Asian Tigers and Macroeconomics | Assignment

Running head: ASIAN TIGERS AND MACROECONOMICS
ASIAN TIGERS AND MACROECONOMICS
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1ASIAN TIGERS AND MACROECONOMICS
Table of Contents
Answer to question 1:.................................................................................................................2
Part a:.....................................................................................................................................2
Part b:.....................................................................................................................................3
Answer to question 2:.................................................................................................................4
Answer to question 3:.................................................................................................................6
References..................................................................................................................................7

2ASIAN TIGERS AND MACROECONOMICS
Answer to question 1:
Part a:
Economic growth and economic development are claimed to be contrasting topics.
Economic growth indicates the growth of the economy in terms of monetary values and
economic wealth in a particular area of a specific year (Jorgenson and Vu 2013). The GDP
growth of the Asian Tigers is high, which attracts huge volumes of investments into the
country. As a result, the business sector is well developed in this region. On the other hand,
economic development is the alleviation of the social indicators of the economy that denotes
the welfare of the community as a whole. The average Human Development Index (HDI) of
this region is above 0.8, which indicates higher HDI (Bandiera and Natraj 2013). This implies
that the region has not only increased its business but also the welfare of the people. An
increase in economic growth does not imply an increase in economic development. Economic
growth is required to induce business activity and promote investments. Higher the rate of
growth greater is the profitability level of the economy. On the other hand, economic
development implies lower poverty rates, a higher level of education, lower mortality rates
and proper access to sanitation facilities. Similarly, the rate of growth of GDP is not equal to
the rate of growth of HDI. Thus, economists claim these two topics are different from one
another.
Differences and similarities: Economic growth denotes quantitative changes in the
economy. On the other hand, both qualitative changes and quantitative aspects can be brought
by economic development (Hanushek 2013). Growth is targeted at increasing the wealth and
output of the economy. The indicator to denote the economic growth of a country is the Gross
Domestic Product (GDP) or Gross National Product (GNP). Moreover, economic growth
indicates short-term changes and is subject to variation each year. In contrast to this,

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economic development is a long-term effect and does not change with external variations. As
per economists, economic growth is a concept of the developed or wealthy nations and
development is present in developing or relatively poorer countries (Van den Berg 2016). The
Asian Tigers consist of strong, modernized and developed economies. Therefore, the GDP
growth of these nations is high. These economies are strong enough to tackle external barriers
or obstacles. Similarly, the development index of the country is high. However, the world-
well-being index suggests that the economies have relatively lower well-being percentage,
which indicates inequality in income and lower quality of life. Although these economies
have lower mortality rates and higher literacy rates, the quality and wealth distribution is not
high (Cingano 2014). Therefore, this can be inferred that high levels of GDP growth do not
always imply equal distribution of welfare and an increase in economic development. Thus,
there are negligible similarities between the two concepts because of their different motives.
Part b:
The nominal GDP in the case study of Asian Tigers is used to indicate the economic
performance of the individual economy in the region. This helps in determining and
comparing the macroeconomic performance of all the economies (Belongia and Ireland
2015). Fluctuations in the exchange rate affect the nominal GDP of the country. Although the
economies faced severe shocks from the global economic crisis, they managed to increase
their nominal GDP through strong economic policies. The nominal GDP of South Korea is
the highest among the members of the Asian Tigers. Overall the performance of the region is
commendable.
The GDP PPP is used to compare the standard of livings between the nations. GDP
PPP fails to determine or indicate the accurate distinction in data (Keola Andersson and Hall
2015). Due to different currencies and different values, cheaper service in Hong Kong may

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seem expensive in Singapore. Therefore, it is difficult to compare the standard of living
between countries with different values of currencies.
The nominal GDP per capita is used to indicate the standard of living of an individual
resident of the economy. It is calculated by dividing the nominal GDP with the total
population of the country. Data suggests that the per capita nominal GDP is high in the
region. However, if the income inequality is high the per capita GDP will be computed to be
high. Therefore, per capita GDP cannot always yield correct information.
Another macroeconomic indicator used in the case study is the number of exports and
imports in the region. As the Asian Tigers came into existence due to their export-led growth,
the export sector of the region is prospering. Apart from Hong Kong, all the other economies
are experiencing a positive value in their net exports (Sposi 2015). Therefore, the higher
exports and lower imports indicate the trade balance is endowed with a surplus. Therefore,
the region is earning higher revenue from this competing sector and raising its international
reserves.
Answer to question 2:
Gross Domestic Product (GDP) is the summation of the value of all final goods and
services in monetary terms. These goods and services should be produced within the
domestic boundary of an economy in a particular period. Overall, this helps in identifying
economic performance as well as the economic health of a country. GDP is a short-term
concept because productivity and demand are subject to changes (Mankiw 2013). Therefore,
the GDP of any economy is unstable and changes regularly. This is one of the crucial
macroeconomic indicators, which helps in boosting business activity and employment in an
economy. It also helps in estimating the size of an economy. GDP is calculated quarterly and
does not include inflation or variability in prices. There are different kinds of GDP nominal,

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real, GDP growth rate and per capita GDP. Therefore, the components used to calculate GDP
are Consumption (C), Investment (I), Government Expenditures (G) and Net Exports (X-M).
The equation for calculating GDP is Y= C+I+G+(X-M)
The consumption indicates the total amount of demand or goods consumed in the
economy, whether it is public or private. A reduction in this component can reduce
productivity. This is because a lower demand will induce producers to reduce their supply.
This can negatively affect the economy. Investment is crucial for determining the growth in
the business sector. A fall in investment will reduce the future growth of a business. A
positive and increasing government expenditure helps in creating national demand and
boosting business confidence. Similarly, an increase in exports implies higher inflows of
revenue from foreign economies. This again indicates an increase in international reserves,
which is a positive indication for the economy. All these variables need to increase to raise
the GDP of the country. However, import (M) should be lesser compared to exports (X) to
sustain the positive value of the net exports (X-M). A lower level of imports will restrict the
outflow of international reserves and increase the strength of the economy. This is the reason
behind the prosperous economic development of the Asian Tigers. Their modernized
economy is an indication for the sustainability and the importance of export-led growth.
Moreover, the higher the exports greater is productivity, which leads to an increase in
employment and GDP growth.
The above-mentioned calculation is the GDP calculated from the expenditure method.
This is widely used to calculate GDP. The other two methods are GDP from factor incomes
where the income of employees, profits of private business and rent income of owners are
taken into consideration. Another way is GDP measured using the value of output. This
includes calculating the value-added from the four main economic sectors of a country, which
consist of primary, secondary, tertiary and quaternary (Esteves 2013).

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Answer to question 3:
A free market is a market structure where the demand and supply of the market decide
the price level and the equilibrium is attained without any intervention of the government. A
free market helps people to innovate and propose new ideas due to the absence of
governmental approval. This helps in creating market efficiencies by increasing competition.
This also ensures the optimal allocation of available resources and helps in increasing
productivity (Bozyk 2019). Consumer welfare is high due to market adjustment of prices.
This helps in generating the welfare of the buyers. Moreover, the greater the presence of
business higher is the number of jobs available to feed the growing population.
One of the reasons behind the flourishing economic structure and business of the
Asian Tigers is their freedom in market activities. These economies have developed to
become strong modernized developed economies due to the increase in competition.
Moreover, the lower tax rates and easy establishment of businesses motivate the growth of
the organization in the region. Singapore is free from tax and is known for its capitalist
growth. Similarly, Hong Kong is free from tariff rates and receives immense support from its
government (Hall and Lawson 2014). As a result, the business and productivity in the region
are continuously increasing. The growth is in the technological, merchandise, electronics and
manufacturing sector. As a result, the export sector is rapidly growing. The countries exports
merchandise and electronic goods that help in increasing export revenue. This is supporting
the sustainable growth of the region.

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References
Bandiera, O. and Natraj, A., 2013. Does gender inequality hinder development and economic
growth? Evidence and policy implications. The World Bank.
Belongia, M.T. and Ireland, P.N., 2015. A “working” solution to the question of nominal
GDP targeting. Macroeconomic Dynamics, 19(3), pp.508-534.
Bozyk, P., 2019. Globalization and the transformation of foreign economic policy.
Routledge.
Cingano, F., 2014. Trends in income inequality and its impact on economic growth.
Esteves, P.S., 2013. Direct vs bottom–up approach when forecasting GDP: Reconciling
literature results with institutional practice. Economic Modelling, 33, pp.416-420.
Hall, J.C. and Lawson, R.A., 2014. Economic freedom of the world: An accounting of the
literature. Contemporary Economic Policy, 32(1), pp.1-19.
Hanushek, E.A., 2013. Economic growth in developing countries: The role of human
capital. Economics of Education Review, 37, pp.204-212.
Jorgenson, D.W. and Vu, K.M., 2013. The Emergence of the New Economic Order: Growth
in the G7 and the G20. Journal of Policy Modeling, 35(3), pp.389-399.
Keola, S., Andersson, M. and Hall, O., 2015. Monitoring economic development from space:
using nighttime light and land cover data to measure economic growth. World
Development, 66, pp.322-334.
Mankiw, N.G., 2013. Measuring a Nation’s Income. Brief Principles of Macroeconomics,
pp.91-126.

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Sposi, M., 2015. Evolving comparative advantage, sectoral linkages, and structural
change. Globalization and Monetary Policy Institute Working Paper, (231).
Van den Berg, H., 2016. Economic growth and development. World Scientific Publishing
Company.