The Major Contributing Factors to the Growth of the Emerging EconomiesIntroduction More often than not, we are bewildered on the term Economics.
We conceive it as a subject to deal with, and that the only people concern with these are businessmen, analysts and politicians. And we, ordinary people have no connection with it. However, the truth is all of us in one time or another become part of this unique branch of science. Yes, all of us are part of it.
As long as we involve in any trade, any transaction, buying of things, buying of foods, etc., we play a certain part in economics which makes us all become part of an economy. In any economies, people produce goods and services and they traded it to one another in order to satisfy their unlimited wants and needs. With this, we may say that people in any country around the globe are living and developing in an economy. The status of an economy of a certain country could be used as determinant of their development Basically, this development usually conforms to economic system. The economic systems are vital to any country. With this, this paper will consider the issues concerning a certain economic system, the emerging economy. The emerging economies are mostly viewed as transitional system.
Transitional system means that their current ways of addressing the economic goals as reflected in the extent of government intervention as well as their manner of production are in the process of change. Thus, we may say that countries practicing this type of economy are moving from a close type of economy to an open type of market economy which is also coined of contributing factors that could affect their growth. For this reason, this paper will be also discussing the major contributing factors to the growth of the emerging economies.
. Discussion According to Antoine W. Van Agtmael, “Emerging economies refers to an economy that is in the process of transition with low-to-middle per capita income” (5). Although the term “emerging economy” is of topical period, the fact itself is centuries old. Back to the history, countries like Argentina, Australia, Britain, Japan, and the United States (US) were all emerging economies at one point in time (Buck 8). Each of these countries was also among the richest, in terms of per capita income. In the emerging economy sense, the US emerged around two centuries ago. After that it did suffer some reversals, yet the US has stood as economic history’s premier example of the successful emergence of a market economy to attain the status of a matured industrial economy, having highly developed economic and financial institutions.
On the other hand, Argentina is a diametrically opposite case. Way back a century, when Argentina, Australia, and Japan were in the process of transition, Argentina was the richest of the three by a good measure. However, compared to the other two economies, Argentina failed to complete its emergence process. Australia and Japan did so in the twentieth century. Of the two, Japan emerged as the second largest global economy and has maintained this status to the contemporary period (Buck 8).
With this consideration, we might be asking the reason behind the failure of Argentina or the reason behind the success of Japan which maintained their status to the contemporary world. As said earlier, countries that are in the stage of transition or practicing emerging economy are coined with different contributing factors. Basically, in a close type of economy, the State make a decisions what should be produced and how much.
The workers in this economy are paid a salary and, with no sense of ownership, less concern are given to the value of the goods or to the quantity (London, T and Hart S, 9). Moreover, the economic problems are addressed in conformity with the government’s decision. This is true in the communist countries believing from a quote of Karl Marx that “From each according to his ability, to each according to his needs”. The assumption is that the government is an all-knowing once hence, it knows what wee need and therefore we out to give our best by sharing something to the common basket which will be distributed later according to our needs. Under this type of economy, scarce resources are often wasted on producing goods that no one wants. Actually, it may take years for the State or country to correct it and recognized the problem (London, T and Hart S, 9). On the other hand, in an open market economy, scare resources which have different uses are directed to their most efficient use (Miller 1).
Market is the result of the interaction of the buyers and sellers. With their interaction, equilibrium price is set in the market which becomes the prevailing price. In this economy, private sector is allowed to own economic resources and to decide what kind of services and goods (Miller 1).
The government has small participation in addressing economic problems. According to Miller, USA and Japan are having this kind of economy but they are different in allocation of resources. 95% of the good produced in USA is consumer goods and 5% goes to military goods unlike Japan which allocates 1% only of the total resources to their military goods.
As we observed, the structure and goals of close and open economies are different from one another which makes emerging economies faces different problems that could affect their growth. One of the contributing factors is the rule of law (Tan 96). Unless we know that contracts will be enforced and that some dictator can’t change the rule of law at a whim, we probably won’t do business in that country. If laws are written to favor businesses owned by one group over another then you aren’t going to do business in such a country.
And since their markets are in transition, which means that they aren’t stable, emerging markets tender an opportunity to some investors who are looking to add some risk to their portfolios (Tan 96). The opportunity for some economies to fall back into a revolution sparking a change in government or a not-completely-resolved civil war could upshot in a return to expropriation, nationalization, and the collapse of the capital market. Fragile exchange rate fluctuations may possibly change into an all-out depression ensuing simply from investors considering in the chance of political disorder or declining faith in the banking system (Tan 96). Because the risk of an emerging economy investment is higher than one of a developed market, dread, assumption and hasty responses are also more common. Actually, the 1997 Asian crisis, during which international portfolio streams into these countries actually began to overturn themselves, is a good example of how emerging economies can be high-risk investment prospects. Actually, most investors who are aiming to expand out while adding some risk targeted the emerging markets because they believed that the bigger the risk is, the bigger the reward they can have.
Aside from the rule of law that contributes the growth of an emerging economy, local politics remains to be another major contributing factors (Das, 1). Actually, emerging economy must have to evaluate their local political and social factors before they open up their economy to the world. It is evident that the people of an emerging market, who were previously practicing close economic system, can often be skeptical of foreign investment.
The issues concerning national pride are also a contributing factor because people of the emerging economy may be in opposition to foreigners possessing components of the economy of the locals. In emerging economies, sustainable development is also one of the contributing factors of their growth. Actually, development is different growth because the former is broader than the latter.
This means that needs of the people in emerging market are not only addressed by the provision of goods, whether private or public goods, but also there is a healthy environment to improve in the aspects of social, emotional, physical and spiritual. Likewise, they shouldn’t only aim to provide their present needs but also their future as well (Das, 1). Do you think there is a sustainable development in emerging market if the people keep on cutting trees without replacing them? Apparently, economic freedom also contributes in the growth of emerging markets. In this type of economy, the people are becoming free because they can now move and do things and they also think that these are good and they don’t violate any laws (Das, 1). Economic freedom means that there is mobility, if not perfect, of the goods, services, money and people. Hence, the producers can do their chosen business. The consumers, on the other hand, are free to buy goods and services in order to satisfy their wants.
Finally, economic security is one of the major contributors that could affect the growth of emerging economies. Economic security means that both local and foreign investors are confident to do their business in the country who are in the process of transition (Buck, 1). This means that peace and order are being implemented and observed strictly so that the operations of business here will not be distorted. Hence, there will be creation of employment and therefore, additional output for economic growth, most likely newly opened businesses will serve as additional revenue source for the government by imposition of business taxes, furthermore, there will also be an assurance of food supply hence, a stable price system, and which later creates surplus that may be traded to other countries.Conclusion The primary mission of any emerging economy in the world is to provide their citizens with a good life.
To do this, nations who are in transition try their best to identify and come up with solutions to the various problems encountered in their country. Similarly, the countries discussed in this paper were able to experience downfalls and hardships in their economies and governments before experiencing success. Due to these downfalls and challenges, the governments were forced to use all their resources in coming up with solutions and seek answers to their problems. These downfalls were evident in the histories of both countries, and pushed them for reforms in their governments, with the implementation of new policies to become developed countries. The success of emerging economies relies on the rule of law, national pride issues, sustainable development, economic freedom and economic security. With the policies in emerging economies, it helped their governments and realizes the importance of reform, for in their situation, reform has been beneficial.References:Buck, T, I Filatotchev, N Demina, and M Wright. “Insider Ownership, Human Resource Strategies and Performance in a Transition Economy.
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