Question 1
China and India have emerged as major economic forces, each following their own paths to economic liberalization and globalization. Describe the separate circumstances and strategies which led to their current success. How did communism influence each country and what challenges did their leaders face in making the transition to global capitalism?
China and India have emerged as major economic forces, each following their own paths to economic liberalization and globalization. To start with, China significant move towards economic growth began in 1990s. The government removed price controls (allowing forces of demand and supply to control prices). In addition, it freed international trade leading to increased exports, as well as, imports. The government gave room for large scale investments, financed by both citizen’s savings and foreign investments. These reforms enhanced economic efficiency, as well as, the capacity to acquire resources necessary for growth of industrial and agricultural sector (Michael and Richard).
Foreign investment enabled the acquisition and importation of technological innovation of the western countries, while price equalization made China’s labor cost to decrease; this led to extensive growth of the labor market. Another factor that has led to growth of China’s market is increased exports. The exports have been increasing very first; hence, creating market for the countries’ products. In a nut shell, China is an impressive example of a developing country with a difficult past (Tovell 8).
On the other hand, India has emphasized on services; hence, improving her labor force for call centers, as well as, data operating centers. India’s labor force is English speaking and well educated; this has made India to be a considerably low cost gate way to global services. The economic growth in India is attributable to high productivity of its labor force. For example, the productivity of India workers is much above other countries, like Russia, with higher per capita income (Michael and Richard).
Question 2
In the wake of the 1970s debt crises, when petrodollars re-circulated as loans for countries around the world, much of Latin America went into hyperinflation. Describe whose ideas were shaped into the economic remedy known as "Shock Therapy" and what countries in Latin America did it influence?
The petrodollar brought cheap money in 1970’s. Interest rates fell to as low as -3.7%. It enhanced economic growth at the time; otherwise, recession should have thrived due oil crisis. The developing countries borrowed extensively to either pay for the increased oil prices or enhance their oil economies. The increased readily available liquidity in international system made Latin America’s long term debt increase from $ 43 billion to $ 176 billion (Carlos 40).
In later 1970’s, the USA was forced to increase her interest rates to counter inflation brought by the increase in oil crisis. This increased interest rates was payable by Latin America countries’, and they faced budget deficit. This made them to borrow heavily from central banks fuelling inflation. The hyper inflation affected many Latin America countries, like Mexico and Chile. Economic views changed because ‘policy makers began to recognize that the state-led protectionist development model used in the previous decades had finally exhausted itself’’ (Carlos 40). Despite their application inflation was not controlled. The chock therapy economic views contrasted previous economic views, which advocated for state centered protective domestic policies. Therefore, shock therapy economic view brought about free market trading blocks in Latin America (Inter-American development bank). The hyper inflation in Latin America led to realization of government control in the economy. This is known as chock therapy which contrasted the previous economic views held prior to the hyper inflation experiences in 1970’s.
Works Cited
Caroloz Lozada .Economic policy trends in post- world war II Latin America. Economic
Review, 38-45. 1999. Web. 8 Nov. 2011. < http://www.frbatlanta.org/filelegacydocs/ACF10B5.pdf>
Inter-American Development Bank . Economic and Social Progress in Latin America.
Washington, D.C.: Inter-American Development Bank. 1985. Print.
Michael, Cox and Richard Alm. China and India two paths to economic power. August, 2008.
Web. 8 Nov. 2011. < http://dallasfed.org/research/eclett/2008/el0808.html>.
Tovell Thomas. What factors have been responsible for China’s rapid Economic growth over the past quarter of a century?. n.d. Web. 8 Nov. 2011. < www.essex.ac.uk/economics/eesj/au10/EC330 -Thomas Tovell.pdf>
