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Business In Asia > Exam > Flashcards

Exam Flashcards

1
Q

What is Purchasing Power Parity (PPP)?

A

PPP allows the comparison of the purchasing power of various world currencies to another. It measures real exchange rates.

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2
Q

What are the characteristics of the Asian middle class?

A
  • range of jobs, generally in industry and modern services
  • higher levels of education
  • more urbanised areas
  • generally optimistic, wanting Western-style consumer goods, better housing, education, etc.
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3
Q

What are the differences between Asian and developed countries middle class?

A
  • attributes (careful with spending, want value for money)
  • generally younger (brand conscious, embrace new trends such as online shopping)
  • not concentrated in big cities
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4
Q

What is the difference between inward and outward-orientated strategies?

A

Inward-orientated focus on the development of the domestic industry, through high trade barriers, import substitution industrialisation (ISI), and low levels of FDI. This is justified by the infant industry argument.
Outward-orientated focus on increasing international trade through a focus on export promotion, exporting goods and services the country has a comparative advantage in, reducing trade barriers and encouraging FDI.

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5
Q

What is the middle income trap?

A

The middle income trap refers to when the transition from low to middle income has happened in a country, but they are unable to ‘graduate’ to high income status as they lose their cost advantage, but cannot transition to the innovation-driven stage of high income economies, who are rich in capital, skills and technology.

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6
Q

What are the determinants of growth slowdown?

A
  • institutions (legal, limited gov, corruption)
  • demography (age distribution, gender bias)
  • macro environment and policies (monetary/ fiscal policy, capital inflows, inflation, investment)
  • economic/ trade structure
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7
Q

What are the 6 relevant factors of Malaysia, who are ‘stuck in the middle’?

A
  1. Rapid economic growth, averaging 3% per decade since 70s
  2. Rapid structural change from resource-based to large-scale manufacturer
  3. Consistent ‘openness’
  4. Component macro management
  5. Mixed social progress
  6. Sclerotic political economy and institutions
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8
Q

How do you break through to trap, and what does China need to do to break through?

A

Break through with quality institutions, innovation, specialisation, education, and shift from factor accumulation growth.
China can break through if they:
1. Strengthen research and development, including training > 300m migrant workers
2. Reform financial system to provide better financial services for innovation
3. New legal and political institutions that conduct and protect technological innovation

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9
Q

Who are the winners and losers of a devalued exchange rate?

A

Importers and losers, exporters are winners

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10
Q

Why did Asia attract large capital inflows in the 90s?

A
  • low unit labour costs
  • incentives for foreign investment
  • high interest rates
  • fixed exchange rate
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11
Q

What is carry trade?

A

A trading system that involves borrowing at a lower interest rate and investing in an asset with a higher rate of return

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12
Q

What were the factors that contributed to the Asian Financial Crisis?

A
  • excessive lending and risk taking
  • unhendged foreign borrowing
  • Carry trade
  • international debt in dollars while trading in local currency
  • poor bank management
  • bubble burst
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13
Q

What is the GDP formula?

A 
GDP = Consumption + Investment + Gov spending + (Exports - Imports) 
Y = C + I + G + (X - M)
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14
Q

What are the 3 arrows of abenomics?

A
  1. Strong fiscal stimulus (increase consumption tax from 5% to 8% to cover gov spending, reduce five spending, base wage rates on productivity rather than seniority)
  2. More aggressive monetary policy (target inflation 2%, monetary easing, showing price rise signs)
  3. Growth strategy/ structural reforms (long list including encouraging greater female participation, deficit over GDP to be half 2010 figure by 2020, more scholarships)
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15
Q

Has abenomics been successful?

A

Abenomics has been successful in increasing financial conditions, company profits, boosting employment and female participation. However, in some areas such as investment promotion, the structural reform arrow is lagging.

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16
Q

Why has India emerged as a major software exporter?

A

Their workforces’ strong scientific and mathematical skills with no language barriers. India’s highly skilled labour force grew 6 times faster than the world.

17
Q

What is the difference between absolute poverty and relative poverty?

A

Absolute poverty refers to a set of standards consistent across time and countries, when first introduced in 1990 measured this on the $1 per day poverty line, which increased to $1.90 in 2015. Measured by headcount index
Relative poverty views poverty as socially defined and dependent on social context, and therefore measures income inequality. Measured using the Gini coefficient.

18
Q

What are the 3 central questions of economic growth?

A
  1. Why are some countries so rich and others so poor?
    A: high savings and advanced technology
  2. What is the engine of economic growth?
    A: technological progress
  3. Why do some countries grow faster than others?
    A: technological progress. Countries also grow quicker during transitions from low steady state to medium.
19
Q

What is economic freedom?

A

Economic freedom emphasis free trade, free markets and private property, where consumer preferences rule with little intervention by the state. The main components are person choice, voluntary exchanges coordinated by the markets, freedom of businesses to enter and compete in markets, and protection of persons and their freedom against the aggression of others.

20
Q

What was Hong Kong’s exonomic freedom score in 2019?

A

90.2, with business freedom of 96.4 and property rights of 93.3

21
Q

What are the factors leading to Hong Kong’s economic success?

A
  • deep water port and strategic location
  • hardworking, low cost labour
  • inflow of capital and entrepreneurs from China
  • system of laissez faire capitalism w high level of economic freedom
22
Q

What are the two dimensions of entrepreneurship?

A

Creative, as described by Schumpeter, occurs when a new good or good of differing quality is introduced, a whole new market created, new production method, or new input or intermediate good introduced to production of existing good.
Adaptive, as described by Kirzner, occurs when someone acts upon existing profit opportunity, through imitation, adaptive innovation, or rapid response to changing market conditions

23
Q

What are the features of entrepreneurs in Hong Kong?

A
  • small firms
  • subcontracting
  • spatial arbitrage
  • export-orientated industrialisation
  • learning from MNEs
24
Q

What are the Chinese economic reforms?

A
  • reform of rural sector
  • reform of state-owned enterprises
  • price reform
  • exchange rate reform
  • reform of trade and investment
25
Q

What are the remaining challenges for China?

A
  • inequality and middle income trap
  • environmental deterioration
  • corruption
26
Q

What are the 4 inequality measures?

A
  • range (difference between highest and lowest incomes)
  • coefficient of variation (sd/ mean)
  • gini coefficient (area bw equality diagonal and Lorenz curve, where 0 is perfect equality - China was 0.47 in 2018)
  • Theil index (distribution income across groups against same population groups)
27
Q

What were the changes in Japanese consumer spending post-bubble?

A

Many Japanese household had large debts they incurred during the bubble, but were still very brand conscious and wanted to purchase quality goods but cheaper, which created and opportunity for Japanese businesses such as UNIQLO

28
Q

What are the major challenges faced by the Indian economy?

A
  • low on ease-of-doing indicators such as getting construction permits
  • corruption
  • labour inflexibly (difficult to follow labour-intensive industries)
  • control, red tape and delays, all mostly at a government level
  • infrastructure
  • skills shortage
  • higher inflation compared to trading partners
29
Q

What was the rationale behind the IMF prescription to float exchange rates?

A

Capital outflow with a floating currency means depreciation as the market finds the equilibrium price, and the Central Bank does not need to supply reserves.
Interest rates can also increase, meaning demand will go up and shifting supply to the right, reducing excess demand.

30
Q

Major differences between 1997 and the present in terms of financial systems and foreign reserves position?

A

Many countries built up large reserves after 1997 crisis, and shifted to floating currencies so they don’t need as many reserves. They also cleaned up financial system so they’re not as vulnerable to bad debts, etc. however, no country can let their exchange rate crash, so governments are sometimes having to intervene, using up financial reserves, such as India.

31
Q

What is the relationship between Real Exchange Rate and competitiveness?

A

Inversely related

32
Q

What are the main reasons for the growing middle class in Asia?

A
  • economic growth
  • higher education
  • urbanisation
  • policies in good faith

Business In Asia (1 decks)

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