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(PDF) Economic Growth in Asia

   

Added on  2021-04-24

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Running head: CHANGING ECONOMICS OF ASIAChanging economics of AsiaName of the studentName of the UniversityAuthor note

1CHANGING ECONOMICS OF ASIAIntroduction:Asian countries are one of the highest growing countries around the world that has beenfacing rapid growth since last three decades. This spectacular growth of the Asian courtiers hasattracted lot of attention of the researches, which caused rigorous research to trace the hiddencause of this rapid growth. According to latest statistics, Per Capita Gross Domestic (GDP) hasgrown during this last three decade by more than 4% annually in the case of China and the figureis as high as 3 to 4% for the other Asian economies like Singapore, Indonesia, Malaysia,Thailand, Korea and Philippines (Gereffi et al. 2014). With a sharp contrast to the economicperformance of the East Asian countries, it has been observed that developed economies havegrown only by 2.6% during the last three decades (Diao et al. 2017). In this context, this essay isaimed to review the changing economies of Asia with special focus to trace the salient featuresof the phenomenon growth of south Asian economies. Besides this, the essay will try to portraythe economic growth of these countries under the light of endogenous growth theory andreinforce the argument by summering them at the conclusion. New growth theory definition and its characteristics:Long run growth model of the economy till 1980 was based on the exogenous factors,where the factors of change were mainly sourced from outside the organism (Vasilev 2018). Forinstance, researchers were focused to trace the importance of technology change and change insavings rate as one of the key factors of growth. Neo classical model of economic growth used toconsider savings rate and the rate of technical development as the exogenous determinant of theeconomic growth (McCombie and Anthony 2016). Model proposed by the Solow model andHarrod-Domar model, argues that using the technological development and the interest rate,macroeconomic performance of an economy can be explained (Bertola et al. 2014). However

2CHANGING ECONOMICS OF ASIArate of technological development and savings rate failed to determine the growth theory andthey remained unexplained. In the backdrop of this precarious situation various economiststurned to argue against the present exogenous model of growth. Over the year work of KennethArrow, Robert Lucas brought another explicit model of growth known as the endogenous growththeory in order to counter the present belief of growth model (Spear and Young 2016). This newmodel of growth is more focused on the factors like innovation, emphasis on human capital andknowledge as the main contributors of the economic growth. The new proposed model tried toovercome the drawbacks of the present neo classical model through developing macroeconomicmodel on the microeconomic foundations. According to the new theory of growth, householdsare aimed to maximise their utility subject to their budget constraint and the firms are targeted tomaximize their profit subject to the factor endowment (Laeven, Levine and Michalopoulos2015). Most of the focus according to this model was provided to the human capital and in thecase of innovations. Policy measure is acknowledged as another key instrument that providesendogenous growth model ability to deal with the explanation of long run growth model (Romer2015). For instance, new growth model believes in subsidies in the case of education and R&Dto enhance the growth rate of the economies through providing incentive for the innovation.According to AK model, endogenous model is as simple as the Constant Returns to Scale (Choi2016). It can easily be determined through the increase in number of goods and service produces,enhancement in service quality, innovative development and various other endogenous factors.On the other hand in a more complex scenario, endogenous growth theory believes in spill overeffect and positive externalities, where knowledge based economy can lead itself to highergrowth through diminishing return in the capital accumulation. Besides this, endogenous growthmodel makes it possible to construct a framework in the case of perfect competition considering

3CHANGING ECONOMICS OF ASIAmarginal product of capital is diminishing in nature and it does not tends to zero. Additionallyability to holding patent allows the firms to enjoy some amount of monopoly in the market withthe endogenous framework. R&D is one of the key factors that allow the endogenous growthsculpt to describe the monopoly market, making it one of a stable model that determined both theextreme market condition (Janoski et al. 2014). Governmental role in new growth theory:Endogenous growth model is based on the factors like human capital, innovation, R&D,infrastructural development and other internal factors to determine to assess the economicperformance of a country. Thus, governmental intervention is highly desired according to thenew growth model. Owing to higher governmental intervention, factors like infrastructuraldevelopment, innovation can be hailed to a great extent (Van 2016). In addition to this,investment by the government in the factors like infrastructure, education, R&D will allow morepopulation of a country to get engaged in the growth of the country. For instance, if thegovernment enhance the public expenditure in the infrastructural development and education,then it can create more jobs with enhanced availability of the skilled labour (Leigh and Blakely2016). It will inherently increase the aggregate demand through rise in disposable income.Through this cyclical process government can provide big push to economy to overcome thebarrier of the developing economy. Externalities and new growth theories:Externality is one of the factors that have various views. According to a group ofeconomists externality possessed by the worker of by the firm through experience, aids it to havebetter growth (Feldman and Storper 2018). On the other hand, another group of populationentails that introduction of new goods and service is another form of externality that helps the

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