The Determinants of the Economic Growth of a Country - Term Paper Example

Introduction According to Dr. JOEL SENTSHO (n. d), “export-led growth (ELG) is an economic development strategy in which export, and foreign trade in general play a central role in a country’s economic growth and development” (Dr. SENTSHO, n. d, p.2). Economic growth of a country depends on many factors and export growth is one among them. No country can develop properly if they rely entirely on other parameters of economic growth. According to The Economist article, A special report on America's economy: Export or die, “a country’s relative trade performance is mainly determined by two (connected) factors: its exchange rate and its growth rate in relation to those of its trading partners” (A special report on America's economy: Export or die 2010). In other words, the currency value and the export growths are the major determinants of the economic growth of a country. This paper evaluates the importance of export of manufactured goods in sustaining economic growth of a country. Export and economic growth China’s policies helped them to grow at the rate of 7%–8% per year which is sufficient enough to produce 15 million new jobs a year (THE “CHINA PRICE” AND WEAPONS OF MASS PRODUCTION, n. d, p.1). China is one of the prominent exporting countries in the world which exploited the possibilities of export of manufactured goods judiciously for their economic growth. In fact they taught the external world new export oriented economic lessons. While most of the countries tried to sell their products for maximum possible prices in global market, China adopted a different strategy of selling their products for maximum cheaper prices. Cheaper prices made Chinese products favorite in global market and they were able to generate big volumes of business in the global market. Bulk production helped China to sell their products for cheaper prices in global market. Mass production also helped China to reduce their unemployment problems up to certain extent. While most of the other countries struggled to boost their economy through export of manufactured goods, China not only maintained a steady economic growth through export of manufactured goods, but also succeeded in reducing unemployment problems. It is not easy for other countries to follow the path of China blindly. For example, America’s manufacturing base is not much active currently because of the stiff competition from the Chinese products. Even American consumers became the fan of Chinese products because of the cheaper price and better quality compared to the American products. Under such circumstances, if America wants to mobilize its manufacturing sector, they should be able to provide goods with prices even cheaper than the Chinese products. But, it is not easy for America to manufacture products with cheaper price options compared to the Chinese products because of the inferior manpower, infrastructure and technology compared to the China. “Even if the economic climate improves, America may not benefit: it simply does not make the products the rest of the world wants to buy” (A special report on America's economy: Export or die 2010). Intel is one of America’s most successful companies, and 80% of its revenue comes from outside its home country. Like almost all big companies it suffered a decline in sales and profits in the recession and had to lay off some staff. Brian Krzanich, Intel’s vice-president of manufacturing, says labour costs are an important consideration in processes such as assembling and testing systems, which are carried out in Costa Rica, Vietnam, China and Malaysia (A special report on America's economy: Export or die 2010). America was one of the worst hit countries in the world as far as recession is concerned. Asian countries in general and China and India like countries in particular, escaped from recession without causing many damages to their economies. On the other hand, even biggest companies in America, like the microprocessor manufacturing giant Intel, forced to lay off some of their staffs. Moreover, they forced to rely on countries like China and Malaysia for carrying out their operations because of the cheap labor available in those countries. Labor cost is one of the highest in America compared to other nations and hence it is difficult for America to increase their internal production of goods beyond certain levels. Globalization and liberalization opened ways for other countries to sell their products in any of the countries they wish. Consumers are getting more options or choices with respect to the products they are purchasing and in a recession hit eco0nomic climate, they may give more emphasize to the price of the product rather than the quality of the product. Under such circumstances, America’s efforts to boost their economy through mass production of goods internally may not succeed beyond certain levels. Apart from American companies like Intel, many other prominent companies in the world already established their manufacturing plants in China in order to exploit the cheap labor and better infrastructure facilities available in China. “A lot of Japanese manufacturers have moved production to China, but are still exporting the bulk of the value” (EIAS Luncheon Briefing Report: ‘Are we making a Dragon out of a Dragonfly? China’s role in Global Production Networks, 2010). In short, China was able to monopolize the global labor market as in no other countries such cheap and skilled work force is available. For example, even though, Apple’s iPod is assembled in China, “China accounts for only 2% of the wages involved in its manufacture, whereas America makes up around 70%” (A special report on America's economy: Export or die 2010). “Since 1978, China has made great leaps forward in producing goods such as cloth, electricity, steel and cement. China sold more than 60 percent of its goods abroad in 2006, up from just 12 percent in the early 1980s” (Economic Letter—Insights from the Federal Reserve Bank of Dallas, 2008). Even though China is the most heavily populated country in the world, more than half of the goods produced in China are sold in external markets like America and European countries. Thus China was able to acquire more foreign money than any other countries in the world through export of manufactured goods. The economic development of a country is largely connected to the ability of the country to earn larger proportions of foreign money. Conclusions Export of manufactured goods is an important factor which can boost the economic growth. The capability of a country to achieve foreign money is an important aspect in determining the economic growth of a country and export of manufactured goods is one way of achieving more foreign money. China is one country which exploited the possibilities of export of manufactured goods for their economic development. China was able produce mass volumes of goods and the cheap labor force available in their country helped them immensely in selling their goods for cheaper prices in international market. America on the other hand was unable to compete with China either in the availability of manpower or cheap labor and hence it is difficult for them to compete with China as far as the export of manufactured goods are concerned. In short, it is difficult for America like countries to rely heavily on the export of manufactured goods to generate economic growth whereas India and China like heavily populated countries can focus more on boosting their economies with the help of export of manufactured goods. References 1. A special report on America's economy: Export or die (2010), 2. Dr. SENTSHO,J. (n. d), EXPORT REVENUES AS DETERMINANTS OF ECONOMIC GROWTH: EVIDENCE FROM BOTSWANA, [Online], Available at: http://www.essa.org.za/download/2003Conference/SentshoJ_Exports%20Revenue%20&%20Economic%20GrowthF.pdf, [Accessed 15 August 2010] 3. EIAS Luncheon Briefing Report: ‘Are we making a Dragon out of a Dragonfly? China’s role in Global Production Networks, (2010), [Online], Available at: http://www.eias.org/documents/Report_Lunch_Briefing_Chinas_Role_in_Global_Production_Networks.pdf[Accessed 15 August 2010] 4. Economic Letter—Insights from the Federal Reserve Bank of Dallas (2008), [Online], Available at: http://www.dallasfed.org/research/eclett/2008/el0808.html, [Accessed 15 August 2010] 5. THE “CHINA PRICE” AND WEAPONS OF MASS PRODUCTION, (n. d), , [Online], Available at: http://ptgmedia.pearsoncmg.com/images/9780132281287/samplechapter/0132281287_CH01.pdf, [Accessed 15 August 2010] Read More