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Macroeconomics

Research the factors behind economic growth in Hong Kong and Singapore, the two factors that affect economic growth are capital deepening and technological progress.

Which of these methods of encouraging growth would you suggest to a newly industrialized economy?

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Singapore
Singapore's population provides low cost labor that helps economic growth.Singapore, a small, densely populated island strategically located in the Singapore Strait between Malaysia and Indonesia, enjoys one of the world's most open, trade-oriented economies. Capital deepening has helped Singapore. Singapore serves as a regional headquarters for more than 3,000 multinational corporations (MNCs), and has world-class financial, business and transport service sectors, a manufacturing sector anchored by electronics, chemicals, and engineering, a stable, honest government, and modern, highly efficient infrastructure. MNCs account for more almost 70 percent of manufacturing output, 45 percent of which are electronics components. The country consistently ranks high among 'most attractive countries for international business' and has achieved a per capita GDP level comparable to levels of developed western nations.Technological progress has helped Singapore's economic growth. As demonstrated during the Asian financial crisis, Singapore's small economy remains sensitive to external shocks. However, the government, which practices aggressive management of the economy much like the leadership of a large corporation, did an excellent job re-shaping Singapore after the sharp recession that began in 1997. During 1998 and 1999, authorities undertook important reform measures to promote the financial services and information-technology-based sectors of the economy. These reforms include measures to raise foreign participation and competition in the banking system and insurance industry, to develop both fixed income and equity securities markets and the asset management industry, to open up the telecommunications sector, to adjust regulations and immigration policies, and to upgrade human capital by re-orienting the island's highly regarded education system on the requirements of a high-income nation in the globalizing economy.Singapore's small, open economy, in spite of the capital deepening, while very modern and internationally competitive, is nevertheless very vulnerable to external shocks because the value of its exports is much larger than its GDP and about two-thirds of its industrial output is exported. The Asian financial crisis, which devastated the financial systems of several of Singapore's neighbors, did reduce GDP growth to nearly zero in 1998 after a number of years of eight percent growth, but Singapore's professionally managed and regulated financial institutions largely survived unscathed. Singapore allowed its currency to depreciate to absorb part of the shock, and Singapore's activist government eased fiscal policy and adopted measures to combat unemployment, which rose into the three percent range. The country's sound macroeconomic fundamentals brought it through the storm in much better shape than its neighbors and its economy recovered smartly in 1999 and 2000. Technological progress alone is not enough. Despite the professionalism and efficiency of Singapore's economy, it is still not well enough diversified to shield it from sect oral shocks like the investment depression that beset the electronics and IT sectors beginning in mid-2000 and continuing into 2001. After riding the IT investment boom of 1999 and 2000 to nearly 10 percent GDP growth in 2000, the economy contracted sharply beginning in the first quarter of 2001, declining for several quarters at rates approaching 10 percent. Days after announcing the news about the recession, the government unveiled a US$1.2 billion stimulus package, about 1.4 percent of GDP, which included increased spending on infrastructure, selected tax cuts and allowing citizens to temporarily cut payments to the state pension fund which is a primary tool by which Singapore engineers its high national saving rate. Economic Performance:Capital deepening can backfire. Real GDP fell by 2.2 percent in 2001 as compared to the average level of 2000, a year in which GDP had increased 9.9 percent following 5.9 ...

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