Different historical stages have distinct characteristics

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.


Diverse countries in different historical stages have distinct characteristics and require appropriate policies to maintain their own economic development. Being endowed with particular resources, such as land, labour, physical capital, technology, and each country in their steps of development unavoidably meet with both domestic and international constraints which require the policies of development vary over time. The empirical regularities that characterize the relationship between core economic theories and sound policies in the past five decades is worthy of researching. This paper take efforts to argue that not a specific policy package is correspondent with such dominated economic rationales like market - based competition, appropriate incentives, stable macroeconomic environment, role of high savings, positive technological progress and so on. By introducing the endogenous growth model with the examples several East Asia countries as well as lessons from China within context, show how the policy planners could make different reactions in enhancing the economy.

1. Introduction

As increasingly booming and powerful are the developing countries such as China, India, and South Korea, economic development has become perhaps the critical issue on the policy agendas. Considering the different endowments between countries, the economics growth of each section does not share the same determinants, in spite that several economic indicators have the same measurements (For example, in the neo-classical economic model, the total output is determined by labour and capital input). However, how did China grow so rapidly without robust market - based competition and lower level of technology progress? How did South Korea join into the team of developed countries with scarce resources and were external capital dependent? How did Indonesia successfully experience economic prosperity even though its institutional arrangement is poor? Although the stories of the developing countries presented above displayed discrepancy from the core economic principles, they had creatively work out diverse policies on their own situation which finally created a miracle high - speed economic development. The argument is that there is not a unique way mapping economic orthodoxy, policies and performance, but can be finally balanced during institutional arrangement, by derive this results from cross-country and time series evidence which can be consistent with it, this article is considered consists of three parts. The next part emphasis on the different policy reactions toward standard principles based on the examples of the East Asia countries. The factor endowments flow is introduced in the third part to illustrate the factor which inter act each other to achieve the long run growth. The last session discusses where to start and how institutions should be designed confronting diverse economic environments in order to obtain sustainable economic growth.

2. Why should we attach importance to this?

2.1 Orthodoxy in development policy

The impressive events of the last half century's economy turmoil aroused people's concern that we should revaluate the role of policy making. A representative incident was the global debt crisis burst out in 1982, which originated in Latin America and spread world wide. [2] Facing to the fact, a large mount of policies such as export promotion policy, privatization policy, and industrial de - regulation policy up surged in majority of developing countries. However, the force of these policies differed across countries. Some successfully overcame the plight and even made prosperity, some unfortunately operated to the opposite direction. [4]

Liberalization and macroeconomic adjustment are the two core policies which all the developed countries had adopted [2]. It was empirically documented that any kinds of economic policies could not effectively overcome the difficulties in the economic operations. State intervention, market - oriented competition, had either achieved success or experienced problems when meet with independent specifics. Only the combination of both the principles and the progress of development could bring up the reasonable policies which finally influence the long - run economic growth.

2.2 "Washington Consensus" do not always live credibly

It is undeniable that South Korea and Tai Wan as two aggressive tigers are the miracles of East Asia who had experienced rapid economic growth since 1960's [3]. The figures below in the table shows the evidence that both of the country had achieved excellent economic growth measured by the level of average annual GNP growth rate and population growth rate.

Table1 Comparison of per Capita GNP and Population Growth Rate

Of South Korea, Tai Wan [3]

From the table, GNP growth rate of Taiwan and South Korea were quite similar which were twice that of the Upper - middle income. On the other side, the population growth rates were both a little bit below that of the upper - middle income group. It is mean that there was an increasing rate of the gains of the social individuals.

Despite the similarity of the achievement both South Korea and Taiwan obtained, they were indigenously possessing different characteristics (shown in table 2). It is easily noticed that agriculture took up only 7% of its GDP value in Taiwan compared with 16% of that of South Korea. It is also provided that the big discrepancy of the exchange rates between South Korea and Taiwan.

Table 2 Country Characteristic, 1983 [3]

However, things can not always perform quite well by the way they are expected. The well - known "Washington Consensus" is one of the representative examples, which is presented by John Williamson in 1990 the measures put forward by whom viewed as the "first stage of policy reform" [2]. Unbelievably, South Korea and Taiwan had experienced great success since 1950's with the policies which seemed discredited compared to the standard Washington consensus. By introducing the table below to show to what degree did the fast developed areas South Korea and Tai Wan in East Asia comply for the famous consensus.

Table 3 Washington Consensus and East Asia [2]

To concern with the ten elements listed in the Washington consensus list above, both South Korea and Taiwan are not math them all and South Korea the less, additionally, each area to some extent focus on unique parts. They both maintained good fiscal policies, such as public expenditure priorities, tax reform, and both performed unified and competitive exchange rates. However, Taiwan liable to accept FDI¼Œand South Korea not. One of the item which is concerned about privation, both of the two countries totally run in the opposite direction, and credited to which the economies acted toward the right way to maintain economic growth in the reform era, especially during the 1980's crisis.

As a result, there is no one set of principles matched with a suit of economic policies could solve the problem of a specific area, even the so - called standard economic principles " Washington Consensus".

3. The sources of economic growth and the flow of resources

3.1 The sources of economic growth - Capital, Labour, Technology

As the world wide political patterns changed - the raise of socialism, after World War Two, numerous socialistic countries (usually be called the Third countries) spurted and experienced unpredictable growth which had exceeded the rate of growth of the developed countries before 1980's. These striking events attracted economists' concern tending to the key factors dragging economic development and finally these concerns falling down to the three essential factors - Capital, Labour and Technology[1]. The results from past experience show that the high capital stock is an important impetus for a country's economic development and living standards improvement.. Labour resources based on the education level, training and skill also have far - reaching impact on the productivity of one sector. Another crucial factor is the technology process. Solely concentrated on the capital accumulation and labour augmenting without paying attention to the promoting technology, the development of the economy may not be sustainable and be combined in a limitation [5] .Another, nature resources such as the earth, river, mineral resources are indigenous endowments that the countries who are rewarded is in a sense of fortune. For instance, by virtue of the crude oil, the Middle East countries become the richest area in the world.

3.2 Differences in endowments

The factors discussed above are indeed the impetus to promote the growth of economy and they are all worthy of the policy makers' pursuing. What should we concern more, however, is that not all the countries could achieve absolute advantages of all of them according to their intrinsic value. Thus, efforts should be taken by practitioners to seek the reasonable ways to acquire the endowments which they are scarce with. And the policies for different countries to achieve that fortune vary across countries.

It has long been the international trade theory based on the international discrepancy in relative factor endowments, and the normal two-good, two-factor, two-country Heckscher-Ohlin model as the fundamental theory were prevailing for a time. But this model has quite a limitation that it only adaptive to solve the problem in perfect competition. It will be introduced following that various policies could make complement for the factor endowment scarcity. [6]

3.2.1 FDI (Foreign Direct Investment)

Foreign direct investment (FDI) refers to a country or regional enterprises accessing to some or all of the control of foreign enterprises in order to achieve the ultimate goal and immediate objectives of the long-term unity in high degree by virtue of monopolistic advantages (mainly manifested as intangible assets) of the international transfer. It is one type of investment activities that the cross-border capital or other factors of production are transferred by the foreign investors (natural or legal) who aim to obtain or control the power of enterprise management and then gain profit or scarce production factors. The nature of FDI is management resources, in particular the intangible assets of enterprises. According to Kojima, Kiyoshi, the main goal of FDI is supplementing free trade and improving the harmony of FDI and foreign trade to a great level. The advanced skills and huge capital benefit the host countries.[7]

FDI in China has significantly fostered and expanded international trade.As Hitomi Iizaka searched FDI inflow in China, the total import and export in China grew from 38 billion in 1980 to more than US$ 474 billion in 2000 [8]. Additionally, the percentages of China's total export generated by FDI dramatically increased from the little 0.3% in 1984 to the huge 20% in 1992 [8].

3.2.2 R&D (research and development)

Absorbing advanced technology is another attraction for governments to commit at all costs purchasing R&D. It is universally believed that technology is a crucial intangible asset that possesses infinitive power to benefit society. However, not all technology could be originated from one country due to various obstacles such as geographic limitation, the lack of resources, political rules and so forth.

The phrase R&D, refers to cooperative work undertaken in order to increase the stock of knowledge either of human beings or of society. And the gained knowledge then will be applied by new terms. [9]By sharing the advantages of what they possessed with each other, they get mutual benefit and both will be competent finally.

The achievements of R&D in different countries are not the same. The empirical studies illustrate that the effects of R&D in Japan is much prospective than that in South Korea.

4. Where we are and how can we go further?

The trend of globalization inevitably arouses a outstanding burgeon in the world economy. Based on the great efforts taken by the pioneer economists' theoretical advances, the developing countries are now undergoing a generally robust economic growth. Laissez-faire and government intervention are one after another dominant historically in the world which are now interact with each other. On the other hand, the existence of government failure and market failure are still the difficulties the policy makers should continue to worry about. [10] Facing core economic principles, adjusted by the sound policies while moving from excessive government interventions to emphasizing on requirements of improving both inapplicable government structure and the progress of the well - functioned performances of markets. Perhaps the most remarkable change in development conception nowadays has been a concentration on the significance of institutions re - arrangement, ranging the way from property rights to civil service reform to the financial system. [10]

5. Conclusion

Core economic principles are commonly guidance for policy makers to work out the basic structure for economic growth with respect to the specific characteristics of different areas in different strategies. Policies for development changes timely and spatially aiming at measures take in to practice be applicable. There is impossible a unique series of policies could match the standard orthodoxy, as circumstances toward economic growth with uncertainty. Different types of policies may bring about the same results.

Policies and institutions should be renewed or rearranged if they may not be adopted quite well in the real world. Practitioners should react to economic velocity with flexibility since the big possibility of market failure or government failure.

Thus, policies should always be learnt in the changing environment of the economy. Great efforts should be concentrated on the goal of economic development in specific area not the attachment of practices and principles.