force for the above purposes.
A change the government should make to promote growth to set up institutions which provide individuals with the incentive to innovate and create output, which are sources of growth. When they innovate and develop more efficient methods of production or start an industry which the country may have comparative advantage in, the country’s productivity can increase, shifting PPC to the right and hence causing growth. This lesson can be learnt from Singapore which encourages her citizens to innovate and be enterprising through The SPRING Start-up Enterprise Development Scheme (SPRING SEEDS) which helps to finance Singapore-based start-ups creating innovative products and processes, possessing intellectual content and strong growth potential.
Besides the above-mentioned points, one other hindrance is political instability. In the early 1990s, there was violence over two domestic issues: the reservation of a proportion of public-sector jobs for members of Scheduled Castes and the Hindu-Muslim conflict at Ayodhya. The central government fell in November 1990 and was succeeded by a minority government. The cumulative impact of these events shook international confidence in India's economic viability, and the country found it increasingly difficult to borrow internationally. As a result, India made various agreements with the International Monetary Fund and other organizations that included commitments to speed up liberalization. But India remained one of the world’s most tightly regulated major economies. Thus its economic growth was greatly affected causing the 1990 balance of payments crisis and subsequent policy changes, leading to a temporary decline in the GDP growth rate, which fell from 6.9 percent in 1989 to 4.9 percent in 1990 to 1.1 percent in 1991.
(4) India (part 4)
ReplyDeleteOther than political instability, there is also the establishment of intellectual property rights. Intellectual Property Rights (IPRs) affect economic growth by stimulating the accumulation of factor inputs like research and development capital and physical capital. With the protection of property rights, the research sector will be encouraged to invest and take risk, thus increasing the productivity of the work force and causing the cost of production to decrease. Aggregate supply (AS) curve will shift to the right, causing national output and gross domestic product (GDP) to increase. Gross domestic product is the output produced by productive factors located within the national boundary of a country which is India in this case. Thus with this increase, India will experience positive economic growth. This will be shown by the Indian Pharmaceutical Industry which is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. It is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually.
Conclusion
In conclusion, the India government should pursue economic growth as a macroeconomic goal, as economic growth can help India to develop and alleviate poverty, thus increasing the standard of living. However, there are costs which accompany the achievement of economic growth, such as income disparity, structural unemployment and externalities, and also factors that hinder India from achieving economic growth. To deal with these problems, government intervention would be needed. Apart from economic growth, India should also pursue other macroeconomic goals such as BOP equilibrium, which is also crucial for the country’s development. However, achieving economic growth alone, before even considering other goals, might already be difficult to achieve in the near future, as there is corruption and the government has other pressing issues to deal with apart from economic growth, such as education and healthcare. Hence, India is likely to be able to achieve these goals only in the long run.
China Part 1:
ReplyDeleteIn answer to the question:" Should a government only pursue economic growth as its macroeconomic goal?", my group believe that the answer is no because there should be a balance between the various macroeconomic growth.
For China's case,a desirable society should attain the 4 main macroeconomic goals of Equity, Full employment,Surplus in Balance of Payments – high benefits from trade and Sustained economic growth.
Furthermore, the country also aims to be the number one “super power” country in the world, possessing significant market power.
This goal should not be accomplished at the expanse of their population's welfare which will be so if the government only focused on economic growth and neglect factors such as uneven distribution of income and high inflation rates. Reason being that a country's wealth and prosperity founded upon such a shaky foundation of poor governance of people will not be able to achieve sustained economic growth.
Looking at a case study of china: Global economic crisis in 2008
Costs and benefits can be broken down to the following points:
Benefits:
Alleviate other macroeconomic problems (spread effect) Helps to prevent demand pull-inflation which happens when there is no increase in productive capacity
Increased levels of consumption
Re distributive benefits
Environmental benefits (Going green)
Costs:
Worsened Income distribution
Increased unemployment
China Part 2:
ReplyDeleteBenefits' analysis
Costs' analysis-
Looking at the unemployment rates in China from their annual economic markers and analysts, we can see that unemployment is increasing.
This is maily due to the following factors:
- Increased income disparity between diff industries (agriculture and manufacture)
- Workers in agriculture experience wages decrease, income becoming more elastic.
- Increased automation on farms and use of farming machinery reduces need for manpower
- Cost cutting entices firms to retrench workers
> Such workers do not possess the required skills to enter capital intensive industries (labour immoblility within country)
Apart from unemployment, difference between rural and urban RMB is also increasing. Income gap is widening - Gini coefficient increasing
Moreover, tax revenue collected from rural provinces is approximately 100 times lesser as compared to urban cities as well.
In this case, economic growth has failed to reduce poverty and lower wage workers have little disposable income >less consumption > no rise in SOL.
In China, this cost is especially significant because closing the income gap will allow the country to transform its investment-dependent economy to a consumption-driven one. > more actual growth to fully utilize the increased productive capacity
Require actual and potential for sustainable econ growth.
China Part 3:
ReplyDeleteBenefits' analysis-
Economic growth conflicts with major macroeconomic goal maintaining BOP equilibrium.
We want to reduce unemployment, obtain low inflation and also high BOP surplus
The use of expansionary fiscal and monetary policy may result in worsening of BOP
When main source of rising AD is high consumer spending. Domestic producers unable to meet demand, demand for Imported gds rise and this results in increase in trade deficit.
Thus as can be seen, this benefit of econ growth is not really significant
Further comments on China:
ReplyDeleteCost of focusing on economic growth alone is especially significant as China govt does not have adequate policies and manpower in the govt sector to ensure that the unskilled labour can upgrade and retrain skills
Long term structural unemployment means additional labour resources under-utilised results in dampening of productivity of labour force > rate of potential growth decrease.
Therefore, to make sure that sustained economic grwoth is obtained for china, the best way will be to balance their macro-economic goals so as to maximise the country's full potential to grow its economy and fully utilise its resorces and manpower.
Qn: Should a government only pursue economic growth as its macroeconomic goal? (South Korea)
ReplyDelete[Part 1]
Economic growth is the annual percentage increase in an economy's level of real output over time. It is usualy measured by the rate of growth of real GDP or GNP over time. Economic growth consists of two aspects - actual growth and potential growth. Actual economic growth is the annual percentage increase in national output ie. the rate of growth in actual output. It is dependent on the Aggregate Demand of goods and services produced by the country. Potential economic growth is the speed at which the economy could grow, ie the rate of growth in potential output. It is dependent on the quality and quantity of resources available.
The market economy of South Korea has led to dramatic improvement of the economy from less developed nations with severe unemployment, negative savings and the lack of exports to rapidly developing country. The gross national product (GNP) has been growing faster than the population as well as gross domestic product (GDP) during last 3 decades. The significant increase of gross national product from US$2.3 billion in 1962 to US$457.7 billion in 1995” was a result of “Growth strategy of experts with its limited domestic market” (lcweb2.loc.gov). The rapid expansion of the economy improved the living standard condition for many people, in 1980’s, in South Korea. Income distribution has risen over this periods and this higher income raised South Korean citizens’ purchasing power rapidly as well. For example, “the average household income had risen in average 14.8 percent per year between 1985 and 1988” (hopia.net). These significant shifts of average household income also led to change in consumption patterns and created many “new middle class”. Since their purchasing power have increased, this can lead to higher levels of consumption of goods and services. Human welfare can be related to the level of consumption thus economic growth provided a gain to society and the standard of living in South Korea has improved.
However, there are downsides to pursuing economic growth as its only macroeconomic goal.
In South Korea, the five year plans implemented during the 1970-80’s had emphasized largely on heavy industry, thus transforming Korea into one of the world's leading shipbuilder and steel producer. However, this rapid industrialisation has also resulted in the formation of acid rain as factory smoke and automobile exhaust fumes contribute to the
sulphur oxides contained in the precipitation of rain. In fact, South Korea is a major producer of SO2, producing 20 million tons of SO2 emissions in 1987.
This acid rain in turn causes acidification of lakes and streams and contributes to the damage of trees at high elevations (for example, red spruce trees above 2,000 feet) and many sensitive forest soils. In addition, acid rain accelerates the decay of building materials and paints, including irreplaceable buildings, statues, and sculptures that are part of our nation's cultural heritage. This will also affect the standard of living (SOL) in South Koreans as the quality of air is lowered, thus resulting in respiratory problems. Furthermore, aggravating the air pollution problem is the skyrocketing number of motor vehicles, especially private passenger vehicles resulting from the significant rise in incomes. At the end of 1993, the number of automobiles on the roads was 6.27 million, up from just 40,000 in 1965. In 1992, motor vehicles emitted 1.84 million tons of all pollution. In Seoul, 60 percent of air pollutants came from motor vehicle exhaust emissions include more stringent emission standards and improve fuel quality. This shows that the government should not only focus on economic growth as it may being about negative effects on the SOL of it’s citizens (eg. Result in more health problems).
Qn: Should a government only pursue economic growth as its macroeconomic goal? (South Korea)
ReplyDelete[Part 2]
Economic growth could also bring about redistributive benefits. If incomes rise, the governement can redistribute incomes from the rich to the poor without the rich losing in absolute terms. For instance, as people's income rise, they automatically pay more taxes. These extra revenues for the government can be spent on programmes to alleviate poverty. In South Korea, rapid economic growth has created extreme wealth and the income tax rate for individuals is relatively high, about 35% with a 10% resident surcharge. This extra revenues generated could be put into the Poverty Reduction and Socio-Economic Developement Trust Fund which helps to combat poverty.
Economic growth involves changes in production, in terms of the production of goods and also in terms of the techniques which are used for production and the skills that are required from the labour force. The more rapid the rate of growth, the more rapid this rate of change will be. If the skills and knowledge of the labour force in South Korea does not improve as rapidly as do the technological advancements, employees of firms may discover that their skills are becoming less relevant since their jobs are quickly replaced by the use of machines. Workers are forced to quickly upgrade their skills and keep up with the technological advances. Failure to do so will lead to them being forced to take on lower paying jobs or leave the job altogether. This will hence result in structural unemployment. This can be seen from South Korea's unemployment rate which has been hovering around 3% unemployment and only recently spiked to 4.1% in 2010. (www.indexmundi.com)
Qn: Should a government only pursue economic growth as its macroeconomic goal? (South Korea)
ReplyDelete[Part 2]
Economic growth could also bring about redistributive benefits. If incomes rise, the governement can redistribute incomes from the rich to the poor without the rich losing in absolute terms. For instance, as people's income rise, they automatically pay more taxes. These extra revenues for the government can be spent on programmes to alleviate poverty. In South Korea, rapid economic growth has created extreme wealth and the income tax rate for individuals is relatively high, about 35% with a 10% resident surcharge. This extra revenues generated could be put into the Poverty Reduction and Socio-Economic Developement Trust Fund which helps to combat poverty.
Economic growth involves changes in production, in terms of the production of goods and also in terms of the techniques which are used for production and the skills that are required from the labour force. The more rapid the rate of growth, the more rapid this rate of change will be. If the skills and knowledge of the labour force in South Korea does not improve as rapidly as do the technological advancements, employees of firms may discover that their skills are becoming less relevant since their jobs are quickly replaced by the use of machines. Workers are forced to quickly upgrade their skills and keep up with the technological advances. Failure to do so will lead to them being forced to take on lower paying jobs or leave the job altogether. This will hence result in structural unemployment. This can be seen from South Korea's unemployment rate which has been hovering around 3% unemployment and only recently spiked to 4.1% in 2010. (www.indexmundi.com)