China

China

Introduction

The goal of this assignment is to provide a review of the various determinants of growth and development in East Asia in general and in China, Japan, South Korea, Taiwan, Hong Kong, and Singapore in particular. At first, the role of the two main factors of production, capital and labor, is examined. Next, the debate on the contributions of total factor productivity to growth is presented, followed by a discussion of additional growth components, including historical determinants, trade, and exchange rate policies. The last section deals with the origins and consequences of the East Asian financial crisis in 1997, which put a dent in the image of East Asian economies as “miracles.”Demographics and Growth

To be able to produce goods and services, firms need to employ workers. Therefore, labor is one of the major determinants of aggregate output. Countries with large numbers of people who are able and willing to work (referred to as the labor force) usually also have a high GDP. China's population of more than 1.3 billion is the largest in the world, followed by India.

A high GDP provides countries with a larger pool of financial resources, which can be spent on national defense, allowing them to become regional or even world powers. However, GDP is not a reliable indicator for the standard of living in cross-country comparisons because it does not control for population size. For this reason, economists prefer to use GDP per capita, which reverses the rankings based on the size of the economy as it rewards countries with a large GDP relative to their population (Nelson, 1999).

At the same time, population control measures have created imbalances that are likely to have an adverse effect on economic growth in the long run. One of the factors responsible for the emergence of dynamic export-oriented industries in the coastal areas of China is the existence of a large surplus of workers who have migrated from the rural areas and are willing to work longer hours for a relatively low wage. As the population growth slows down, and the labor surplus is exhausted, the labor force will begin to shrink and the attractiveness of China as a low-cost destination for manufacturers is likely to diminish (Naughton, 2007).

The Role of Total Factor Productivity

Now that, the two main factors responsible for the rapid growth in East Asia have been identified and discussed, it is necessary to examine their actual contributions to growth. As mentioned above, the pace of growth and development in East Asia has received considerable attention. From 1960 to 2000, the real GDP per capita in Japan, Taiwan, South Korea, Hong Kong, and Singapore grew at an annual rate of between 5% and 6% on average. China, which began a transition to a market economy in 1978, achieved an annual growth rate of almost 9% over the past three decades. In contrast, the corresponding growth rate in the United States and Western Europe from 1960 to 2000 was around 2% (Corsetti, 1999).

Historical Determinants

The modern history of East Asia begins with the arrival of European and American imperialism in the nineteenth century. At the time, China was considered to be the regional superpower. It was an empire as large as the whole of Europe with a history and culture going back thousands of years and surrounded by tributary ...