Macroeconomics Analysis and ApplicationsAbstractFactors of production and government polices that encourages active domestic market activities are just few of the many factors that could provide long term economic growth. Labor, oil and technology serves to be the source of impressive economic growth of many countries such as China, Saudi Arabia, and Japan respectively.
On the other hand, policy that improves domestic consumption as well as the relaxation of trade barriers are some of the various government policies that provides long run economic growth.
IntroductionHaving a tremendous supply of primary factors of production such as labor, oil, and technology would guarantee a certain country with long run economic growth for these factors of production are the reasons why countries can generate large surpluses on their economy and stabilizes their trade balance, thereby creating enough pressure for their GDP to increase impressively within a short period of time.China, Japan and Saudi Arabia are just few of the top countries that have been experiencing long run economic growth since the 1980’s.
The above mentioned factors of production serve as an avenue towards the attainment of these countries of impressive economic growth for the past decades.
This only proves how vital are the above identified factors of production in order to these countries to maintain their economic status in the global community.Aside from major factors of production, another way in order for countries to attain long run economic growth would be through fiscal and monetary policies of a government to regulate their respective market. Such policies promote an active domestic market which eventually will have a positive effect on their GDP growth.Countries like China and United States are just few of the top countries that experiences long run economic growth due to their successful policies concerning the condition of their market activities as well as the balance between their foreign and domestic investments on their market.
Therefore, after establishing the importance of the factors of production and government policies, it is therefore important to thoroughly discuss this subject matter. This paper aims to dissect how primary factors of production and government policies, fiscal and monetary policies, helps in order for a given country to have long run economic growth in the global market.Sources of Long Run Economic GrowthCheap Cost of Labor in ChinaOne of the possible sources of economic growth would be through having a tremendous amount of laborers on a given country. China would be the perfect example for this scenario not only because it has the largest number of population in the global community but also it is one of the most progressive countries for the past decades.
Only by utilizing their large pool of workers on their labor market, the Chinese government has been able to attract tremendous amount of foreign direct investments into their country (Brooks & Tao, 2003). Most of the multinational companies in the international market have been searching for countries that could provide them with competitive advantage in the form of cost efficiency in raw materials. Since there is a large number of workers on the labor market of China, then, its wage rate are relatively lower as compared to other countries abroad. These cheap labor cost in China is what multinational companies has been utilizing in the domestic market in China and the main reason why they chose China as their host country for their manufacturing plants.
Before, during the 1960’s, China’s economy struggles to stabilize its self as many countries across Asia and other parts of the globe starts dominating the international market thereby improving their economic growth. China during then only relies on its domestic investment with few foreign investment plus technology from western countries. But with the growing number of workers in the Chinese labor market, it created enough pressure for the wage rate of the Chinese workers to go down until reaching the level that it already became one of the cheapest workers around the globe. After learning this scenario, multination companies from different countries starts to influx into the domestic market of China and establishes manufacturing plants that produces exportable products (Xu, 2000).
As the number of multinational companies that enters the Chinese market increases, job opportunities for Chinese workers also increased thereby upgrading the economic welfare of every Chinese household. The per capita income of every Chinese starts to increase after the number of job opportunities had increased which later on resulted to higher domestic consumption. Domestic investment improves creating enough room for the domestic investment to grow impressively in which most economists during then predicted that it would lead to China’s self sufficiency and maturity.These cheaper laborers of China also created an avenue towards the improvement of China’s trade balance.
Since multinational companies operating in China produces exportable goods in the international market, the volume of export products of China increased dramatically thereby improving the trade balance of the said country. At the end of the day, this stable trade balance of China will positively affect their GDP given that both economic factors are directly proportional to one another while keeping other factors constant.Huge Oil Reserves of Saudi ArabiaOn the other hand, Saudi Arabia has been keeping its high economic growth for the past decades due to its huge reserves of “black gold” or oil (Ameinfo.com, 2007).
Oil is one of the primary factors of production of most multinational companies since it is being used to run machineries, generators, automobiles which are vital in manufacturing of goods in the market. In this regard, the demand for oil in the international market are extremely high which sometimes resulted to conflicts between countries that wanted to dominated the oil industry in the world market. Saudi Arabia is the top producer of oil in the international market with roughly 264 billions of barrel amount of oil reserves while next to Saudi Arabia would be Canada, see Appendix 1.Furthermore, since Saudi Arabia is the main supplier of oil products in the international market, it has therefore the power to control the price level of oil in the international market.
Export earnings of Saudi Arabia began to stabilize with the increasing volume of oil that it supplies to the international market. For many decades, Saudi Arabia has been heavily dependent on its oil industry in order to attain impressive economic growth (U.S. Energy Information Administration, 2005).
The large amount of oil reserves of Saudi Arabia also provided the said country with much superior political power in the global community since it can cause major economic depression to many countries once it cut its supply of oil in the international market. There are a lot of countries that relies much of their economic activities in oil to run their domestic industries such as the energy industry such as the United States and other developed countries around the globe.With the increasing prices of oil in the international market, oil becomes the source of Saudi Arabia’s impressive economic growth. Most economists on developed countries concluded that countries that have oil reserves on their territories most of them belongs to the top countries in terms of economic growth.
Due to the high demand of consumers in the international market of oil, it is therefore one of the primary factors of production that could provide long run economic growth for a given country.It is now therefore clear how beneficial to a country for having a tremendous amount of oil reserves since it does not only provide economic dominance but also more political power in the global community. Saudi Arabia will still dominate the oil industry in the next coming decades as predicted by many economists and market analysts.Technological Advancement of JapanJapan has been known for its fast paced technological advancement especially in the field of automobile production and electronic gadgets.
With its highly industrialized economy, Japan has been relying on its exportable products to gain striking economic growth. In fact Japan has been able to compete at par with developed countries such as United Kingdom and United States in producing technologically advanced products in the market.Honda, Kawasaki, and Suzuki are just few of Japan’s top automobile brands in the market and extensively exported to various countries around the globe. These automobile brands outperformed in terms of technology American automobile brands such as GM and Great Britain’s BMW.
This has been the main reason why Japanese automobile is being preferred by many consumers in the international market.Actually, it is not only in automobiles wherein Japan has competitive advantage over other countries. Even the production of jet engines, Japan starts earning a good reputation in producing this product. The production of jet engines, especially for commercial airlines, has been being dominated by the European Union is now being penetrated by Japan and have a good market position as well as reputation in producing jet engines.
Furthermore, Japan leads the production of electronic products in the international market. Brands such as Panasonic and Sony have been known for their high quality products like video game consoles, communications, video, and information technology. These two brands have been dominating the world market due to its technologically advanced products. Innovation become of the main ingredients of these Japanese brands in order to attract more customers and earn notable reputation in the market.
It has been decades since Japanese brands in the automobile and electronics industry is dominating the international market. Consumers prefer the most advanced products in the market and this is what Japan has been utilizing for many decades in order to secure the success of their market penetration. This information provided an avenue for the Japanese technologically advanced products able to dominate the market and compete at par with the products of developed countries like the United States and United Kingdom as mentioned a while ago.In this regard, it is now therefore clear how technological advancement provided Japan with long term economic growth and market dominance.
The domination of Japanese brands in automobiles and electronics industry for the past decades has truly been Japan’s pillar of support in attaining long term economic growth and market influence.Government Policies – Long Run Economic GrowthChina’s Economic ReformIn the 1970’s after the death of Mao Zedong, China had experienced numerous economic problems that forced the Chinese government to conduct economic reform. One of the parts of Chinese economic reform would be to realign their policies in order to attract foreign investors into their economy. The establishment of six special economic zones including the Shanghai Pudong Zone which offers lower land rent for multinational companies that will plan to establish manufacturing plants in China (Hu, 2005).
Economic zones provide lower production cost on many foreign investors since land price in China is relatively high compared to other countries. Therefore, the said establishment of economic zones in China, as for the Chinese government during then, is a sure way in order to attract foreign direct investment into their country. True enough, China’s commitment to provide economic zones on foreign investors serves as one of the main factors on China’s present impressive economic growth.Furthermore, another component of China’s economic reform would be the privatization of state-owned companies.
Before the economic reform, there were no entrepreneurs in China’s domestic market. State-owned companies monopolize various industries which created inefficiencies in producing a given good or services as compared to when the government allowed the private sector to enter the market. Recognizing this weakness of state-owned companies, the Chinese government in the 1970’s decided to privatize some of the state-owned companies. After the privatization process, urban economic activities have increased resulting to higher income for Chinese domestic market.
More job opportunities started to arise in the market as the domestic market continues to boom on the hands of the private sector. From 1970’s up to the present, the domestic market of China alongside with the foreign investment continues to make the domestic market of China productive.Wage rate of the Chinese workers, despite of the large demand, remains relatively to other countries as the Chinese government set their minimum wage rate in such level attractable to foreign investors. Though having a relatively low wages for Chinese workers provided short term inefficiencies to household’s disposable income; by the time the number of multinationals that entered the Chinese domestic market income of workers starts increasing thereby creating an improvement on the volume of domestic consumption of the Chinese market.
At the end of the day, these government policies of the Chinese government under their economic reform provided impressive long run economic growth alongside with their large pool of workers in the labor market for almost four decades to China.United States High Wage RateWith the premium that the federal government provides on American working class, most of the government policies of the American government focus more on the welfare improvement of the working class in the United States. With the increasing number of Americans working abroad, as American-based multinational companies bring along with them their employees to other countries, shortage of workers existed in the U.S.
labor market thereby creating enough pressure for the federal government to increase the wage rate of their laborers, see Appendix 2.With the increasing wages of the working class in the United States, it later on resulted for various industries to experience higher sales volume as the volume of consumption of consumers in the market has increased due to the improvement of worker’s income. As a result gross domestic product of the United States improved from 1990’s up to the early 2000’s. One good example of industries that experienced tremendous sales volume and profitability would be the U.
S. housing industry. Since consumers in the market have enough excess money to purchase housing units, the demand for the housing industry increased dramatically as more people chose to invest their money not on banks but on real estate. Housing starts have increased and so with the number of housing companies that operated in the American market after the income of consumers in the market have increased.
In general, the economic activities of the United States have increased due to this improvement on the wages of the workers in the Unites States thereby making the United States top the list of countries based on GDP, see Appendix 3.Another government policy that the United States implemented that resulted to long term economic growth would be the relaxation of various trade barriers of United States for imported products specially if it is going to use as a raw material to produce export products. One trade barrier would be the tariff that the federal government is charging on foreign and domestic companies that imports raw materials from other countries. With the lowering of tariff rate, these foreign and domestic multinational companies that produce export products starts to have enough chance to increase their production to its optimal level since they will now spend less on tariff rates which is one of their operational costs.
With the progress of volume of U.S. exports, trade balance of the United States starts to improve creating a positive effect on U.S.
GDP since these two economic factors is directly proportional to one another, cet. par. Though this policy of the federal government reduces their income, but with the increasing number of domestic and foreign companies operating in their domestic companies for potential tax revenue offset the negative impact of lowering the tariff rate that the federal government charges to importers.In this regard, it is now clear how important government policies are on United States long run economic growth.
For almost two decades, United States has been enjoying their impressive economic growth and this is already enough reason to say that their government policies has provided the said country with long term economic growth for the past decades.ConclusionIn this regard, it is therefore clear that having a competitive advantage on one of the many factors of production could serve as an avenue towards the attainment of long run economic growth of a given country. Large supply and cheap laborers attracts more foreign direct investment, oil provides higher national income, and technology provides high consumer preference which at the end of the day dramatically improved one’s Gross Domestic Product. On the other hand, government policies such as raising workers wage rate, relaxation of trade barriers, and economic reforms that promotes active economic activities are just few of the many government policies that a country could implement in order to attain long run economic growth.
Appendix 1Rank Country Proved reserves(billion barrels)1. Saudi Arabia 264.32. Canada 178.
83. Iran 132.54. Iraq 115.
05. Kuwait 101.56. United Arab Emirates 97.
87. Venezuela 79.78. Russia 60.
09. Libya 39.110. Nigeria 35.
911. United States 21.412. China 18.
313. Qatar 15.214. Mexico 12.
915. Algeria 11.416. Brazil 11.
217. Kazakhstan 9.018. Norway 7.
719. Azerbaijan 7.020. India 5.
8 Appendix 2 Appendix 3TOP TEN Countries in terms of GDPRank Country GDP (Billion $)United States 12,980China 10,000Japan 4,220India 4,042Germany 2,585United Kingdom 1,903France 1,871Italy 1,727Russia 1,723Brazil 1,616ReferencesAmeinfo.com (2007). How Saudi Arabia can Double Oil Production. Retrieved May 5, 2008, from http://www.
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org/external/pubs/ft/wp/2003/wp03210.pdfHu, V. (2005). The Chinese Economic Reform and Chinese Entrepreneurship.
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