Emerging Economies - The BRICS Countries (chap 9) Flashcards
What is BRICS ?
Large middle income economies which are seen as “Emerging”.
What countries constitute BRICS?
Brazil, Russia, India, China, South, Africa.
similarities between china and India ?
- Vast size.
2. Rapid GDP Growth
How the size of India and china affects the world economy?
- Environmental Effects
- The vast pool of saving in china- reduced world interest rate, contributed to the boom prior to 2008.
- Outsourcing to China and India - manufactor and services.
GDP Growth of china and India ?
- China (since 1978), 9.8% per capital (per year)
- India (since 1991), 5.9% per capital (per year)
What is Dual Track Strategy?
some prices were liberalized, while others remained under state control.
General result of Dual Track Strategy?
- Positive: high growth rate
- Negatives: still with inefficient state enterprises.
Real consequence in Dual Track Strategy in china?
- 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).
Why china apparently more successful than the Soviet Union in its transition?
Some suggest , the speeds which the two countries introduced reforms.
Name of the Russian approach?
Big Bang approach
Name of the Chinese approach?
Gradualism strategy
What is Big Bang approach ?
The privatization of everything at once and removed wage and price control.
The result of the Big Bang approach?
- A huge concentration of wealth in few hands (The oligarchs)
- The collapse of inefficient sate industries- high unemployment.
- Budget deficits financed by money creation- inflation.
Gradualism strategy had the same effect of the Big Bang approach ?
not totally, it had the same problems but less severe, furthermore, critics say that had other advantages.
what suppose advantages had china in the process of reform?
- Agriculture:population, poor agriculture move to manufacture
- Manufacture:large supply of low wage, unskilled (economy of scale)
what limitations had china in the process of reform?
- Shortage of highly educated workers
- corruption and lack of transparency.(also Russia )
what unresolved problems had china?
- Unbalanced trade
- Environmental damage
- Potential political unrest
- overinvestment in capital intensive industries.
Concern of China trade unbalanced ?(from U.S)
undervalued currency and U.S finances
why there is Concern of China trade unbalanced ?(from U.S)
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.
What are china environmental facts?
- 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.
why china may have political unrest ?
-Income disparities and unemployment will get worse as state-owned industries are privatized (including corruption).
What effect has the Chinese high(extremely) saving rates of saving and investment ?
- As investment increase the return decrease (Solow Model), - just to maintain the grow , need more money
- Much to China’s investment is directed to inefficient state enterprise.
- Chinese firms finance investment by borrowing (dangerous levels of debt)-2016
- Consumption is declining as a proportion of GDP ( living standards )
The reasons of the Indian’s reform ?
- collapse of the Soviet Union
- Example of South Korea
- Financial Crisis in 1991
why the collapse of the Soviet Union motived India to reform?
- 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.
why South Korea influenced India?
- 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.
how the financial crisis of 1991 affected India ?
the gulf war drove up oil prices and cut flow of Indian worker in the region, therefore, Foreign exchange reserves fall
what economics reform happen in India (1990)?
- Reduced the quantity of regulations
- Privatized industries
- Reduced restrictions on foreign direct investment (FDI).
What result got the reform in India (1991)?
Real GDP rose to 5.9 per year (less than china)
especially in high tech
what future challenge have India ?
- Education (education gap)- lack of medium skilled worker
- Infrastructure (expansive for business), regulation and bureaucracy.
