Background Countries Highly regulated High tax rates Tend to grow slowly Countries Free, competitive markets Tend to grow quickly
Background Totalitarian states – can grow quickly Nazi Germany Soviet Union grew quickly during 1960s Added cities Added factories During 1980s – Soviet economy stagnated Economic growth may not be sustainable for long time periods
Asian Tigers Asian Tigers Real GDPs grow approximately 10% per year Real – affect of inflation removed Hong Kong Singapore South Korea Taiwan
Characteristics Asian Tigers do not have abundant natural resources African and Latin American countries tend to have natural resources –African and Latin countries have poor growth
Characteristics Two Theories Theory #1 Resource abundant countries attract foreign investment, causing its currency to appreciate. –Appreciating currency Increases a country's imports Decreases a country’s exports
Characteristics Theory #2 A government in countries without resources have limited options. Thus, government opens economy to free markets That is only thing they could do!
Characteristics Asian tigers pursue export oriented policies 1. Asian country allows markets to compete internationally –International trade is large part of economy –Low trade protection
Characteristics 2. Asian Tigers have low price distortions –Distortion - the market has a price that is not set by the market –Distortions are caused by taxes, subsides, price controls, regulations, etc.
Characteristics Asian Tigers build larger factories –Country is supplying international market –Economies of scale The larger a factory, the lower is the per- unit manufacturing costs
Characteristics Have high education levels –Emphasize vocational and technical training –Accelerates the adoption of new technology and know how –Asians dominate PhD programs in the United States
Characteristics Asian Tigers tend to save more –People deposit savings into banks and banks lend to businesses –Businesses buy machines and equipment –On average, U.S. savings rate is ZERO!
Characteristics Asian Tigers tend to devalue (or weaken) their currencies –Strengthens exports and weakens imports –Asian currencies are stable (low volatility) –Note - there was a rapid devaluation of Asian currencies in 1997