CHANGING ECONOMIES OF ASIA

QUESTION

“The Changing Economies of Asia”

The Essay 

Assessment Details from the Uni

You are required to complete one essay of about 2500 words, (I appreciate that it is difficult to abide precisely by word limits, but 2500 words,  excluding footnotes, graphs, tables and bibliography, should be regarded as an absolute maximum.

It is recommended that you use the Harvard style of referencing.

The essay is intended to test your ability to critically analyze arguments and issues in Asian economic development. When marking the essay your tutor will be looking for evidence of wide reading and an ability to present a cogent, reasoned argument. A concise essay directly answering the question will score higher marks then a lengthy one containing a large number of irrelevancies.

Write your essay on one for the following topics:

Topic 1 

What is the relationship between institutions and economic development?

Topic 2

“The success of the NIEs was due to their rapid globalization.” Discuss.

Topic 3

How important are education and other aspects of human capital to economic growth?

Topic 4

“Developing countries are especially vulnerable to climate change.”

(Stern Review,2006). Evaluate this statement in the light of the experience of an one NIE.

Topic 5

How important is technological progress in driving sustainable long-run economic growth?

 SOLUTION

I. Introduction

Institutions are broadly defined as the economic and political organizations of societies, which may have different constitutions in different countries and may change over time. Some of the societies of the world followed a capitalist approach, while some others followed a socialist approach and these forces made institutions which effected the economic growth of the society in the past and some of them still prevail to date.

It is evident from the theory and common sense that the economic growth will be effected by the type of institution which prevails in the society. An investor who wishes to invest in an economy will first look for the type of institutions which prevail in the country and that will he be able to have a fruitful business in the society. Some countries have institutions which give the investor exclusive rights for the trade and property while some of the economies do not and this affects the growth rate at a higher pitch.

The different societies with different institutions have a markedly different economic growth and this is well evidenced in the history and by some of the facts stated above. West Germany gone with capitalist phenomenon and they succeed while the East Germany was not able to grow well with the socialist approach of economic divisions. As the North America, Western Europe and Australia grew at a faster pace in the past with a different social approach and does quite well with the economic growth. At the same time the societies of the Caribbean, Central America and India who were well elite dominated, declined throughout the 18th and 19th centuries. Also the historical suggest that while England and Netherlands grew vastly during the 17th century, Spain and France were not able to do so because of the lack of institutions which can favor their economic growth at that time. History also contains the data of the countries like Argentina where the large changes in the institutions lead to a faster change in the economic growth and development of the society (Basu, 1983).

Apart from these examples in the history there are examples also which demonstrate that the institutional differences had been a major source for the alteration or correlation in the economic performance of the countries in the past. The type of institution in one country did affect the economic growth oft eh other which has an economic relationship with that of the former. This has lead to a change in the institutions in the history where the need for development was needed or demonstrated by the societies. The Asian countries have different stories where the institutions were developed on a varied theory and were altered or changed from time to time and these institutions were also affected by the forces in the neighboring societies which depend on the former for various reasons or factors (Kaufmann, 1998).

But there had been some questions related to economic growth related to the institutions in past that what enforced some of the societies or economies of the world to make institutions which were not favorable to the growth of the society. The other societies however were performing well with a different type of institutions and some of the societies failed to adopt that. IN still some societies the institutions which are bad for the economic growth of the society and the country persist and this has been a keen question.

II. Institutions

The government institutions and social arrangements will have the effect on the economic outcomes of the country and this is possible because the economic institutions and bodies of society will assume investments only if they anticipate to be rewarded for their expenses and efforts. The countries which lack property rights or are not well enforced, they will investment and even the output will be at a low level. And hence the enforcement of property rights should be a central focus point of the institutions and even of the broad organization of a country. There are two types of institutions when outlined in contrast to their functions. The private property institutions place the majority of property rights to a broad cross-section of society. That is these types of institutions place the majority or property rights and the share of the social growth to the capitalists who had invested into the market and may be even the rulers and the elite forces. These types of institutions grow the economy at a higher pace but the share of the same is divided unequally between the workers and the investors. Another type of institutions which may be prevailing in society are of the extractive nature and hence called as extractive institutions because of their extractive nature hat is they place the majority of the rights to the section of the society at equal divided stake. These types of institutions place the elite powers and the force effects in the hands of the society and are usually of socialist economic nature (Aron, 2000).

The institutions which are private property in nature are ones who would enhance the investment and the economic growth in the society. These types of institutions will help in a rapid economic growth in the society because of the nature of giving the rights of the private property to the investor. Another type of institutions which are of extractive in nature will give the society with a slow economic growth because of their nature of dividing the social right to the society at an equal pace. These types of institutions will give the rights of the property to the society then to a private investor and hence will help a slow growth because the investor does not see an equal return on the investment as possible or feasible in the case of private property institution.

1. The Efficient Institutions View: In this view the societies will help develop the institutions which will expand the surplus and the distribution of the surplus in between the stakeholders and the societies was of minimum importance. This type of theory will support the development of institutions in the society which will help the growth of the society with efficient distribution of the power and benefits of the economy.
2. The Incidental Institutions View: This theory gives the reasons that costs and benefits of the different institutions are places and weighed against each other so as to check and finally make the institutions which will equally benefit the society and the rights of the society are divided at the best level feasible.
3. The Rent-Seeking View: In this theory the choice of institutions and their constitution is done by the social groups who control the society and not by the whole society. This theory states that the rulers of the society or the political power are the ones who determine the type of institutions which will prevails in the society (Dore, 1987).
4. The Inappropriate Institutions View: This view points out that the construction for the institutions may be cheaper or easier they may prove costly to the society when been into practice or when been actually into the powers. This may be also because of the changes in the environment; hence the institutions which were efficient enough and fruitful to the society before an environmental change are no longer useful or fruitful when the social or environmental changes took place. Hence tending them inefficient when the environment changes. And now when the environment changes and these institutions are no longer beneficial or effective to the good of the society they are even tough to be changed and involve a cost of the same which may be too high sometimes to the society. The examples may involve that of the banks in Germany. The banks are usually developed in the countries which are trying to catch up with growing economies of the world or which are in the developing stage. But Germany still have bank which were developed at a certain point in the history when the country was a developing nation and the same institutes till prevail after the country is a developed one (Engerman, 1997).

III. Institutional Origins

The theories for the growth and origin of institutions point out that the rent-seeking and inappropriate institutions views do not give a theory of comparative institutions. The political powers or rulers may be sometimes inefficient to make the institutions which may even tend to their wipe out lost the control to the society or to the other groups of the society. Some societies grew with the extractive institutions whole other grew with the private property institutions.

1. Economic Interests: The first factor which determines whether an institution will emerge depends on the choice of the ruler of power. The institution may give the right over private property to the investors and this may even lead to the interest of the political leaders who wish to have assets in the future. Some political forces may wish to divide the assets of the society equally in the future and this may lead to the generation or growth of the institutions which will lead to division of assets. The ruler who wishes to see the investment from the society into the market may even make institutions that will fastly claim to divide the social benefits of the economy and they may even lead to the benefits of the ruler. Such institutions may take birth in some of the economies and may help in the growth of the society till a level when the ruler thinks that he should withdraw all the money from the economy and he may crash the institutions. The growth however is still dependent on the choice and nature of the rule which may think that the investment is dependent on the type of institution in the society (Garraty and Carnes, 2000).

2. Political Losers: The growth and birth of the institutions is also governed by another important factor that the growth of the institutions will destabilize the rights of the political leaders and this may eventually replace them and their powers too. If this is obvious to happen then the political leaders and the elite forces will not let the institution take birth and grow in the society. If the ruler think or fears that the growth in the economy will lead to social empowerment and technological advancements in the society and this will eventually lead to their replacements from the society if the institutions are not stopped or they continue to grow. Such rulers who fear that their political powers may be lost if the institutions grow and the investment remains in the economy taking into account that economy will grow and will also benefit the rulers. But if they fear to lose their powers in the politics or control over the society they may destabilize or destroy the institution. This type of fears in the mid of rulers and elite forces will be less effective who think that they are well established and settled to be taken out by any technological advancement in the society.

3. Constraints: There may be certain instances where the institutions tend to stop the powers of the rulers over the society. These limitations usually tend to grow to grow the institutions of private property and these institutions when took birth acted in the rulers to limit their powers so that the investors had a higher control over the society and the benefits of the economy. The share of the rulers tends to decrease and they usually lose control over the institutions which took birth from their own will. Such institutions also provoked the other groups of the society who wish to take power to overrule the ruling political powers and took the control. The institution then led to the wipe of the private property growth and usually leads to socialist economy (Rodrik, 2004).

IV. Institutional Persistence

The institutions by their virtue of definitions will endure till the time the society seeks the economic growth and aim for the social well being of the same. Another important point to consider is that one can place the rules and regulations or the rules and constraints in place, only if these are followed or in place in the future or else it will make no sense for them. The institutions persist and they do so from history, which is been described in the literature and research publications of the past of most of the countries including the major developed countries of today’s times. These institutions were in place even in the colonial and king’s rules and they continue to dos so in the world managed by rapid economic growth of the society. The evidence or data from the historical and econometrical evidences shows that these are constant with the notion that the institutions continue to persist from historical times (Van Arkadie, 1990).

Some of the examples of the institutions which prevail from the historical times include that of the institutional arrangements for political supremacy in the British parliament, and these institutions date back from history. The U.S. institutions which use to rule before its independence however lack evidence that they still persist.

Surprisingly, the constitutions of extractive nature sometimes persist after the change of forces which govern them and this has been noticed in the history and well documented by the various researchers. The institutions or private property were the ones who dominated this group of institutions. The examples of this kind of institutions include that of the migration of colonial India from the East India Company to British Government. The forces which use to govern the institution changed over a period of time but the extractive institutions remain there with the forces because of its extractive nature (Jacoby, 2001).

The institutions are appointed or chosen by the groups of society which rule or which have the majority at least in the financial means and they can be representing the society. The institutions which are made by the groups of the society, now as long as the groups prevail, the institutions made by them also prevails, which is obvious. Hence at the ground level as long as the forces which make these institutions persist, the institutions will persist too and this holds good for the institutions made from the historical times. Since the society changes its face from time to time and the groups are reordered or the forces are changed from time to time hence the institutions made by them are also reformed or changed or damaged or may be even destroyed. This leads to a changed institution, or a new constitution in itself. Sometimes even if the forces which govern the institutions change, the institutions persist because of various underlying factors which may include the constitutions of the institution or it may be too hard to change the institution, which if happens may even lead to the wipe of the new force.

VI. Conclusions

The discussion and points mentioned above describe the association between institutions and economic development in an analytical way. Points discussed above also showed that the verification is constant with the points that institutions, the construction and constitutions of the same and the approach of arrangement of society, are major drivers for economic growth. To better describe the association between institutions and the economic growth broad dichotomy has been described between ‘institutions of private property,’ which encourage development, and ‘extractive institutions,’ which do not do so. To describe the growth of institutions, the classification for various theories of comparative institutions has been described above as the efficiency view, the incidental institutions view, the rent-seeking view and the inappropriate institutions view.

References:

1. Aron, J. 2000. Growth and Institutions: A Review of the Evidence, The World Bank Research Observer, vol. 15, no. 1.
2. Basu, K. 1983. On Why We Do Not Try To Walk Off Without Paying After a Taxi-Ride, Economic and Political Weekly, 1983, no. 48, pp. 2011-12.
3. Dore, R. 1987. Taking Japan Seriously – A Confucian Perspective on Leading Economic Issues. London: The Athlone Press.
4. Engerman, S. and Sokoloff, K. 1997. Factor Endowments, Institutions, and Differential Growth Paths among New World Economies in S. Haber (ed.), How Latin America Fell Behind, Stanford, Stanford University Press.
5. Jacoby, W. 2001. Imitation and Politics: Redesigning Modern Germany, Ithaca and London, Cornell University Press.
6. Garraty, J. and Carnes, M. 2000. The American Nation – A History of the United States, 10^th edition, New York, Addison Wesley Longman.
7. Kaufmann, D., Kray, A. and Zoido-Lobaton, P. 1998. Governance Matters I, Policy Research Working Paper, WPS 2196, World Bank, Washington, D.C.
8. Rodrik, D. 2004. Getting Institutions Right, mimeo., Kennedy School of Government, Harvard University.
9. Van Arkadie, B. 1990. The Role of Institutions in Development in The World Bank, Proceedings of the World Bank Annual Conference on Development Economics, 1989, Washington, D.C., World Bank.

10.World Bank. 2002. World Development Report 2002, New York, Oxford University Press.

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