Trade Growth Economy

Introduction

“...by far the most important source of economic growth in these countries [the Four Tigers] is capital accumulation, accounting for between 48 and 72 percent of their economic growth, in contrast to the case of the Group of Five industrialized countries, in which technical progress has played the most important role, accounting for between 46 and 71 percent of their economic growth...”(Kim and Lau, 1994). The results of the statement above shown that there is not only significant different from view presented earlier of the primacy of developing technology, there is discouraged message as well. The main reason is the growth of economic in the Four Asian Tigers (Taiwan, Hong Kong, Singapore, and South Korea) just expected outcome of labor and capital in huge amount. Moreover, there is a spectacular growth for these countries over the past 30 years are not be able to continue due to economic growing unpredictable. However, free trade has been giving advantage for these countries to invest more in other asian countries. This essay will be emphasise on shortly explanation of economic development in Four Asian Tiger countries. As the results, it will conclude whether necessary to set up free trade each other according to the advantages of free trade.

Economy Background of Hong Kong

Hong kong is one of the country that have the largest trading's port in the world, and it gives them benefit to handle all the trade in the world through sea transportation. “The economy has been led by two engines, the business and financial services sectors which together account for half of all economic activity since 1997”. Unfortunately, most of the produce and exporting made in the border Mainland of China, which Hong Kong re-export what China produce. On GDP report in 2006 that composition by sector:

Agriculture: 0.1%

Industry: 11.9% (of which: manufacturing 3.1%)

Services: 88.0% (of which: trade and retailing: 25.7%)

Economy Growth of South Korea

Nowadays, “Korea's economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. Korea bounced back from the 1997-98 Asian financial crises with some International Monetary Fund (IMF) assistance, but based largely on extensive financial reforms that restored stability to markets”.

The table above shows that “with few native energy resources, South Korea has used nuclear combined with conventional thermal power plants to keep up with aggressive economic growth”. It is benefit for them to manage the nuclear energy to supply to neighbour countries.

Economy Growth of Taiwan

“Taiwan has transformed itself from an underdeveloped, agricultural island to an economic power that is a leading producer of high-technology goods. Taiwan is now a creditor economy, holding one of the world's largest foreign exchange reserves of more than” $500 billion (100 G$) in 1999. Taiwan is the largest supplier for computers chip manufactures and as a leading LCD panel manufacture in the world. On GDP report in 2006 that composition by sector:

Agriculture growth: 1.5%

Industry growth: 25.2%

Services: 73.3%

Economy Growth of Singapore

“Singapore is aggressively promoting and developing its biotechnology industry. Manufacturing and financial business services are the twin engines of the Singapore economy. Singapore was faced with a lack of physical resources and a small domestic market. In response, the Singapore Government adopted a pro-business, pro-foreign investment, export-oriented economic policy combined with state-directed investments in strategic government-owned corporations. The Singapore Government and the” National Trades Union Congress (NTUC) “have tried a range of programs to increase lagging productivity and boost the labour force participation rates of women and older workers. But labour shortages persist in the service sector and in many low-skilled positions in the construction and electronics industries”. Furthermore, “the port of Singapore is one of the busiest in the world”, thus “Singapore's port infrastructure and skilled workforce, which is due to the success of the country's education policy in producing skilled workers, is also fundamental in this aspect as they provide easier access to markets for both importing and exporting, and also provide the skill needed to refine imports into exports”.

Benefits of Free Trade

Furthermore, fourth countries above have advantages each other, there is potential opportunity amongst them to cooperate each others and attempting to more emphasise on work-partner just between these countries. Although, Singapore and Hong Kong has been joint World Trade Organisation (WTO) as realisation of free trade through the other members of WTO's members. This is good point for both Singapore and Hong Kong to join due to they are lack of natural resource for income commodity. Rest of other members might provide them the natural source, such as oil. As feedback, there is decreasing cost through their port for members. Thus, trade creation will be reducing tariff barriers.

As we can see from GDP results on 2006, agriculture growth for Hong Kong significant different with Taiwan, which mean if we assume free trade between them, it will be effect on GDP in the future. In addition, there are several benefits that could be considered for South Korea and Taiwan to do free trade:

The theory of comparative advantage.

Increased Exports

Economies of Scale

Increased Competition.

With more trade domestic firms will face more competition from abroad therefore there will be more incentives to cut costs and increase efficiency. It may prevent domestic monopolies from charging too high prices.

Trade is an engine of growth.

Make use of surplus raw materials

Tariffs may encourage inefficiency

If an economy protects its domestic industry by increasing tariffs industries may not have any incentives to cut costs.

The Accounting Method

“The arguments at the center of the debate are based on theoretical notions of growth accounting. This accounting method deals with three elements that contribute to the production of goods and services: labor, capital, and technology. Labor and capital, known collectively as the "factors of production," refer in this context to the workforce and to the capital goods (buildings, machines, vehicles) that the workforce uses in manufacturing some product or providing some service. Technology refers to all the methods employed by labor and capital to produce a good and depends on the development or acquisition of practical skills to get the job done more quickly and more efficiently. No one denies that all three elements must be present to some degree if an economy is to grow. What is subject to debate is the contribution of the factors of production relative to that of technology. Some believe that increased use of labor and capital explain all growth; others are persuaded that the answer to growth lies in the use of more efficient technology” (Sarel, 1997). As Sarel mention above that labor, capital, and technology is a good point to establish and to attempt increasing free trade on these three main goods and services. Taiwan could provide cheapest chips manufacture, Hong Kong and Singapore could provide temporary port for shipping, and South Korea provide energy to supply to these countries. Thus, free trade will achieve very impressive in the future.

Conclusion

Taking everything into consideration, there is possibility for fourth countries to increase cooperation among them by considering not controlling the market in the world. “The study does not offer clear and conclusive results nor does it make clear policy recommendations. Its main judgment is that, from a positive point of view, a promising avenue for the explanation of growth performance is the examination of initial conditions. Nevertheless, from a normative point of view, it is far from clear what specific policies governments should pursue, beyond the standard set of policies aimed at getting the basics right”. The common characteristics of the Four Asian Tigers are:

Focused on exports to richer industrialised nations

Trade surplus with aforementioned countries

Sustained rate of double-digit growth for decades

Non-democratic and relatively authoritarian political systems during the early years

High level of U.S. treasury bond holdings

High savings rate

The ranks of GDP (by nominal) List of countries by GDP (nominal) of South Korea, Taiwan, Hong Kong, and Singapore are 12^th, 21^st, 36^th, and 44^th, respectively.

A high degree of what is referred to as economic freedom. Hong Kong, Singapore, Taiwan and South Korea are 1^st, 2^nd, 26^th, and 36^th respectively on the Heritage Foundation's Index of Economic Freedom published in 2007.

Bibliography_________________________________________________________

Begg, D. Fischer, S. Dornbusch, R. 2005, Economics Eight Edition, McGraw-Hill Education, United Kingdom.

http://en.wikipedia.org/wiki/Four_Asian_Tigers viewed on 05/04/2008.

http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=18&issue=3&issue_date=Summer%202004 viewed on 03/04/2008

http://www.heritage.org/research/features/index/chapters/pdf/index2007_RegionA_Asia-Pacific.pdf viewed on 09/04/2008.

http://www.imf.org/external/pubs/ft/issues1/issue1.pdf viewed on 05/04/2008.

Kim, Jong-Il, and Lawrence J. Lau, 1994, "The Sources of Economic Growth of the East Asian Newly Industrialized Countries," Journal of the Japanese and International Economies, Vol. 8 (1994), pp. 235-71.

Michael Sarel, 1996, Growth in East Asia What We Can and What We Cannot Infer, International Monetary Fund, Washington D.C.

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