Emerging Economies - The BRICS Countries (chap 9)

Question 1

What is BRICS ?

Answer 1

Large middle income economies which are seen as “Emerging”.

Question 2

What countries constitute BRICS?

Answer 2

Brazil, Russia, India, China, South, Africa.

Question 3

similarities between china and India ?

Answer 3

1. Vast size.

2. Rapid GDP Growth

Question 4

How the size of India and china affects the world economy?

Answer 4

1. Environmental Effects
2. The vast pool of saving in china- reduced world interest rate, contributed to the boom prior to 2008.
3. Outsourcing to China and India - manufactor and services.

Question 5

GDP Growth of china and India ?

Answer 5

• China (since 1978), 9.8% per capital (per year)

- India (since 1991), 5.9% per capital (per year)

Question 6

What is Dual Track Strategy?

Answer 6

some prices were liberalized, while others remained under state control.

Question 7

General result of Dual Track Strategy?

Answer 7

• Positive: high growth rate

- Negatives: still with inefficient state enterprises.

Question 8

Real consequence in Dual Track Strategy in china?

Answer 8

• This created economics distortions and opportunities for corruption
• There is a widening income gap between and within urban and rural areas (better eastern , than western).

Question 9

Why china apparently more successful than the Soviet Union in its transition?

Answer 9

Some suggest , the speeds which the two countries introduced reforms.

Question 10

Name of the Russian approach?

Answer 10

Big Bang approach

Question 11

Name of the Chinese approach?

Answer 11

Gradualism strategy

Question 12

What is Big Bang approach ?

Answer 12

The privatization of everything at once and removed wage and price control.

Question 13

The result of the Big Bang approach?

Answer 13

1. A huge concentration of wealth in few hands (The oligarchs)
2. The collapse of inefficient sate industries- high unemployment.
3. Budget deficits financed by money creation- inflation.

Question 14

Gradualism strategy had the same effect of the Big Bang approach ?

Answer 14

not totally, it had the same problems but less severe, furthermore, critics say that had other advantages.

Question 15

what suppose advantages had china in the process of reform?

Answer 15

• Agriculture:population, poor agriculture move to manufacture
• Manufacture:large supply of low wage, unskilled (economy of scale)

Question 16

what limitations had china in the process of reform?

Answer 16

• Shortage of highly educated workers

- corruption and lack of transparency.(also Russia )

Question 17

what unresolved problems had china?

Answer 17

1. Unbalanced trade
2. Environmental damage
3. Potential political unrest
4. overinvestment in capital intensive industries.

Question 18

Concern of China trade unbalanced ?(from U.S)

Answer 18

undervalued currency and U.S finances

Question 19

why there is Concern of China trade unbalanced ?(from U.S)

Answer 19

Manipulation of currency by pegging it to a basket of currencies (rising the yuan), china is buying U.S bonds (financing the U.S government)- this make dependent the U.S. government and allow china currency to manipulate it currency at pleasure.

Question 20

What are china environmental facts?

Answer 20

• China have 16 of the world’s 20 most polluted cities
• If the cost of environmental destruction is included , it would be from 9% to 2%. (GDP)
• China current grow is not environmentally sustainable.

Question 21

why china may have political unrest ?

Answer 21

-Income disparities and unemployment will get worse as state-owned industries are privatized (including corruption).

Question 22

What effect has the Chinese high(extremely) saving rates of saving and investment ?

Answer 22

1. As investment increase the return decrease (Solow Model), - just to maintain the grow , need more money
2. Much to China’s investment is directed to inefficient state enterprise.
3. Chinese firms finance investment by borrowing (dangerous levels of debt)-2016
4. Consumption is declining as a proportion of GDP ( living standards )

Question 23

The reasons of the Indian’s reform ?

Answer 23

1. collapse of the Soviet Union
2. Example of South Korea
3. Financial Crisis in 1991

Question 24

why the collapse of the Soviet Union motived India to reform?

Answer 24

• India was not communist but it was heavily influenced, by using ISI (import substitution industrialization), high level of state ownership , after the fall they had to rethink.

Question 25

why South Korea influenced India?

Answer 25

• after the fall of the USRR, India needed reform and South Korea had the same GDP per capita (1960)l, however they manage to growth 25 times more by 1987.

Question 26

how the financial crisis of 1991 affected India ?

Answer 26

the gulf war drove up oil prices and cut flow of Indian worker in the region, therefore, Foreign exchange reserves fall

Question 27

what economics reform happen in India (1990)?

Answer 27

• Reduced the quantity of regulations
• Privatized industries
• Reduced restrictions on foreign direct investment (FDI).

Question 28

What result got the reform in India (1991)?

Answer 28

Real GDP rose to 5.9 per year (less than china)

especially in high tech

Question 29

what future challenge have India ?

Answer 29

• Education (education gap)- lack of medium skilled worker

- Infrastructure (expansive for business), regulation and bureaucracy.