Factors affecting ED Flashcards
What are some factors influencing economic development for Capitalist vs Socialist economies?
- Doctrinal prescriptions and economic policies*
- Inward/outward looking-nature of economy*
- External political context*
- Political crisis/stability
What are some factors influencing economic development within capitalist economies?
- Principles of governance: transparency vs cronyism
- Judiciousness of governance - how far govt intervenes
- Political crisis and context - pol stab
- Private sector and domination of Chinese big businesses
- Exogenous economic events
- Economic endowment
Examples for doctrinal prescriptions and policies? Extent of doctrinal persuasion
Capitalist: Less influenced by political confines, motivated by economic performance for legitimacy - basis of authority
SG: importance of performance legitimacy, no historical context for legitimacy of PAP
I: Performance legitimacy enhanced by toppling of Sukarno in part due to failure of his economic policy leading to drop in SOL
Thus, influenced economic goals - prioritised growth
Socialist: Doctrinal in nature - basis of authority lay in the doctrine, ideology and central l leadership
B: Socialist ideology under Ne Win
V: Socialist ideology particularly prescient - unifying North Vietnam which was a formerly capitalist system, impose socialist ideals, legitimacy in part due to HCM and his socialist ideology, opposition to the USA
Thus, influenced economic goals - prioritised equity
Examples for how external political context affects ED?
Cold War pressures - external Cold War framework put ideological and economic pressures on countries to align themselves with certain economic paths and models, and also affected how quickly they moved down the economic track.
Capitalist:(I,P,T especially) US loans and aid, motivated by the ability of these countries to act as bulwarks against expansion of socialist and communist/ 2nd World interests in the region, encouraged these countries to maintain a capitalist system but also consequently fostered an over-reliance on foreign capital → less pressure to be more competitive by improving efficiency, or moving down the industrial track by diversifying and engaging in EOI
Huge indebtedness, current account deficit of I, T - I: By 1989, nursed Asia’s largest debt at US$58B, T: External debt of 38% of GDP in 1986
In SG - policy was not to accept foreign loans - maintain a budget surplus, minimise indebtedness - more motivation to diversify, EOI, make economy more competitive
Socialist: Economic and military aid from 2nd World bloc pressured B,V to align with the system. In late 80s, detente returned - less pressure on socialist economies ideologically and economically to maintain priority on equity, heavy industry - B, V opened up, more privatisation, deregulation, foreign investment etc
However, also informed by economic pressures (V faced 700% inflation, etc) and domestic political factors (V’s pragmatic leadership by Nguyen Van Linh - genuine vs B - not genuine openness)
Examples for how principles of governance affected ED?
Transparency vs cronyism
Transparency: economic policies based on economic principles (ST/LT positive)
SG: Econ investments into competitive sectors/entities → NOL/NISM → NatSteel
Capitalisation of new economic opportunities → business center, technology, pharmaceuticals
Cronyism: Economic policies based on political principles (LT negative)
I: Tariffs reached 300% in 1990 due to protection of automobile industries under Liem Siew Liong - I never developed efficiency in producing engines for the industry. Result was that Indonesia remained dependent on export earnings from primary commodities (70-80%) by 1980
P: Marcos awarded monopoly licenses to cronies, such as sugar industry to Benedicto → 14b peso bailout of Benedicto’s sugar empire despite collapse of sugar prices in 1970s, led to complacency and lack of incentive to produce efficiently. By the end of the Marcos era, P was nursing one of the world’s largest debts, much less move to EOI
Examples for how judiciousness of governance affects?
Moderate vs excessive nationalisation (too much)
Moderate vs excessive protectionist policies (too much)
Liberalisation with regulation vs without (too little)
Examples of moderate vs excessive nationalisation?
Moderate Nationalisation policies led to the generation of wealth for subsequent industrialisation
P: Congress bill in 1958 for at least 60% of all important industries to be at least 60% owned by native Filipinos. Led to threefold increase in Filipino participation in import trade from 1948 to 1965
I: Pertamina (oil)
Excessive nationalisation led to the flight of foreign capital
I: Sukarno’s nationalisation and expropriation of Dutch property and businesses led to reduced trade, declining GNP per capita and a collapsing economy by 1965
B: Nationalisation of all manufacturing and commerce sectors led to a collapse of the private sector and international trade, continued negative export rates of close to -5% in the 1980s
Examples of moderate vs excessive protectionist policies?
Moderate protectionist policies led to the growth of early industries and spurred early ISI
P: Import and forex controls extended to new industries, led to rapid industrialisation as manufacturing expanded from 8% - 20% of GDP from 1950-1960
M: Pioneer industries programme in 1958 focussed on processing and other consumables. Led to a 10% increase in consumption goods as % of industrial output till 1970
LT over protectionism led to failure to scale back GI - inefficiency, inability to move on to EOI
P: Bailed out Benedicto’s sugar empire with 14B pesos despite sugar price collapse in 1970s - complacency and lack of incentive to produce efficiently - 70% of export revenue still generated by sugar, coconut and forestry products (1967-71)
I: Highly protected automobile industry continued to be dominated by Liem Sioe Leong - remained dependent on export earnings from primary commodities (70-80%) by 1980
Examples of liberalisation with regulation vs without?
Liberalisation without regulation/sufficient regulatory frameworks
T: Accepted the International Monetary Fund’s (IMF) Article VIII which removed all controls on foreign exchange transactions in 1990, and under the Bangkok International Banking Facilities (BIBF), established in 1993, forty-two licenses were granted to Thai and foreign commercial banks, allowing them to engage in foreign exchange activities, extending foreign loans to Thai borrowers, facilitating the domestic lending boom.
I: The lack of success of the Badan Utang Piutang Negara (BUPN), a government body created to collect overdue debts to the state, demonstrated the inadequacy of its regulatory mechanisms. As a result, banks failed to ensure that money lent out would eventually be returned, and capital inflows failed to be put to productive use.
Liberalisation with regulation SG: Strict Monetary Authority of Singapore (MAS) supervision with 6% reserves requirement and other liquidity requirements for commercial and financial entities, liquid asset requirements are 18% and 10% for commercial banks and financial companies respectively - as a result, while SG did experience effects of crisis (STI depreciated by 62%, currency depreciated against USD by 19%, only 2 quarters of recession) - not as severe as other regional economies P: Modeled on American standards, sound banking system - Proactive supervision by central bank Bangko Sentral ng Pilipinas (BSP) with strict regulations on loans, best leverage ratio in the region (6.90), short-term loans lesser than 20% of total loans (cf others 50%), non-performing loans (NPL) lowest at 3%
Examples of how political crisis/contexts affected ED?
I,P: Political instability into 80s (ST, LT negative)
Political instability lowered investment confidence: in P, LT political instability under Marcos, when Aquino took office, return to political stabilization - return of investor confidence: foreign investment quadrupled during her term
B: need to consolidate political stability - failed to truly open up
V: Vietnam War led to devastation of economic resources
S,M: Political stability into 80s (ST, LT positive)
Enabled stable growth, encouraged foreign investment - greater confidence, etc
That SG has had the same govt since the period of self-govt in 1959 has also enabled the govt to take a long-term view of development
Examples of how exogenous economic factors or events affected ED?
1970s Oil Crisis
I: Oil exporter - benefited from increased oil revenue
P, SG: Oil importers - profits fell, higher COP due to higher price of oil
1997 AFC - SG was still affected despite its sound economic principles - contagion effect + tradeoff by being an open economy
Examples of how economic endowment affected ED?
Resource-rich vs resource-poor
M,P,T,I,V,B: Resource-rich (neutral, LT negative if resource-curse)
Comparative advantage was natural resources
Economic track of ISI —> EOI —> Diversification
SG: Resource-poor (LT positive - pushed along industrial track)
Comparative advantage was human capital
Pursued human capital development - polytechnics, etc
Moved immediately to EOI —> diversified into services, etc, value-added industries
