07. Exam - International Trade and Growth in Asian Economies

Question 1

Which Asian countries are included in the term High Performing Asian Economies (HPAE)?

Answer 1

1) Hong Kong
2) Singapore
3) Thailand
4) Taiwan
5) Japan
6) Indonesia
7) Malaysia
8) South Korea

Question 2

What are the Four Tigers and what are they also known?

Answer 2

Hong Kong; Singapore; Thailand & Taiwan - also known as four dragons or little dragons. They are the newly industrialised economies (NIE).

Question 3

Is China a NIE?

Answer 3

Yes it could be but it is usually placed in its own category due to its size and the legacy of communism.

Question 4

What re the Characteristics of a HPAE?

Answer 4

• able to maintain stable macroeconomic environment
• strong commitment to shared economic growth through health care, education and housing
• promotes exports and remains open to imports
• exports provide foreign exchange earnings.

Question 5

Explain the population, income and economic growth of the HPAEs?

Answer 5

• High GDP per person in Singapore, Japan, HK, Taiwan and Sth Korea
• Thailand, Indonesia and Malaysia began their growth later.
• Asian economies were among the fastest growing in the world between the 80s and 90s.

Question 6

Briefly explain the position of Hong Kong?

Answer 6

On 1 July 1997, GB returned the colony to China after more than 150 years of British rule. China will:

• allow HK to keep its own currency
• limit migration between HK and the mainland
• generally try and preserve HK’s current system.

Question 7

What are the general characteristics of growth in the HPAE?

Answer 7

• shared growth - rising economic equality
• rapid accumulation of physical and human capital (high savings partly as a result of rapid demographic transition experienced after WWII)
• rapid growth of manufactured exports (import substitution industrialisation (ISI) policies were quickly replaced with an emphasis on export promotion
• stable macroeconomic environments.

Question 8

HPAEs have high rates of investment thanks to high savings rates which stem from what four reasons?

Answer 8

• stable macroeconomic environment of low inflation
• rapid rate of income growth
• demographic transition: shift to low death & birth rates

Question 9

Explain the difference between HPAE exports in 1965 and 2000?

Answer 9

Between 1965 to 2000 they doubled and became a major share of world exports 21.3% (19.9% merchandise)

Question 10

Why do HPAEs have stable macroeconomic environments?

Answer 10

• HPAEs kept budget deficits and foreign debt within limits so govt. could finance without having to print money or borrow excessively.
• low inflation rates helped keep interest rates stable and enabled firms to take a long term view on investing

Question 11

Explain seven aspects of the Institutional Environment for HPAEs?

Answer 11

• large flows of savings channelled into financial system
• govt created rules that foster efficient outcomes
• reliable property rights
• bureaucracies are competent
• contracts are enforced
• access to information is wide-spread
• regulations are clear and well publicised

Question 12

To maintain a stable macroeconomic environment what is required by the government?

Answer 12

• fiscal discipline and an acceptance of the resource constraints that limit govt. actions
• budget deficits and foreign debt kept @ manageable levels
• real exchange rate must be kept relatively stable.
  These increase confidence in the govt. which in turn encourages investment and less capital flight.

Question 13

What are deliberation councils?

Answer 13

Quasi-legislative bodies set up by six HPAE governments that bring together representatives from the public and private sectors.

Question 14

What is the role of the deliberation council? (6)

Answer 14

• coordinate information flow between business men and policy makers
• reduce the cost of acquiring info about new policies
• provide a forum for bargaining over policies
• instil greater investor confidence
• raise the level of credibility of govt. policies; and
• allow the business elite a strong voice in setting policy which thereby ensures their cooperation in the overall economic strategy.

Question 15

Government interventions are common in three areas in HPAES, these include?

Answer 15

Targeting of specific industries or to channel resources in a particular direction through:

• credit subsidies
• import protections
• business licenses

Question 16

What is the role of industrial policies?

Answer 16

1) targeting of specific industries (narrowly defined industrial policies)
2) directed credit
3) export promotion

Question 17

With the first role of industrial policies - targeting of specific industries in the HPAE, what six tools have been used?

Answer 17

• restrictions on imports (licensing, quotas, tariffs, export subsidies)
• direct credit (funds to an industry)
• subsidies
• Market information (especially foreign)
• infrastructure construction
• research and development funds.

Question 18

What is placed above industrial policy?

Answer 18

Macroeconomic stability

Question 19

What is the outcome of a successful industrial policy?

Answer 19

Increase the overall rate of GDP grow or the rate of productivity growth.

Question 20

What is the World Bank’s view on the industrial policies and their ability to increase GDP growth? and what is the critics response?

Answer 20

Export promotion and directed credit work to boost economic growth but other policies did not. Critics respond by saying it is impossible to know what the growth rates would have been without those policies.

Question 21

What are the three areas of general agreement with regards to successful industrial policies and their traits?

Answer 21

• they have clear performance criteria such as export targets
• institutional means to monitor and enforce compliance
• low costs in order for non-targeted sectors not to suffer.

Question 22

What are the connections between growth and exports?

Answer 22

• export growth won’t add to GDP growth if it crowds out growth of goods for domestic consumption
• export growth causes faster GDP growth
• export growth causes the overall capacity of the economy to grow faster than what it would if production was focused on goods for the domestic market.

Question 23

Promotion of exports results in greater GDP growth only if there are two key factors in place - what are they?

Answer 23

• there is something in the production that would otherwise be absent from producing for the domestic market such as:
  
  • economies of scale from larger market
  • added incentives to increase R&D
  • foreign competition
• exporting also:
  
  • speeds up the adoption of inter. best practices
  • makes possible purchase of imports
  • encourages the adoption of new technology.

Question 24

What is the most critical ingredient in policies that successfully close the gap between developing and developed countries?

Answer 24

• ability to import capital and modern technology.

Question 25

Is export promotion a good model for other developing regions?

Answer 25

Probably not because:

• requires world’s industrial nations to absorb the exports and without balance on imports deficits would be created; and
• developing countries must eliminate subsidies that are contingent on export performance (Uruguay Round 94) which means they cannot use credit subsidies, tax breaks and direct payments to replicate the success.

Question 26

What is responsible for East Asia’s remarkable growth per capita?

Answer 26

The bulk of the east Asian growth is attributable to increases in capital and education. It is not attributable to Total Factor Productivity (TFP) which is a measure of the quantity of output per unit of input. Increases in TFP mean that overall productivity has improved and that a given level of inputs will create more output.