OVERVIEW OF THE ECONOMIC

DEVELOPMENT
ECONOMIC DEVELOPMENT
WEEK 3
BEFORE WE START…
THE GAME IS…
LEARNING OBJECTIVES:
• To know the economic history that has been marked as
“Economic Miracle”.
• To understand the dynamic economic growth and
development of Japan.
• To understand the economic growth of newly industrialized
economies (NIEs) or the “Asian Tigers”
• Differentiate what is Economic Development from Economic
Growth.
• To identify and understand the measurement of growth and
development
THE ECONOMIC MIRACLE
• Economic miracle is an
informal economic term
commonly used to refer to a
period of dramatic
economic development
that is entirely unexpected
or unexpectedly strong. The
term has been used to
describe periods in the
recent histories of a number
of countries, often those
undergoing an economic
boom, or described as
a tiger economy.
JAPAN’S DEVELOPMENT
TheJapan's postwar economy
developed from the remnants
of an industrial infrastructure
that suffered widespread
destruction during World War II.
In 1952, at the close of the
Allied Occupation, Japan was
a “less-developed country,"
with per capita consumption
roughly one fifth that of the
United States. Over the
following two decades, Japan
averaged an annual growth
rate of 8 percent, enabling it to
become the first country to
move from “less developed” to
“developed” status in the
postwar era.
The reasons for this include:
• high rates of both personal
savings and private sector
facilities investment
• a labor force with a strong
work ethic
• an ample supply of cheap
oil
• innovative technology
• and effective government
intervention in private-sector
industries.
JAPAN’S DEVELOPMENT
• Japan was a major
beneficiary of the swift
growth attained by the
postwar world economy
under the principles of free
trade advanced by the
International Monetary
Fund and the General
Agreement on Tariffs and
Trade, and in 1968 its
economy became the
world's second largest,
following that of the United
States [Source: Web-
Japan, Ministry of Foreign
Affairs, Japan]
CHINA’S ECONOMIC DEVELOPMENT
• China’s meteoric rise over the past half century is one of the most striking
examples of the impact of opening an economy up to global markets.
• Over that period the country has undergone a shift from a largely
agrarian society to an industrial powerhouse. In the process it has seen
sharp increases in productivity and wages that have allowed China to
become the world’s second-largest economy.
• The socialist market economy of the People's Republic of China is the
world's second largest economy by nominal GDP and the world's
largest economy by purchasing power parity. Until 2015, China was the
world's fastest-growing majoreconomy, with growth rates averaging 6%
over 30 years.
• China is the world's largest manufacturing economy and exporter of
goods. It is also the world's fastest-growing consumer market and second-
largest importer of goods.[31] China is a net importer of services
products.[32] It is the largest trading nation in the world and plays a
prominent role in international trade[and has increasingly engaged in
trade organizations and treaties in recent years.
 CHINA’S SOCIAL MARKET ECONOMY
• The socialist market economy (SME) is the economic
system and model of economic development employed in
the People's Republic of China. The system is based on the
predominance of public ownership and state-owned
enterprises within a market economy.[1] The term "socialist
market economy" was introduced by Jiang Zemin during the
14th National Congress of the Communist Party of China in
1992 to describe the goal of China's economic
reforms.[2] Originating in the Chinese economic reforms
initiated in 1978 that integrated China into the global market
economy, the socialist market economy represents
a preliminary or "primary stage" of developing
socialism.[3] Despite this, many Western commentators have
described the system as a form of state capitalism.
 STATE CAPITALISM
• State capitalism is an economic system in which
the state undertakes commercial (i.e. for-profit)
economic activity and where the means of
production are organized and managed as state-
owned business enterprises (including the processes
of capital accumulation, wage labor and centralized
management), or where there is otherwise a
dominance of corporatized government agencies
(agencies organized along business-management
practices) or of publicly listed corporations in which the
state has controlling shares.
THE NEWLY INDUSTRIALIZED ECONOMIES
(NIES) OR THE ASIAN TIGERS
• The Four Asian Tigers, Four Asian Dragons or Four Little Dragons, are
the economies of Hong Kong, Singapore, South Korea and Taiwan,
which underwent rapid industrialization and maintained
exceptionally high growth rates (in excess of 7 percent a year)
between the early 1960s (mid-1950s for Hong Kong) and 1990s. By
the early 21st century, all four had developed into high-income
economies(developed countries), specializing in areas of
competitive advantage. Hong Kong and Singapore have become
world-leading international financial centers, whereas South Korea
and Taiwan are world leaders in
manufacturing electronic components and devices. Their economic
success stories have served as role models for many developing
countries, especially the Tiger Cub Economies of southeast Asia.
 THE TIGER CUB ECONOMIES
• A developing country is a
nation that fares poorly on
the HDI and has low levels of
industrialization. HDI stands
for Human Development Ind
ex. A developing country is
less developed than
a developed country.
• A developing country is a
relatively poor agricultural
country that is trying to
become more advanced
economically. It is also
seeking to become more
advanced socially.
• Tiger Cub Economies collectively refer to
the economies of the developing
countries of Indonesia, Malaysia,
the Philippines, Thailand and Vietnam, the
five dominant countries in Southeast Asia.
• Tiger Cub Economies are so named
because they attempt to follow the
same export-driven model
of technology and economic
development already achieved by the
rich high-tech industrialized developed
country of South Korea and
nation Taiwan along with the wealthy
financial centers of Hong
Kong and Singapore, which are all
collectively referred to as the Four Asian
Tigers.
THE TIGER CUB ECONOMIES
 EAST ASIAN DEVELOPMENT MODEL
• The East Asian model (sometimes known as state-sponsored capitalism)[1] is
an economic system where the government invests in certain sectors of the
economy in order to stimulate the growth of new (or specific) industries in
the private sector. It generally refers to the model of development pursued
in East Asian economies such as Hong Kong, Macau, Japan, South
Korea and Taiwan.[2] It has also been used to classify the contemporary
economic system in Mainland China since the Deng Xiaoping's economic
reforms during the late 1970s.[3]
• Key aspects of the East Asian model include state control of finance, direct
support for state-owned enterprises in strategic sectors of the economy or the
creation of privately owned national champions, high dependence on the
export market for growth and a high rate of savings. It is similar to dirigisme.
• This economic system differs from a centrally planned economy, where the
national government would mobilize its own resources to create the needed
industries which would themselves end up being state-owned and operated.
East Asian model of capitalism refers to the high rate of savings and
investments, high educational standards, assiduity and export-oriented policy.
 MEASURING GROWTH AND
DEVELOPMENT
• For many years economic development was
considered synonymous with economic growth.
• Economic development is broader and much
more encompassing view that economic
growth.
• Economic development relates levels of social
and humanitarian achievement and income
distribution, as well as a narrower measure of
per-capita income.
MEASURING GROWTH
 WHAT IS GDP?
• Gross Domestic Product (GDP) is the total monetary or market value of
all the finished goods and services produced within a country's borders
in a specific time period. As a broad measure of overall domestic
production, it functions as a comprehensive scorecard of the country’s
economic health.
• There are several types of GDP measurements:
• Nominal GDP is the measurement of the raw data.
• Real GDP takes into account the impact of inflation and allows
comparisons of economic output from one year to the next and other
comparisons over periods of time.
• GDP growth rate is the increase in GDP from quarter to quarter.
• GDP per capita measures GDP per person in the national populace;
it is a useful way to compare GDP data between various countries.
GDP EXPLAINED
 WHAT IS GNP?
• Gross national product (GNP) is an estimate of total
value of all the final products and services turned out in
a given period by the means of production owned by
a country's residents. GNP is commonly calculated by
taking the sum of personal consumption expenditures,
private domestic investment, government
expenditure, net exports and any income earned by
residents from overseas investments, minus income
earned within the domestic economy by foreign
residents. Net exports represent the difference
between what a country exports minus any imports of
goods and services.
GNP EXPLAINED
GDP VS GNP
GDP IN CONSTANT US DOLLARS FOR
SELECTED ASIAN COUNTRIES
MEASURING ECONOMIC DEVELOPMENT
• The Human Development Index (HDI) is a statistic
composite index of life expectancy, education, and per
capita income indicators, which are used to rank
countries into four tiers of human development. A country
scores a higher HDI when the lifespan is higher,
the education level is higher, and the gross national
income GNI (PPP) per capita is higher. It was developed
by Pakistani economist Mahbub ul Haq, with help
from Gustav Ranis of Yale University and Meghnad
Desai of the London School of Economics, and was
further used to measure a country's development by the
United Nations Development Program (UNDP)'s Human
Development Report Office
HUMAN DEVELOPMENT INDEX
 HEALTH LIFE EXPECTANCY
• A measure used World
Health Organization (WHO)
summarizes the expected
number of years to be lived
in “full health”. The years of
ill-health are weighed
according to severity and
subtracted from the overall
life expectancy rate to give
the equivalent years of
healthy life.
• According to the lates
data available from the
WHO, Japanese men have
thelongest hekalthy life
expectancy of 72 years
among 191 countries,
compared to 27 years for
the lowest ranking country
Sierra Leone.
GREEN GNP
• One of the more recent approach developed to address
that inherent shortcoming of GDP and GNP as growth and
development measures is based on what is known as the
“green” system of national accounting. GNP is the informal
name given to national measures that are adjusted to take
into account the depletion of natural resources (both
renewable and non-renewable) and environmental
degradation.
• The type of adjustment made to standard GNP would
include the cost of exploiting natural resource and valuing
the social cost of pollution emissions. Damages to the global
environment such as global warming and depletion of the
ozone layer, should also be deducted, but these damages
are hard to estimate.
 MAKING COMPARISONS BETWEEN
COUNTRIES
• EXCHANGE RATE METHOD
Uses the rate between the
local currency and the US
dollar to convert the
currency into US dollar
equivalent. A country’s
GDP and GNP per capita
would then be valued
accordingly, in US dollars.
• PURCHASING POWER PARITY (PPP)
METHOD
Develops a cost index for comparable
basket of consumption goods in local
currency and then compares with this
prices in US for the same set of
commodities. It is defined as a number
of units of the country’s currency
required to buy the same amount of
goods and services that a dollar would
buy in the US. Because PPP method
uses a basket of many goods and
calculates the relative price of these
goods, many economists view this as a
better measure of the relative standard
of living than the conventional
exchange rate method.
• PPP method gives higher estimates of living standards for
developing countries compared with exchange rate method. The
reason is that GDP based on exchange rate valued depend only
on their relative price of traded goods, whereas PPP method
considers a basket of goods that include both traded and
nontraded goods.
• Nontraded goods are generally much cheaper in developing
countries and this helps to lift the estimate of GDP for these
economies.
• PPP method is unaffected by exchange rate changes.
• PPP method has become the preferred measure of GDP for
country comparison.
• One difficulty of PPP method is that it is costly to maintain since
price movements need to be updated on a regular basis.