Factors That Can Affect the Performance of Countries Economic Development
Усманов Д. А. Factors That Can Affect the Performance of Countries Economic Development // Молодой ученый. 2013. №2. С. 189-192.
Economic development is a multifactorial process, which reflects both the evolution of the economic mechanism, and the change of economic systems on this basis.
There are usually four types of economic growth on Modern growth theory: steady growth in the leading countries (as observed in the U. S., Europe), the wonders of growth (Japan, South Korea, Hong Kong), the tragedy of growth (some countries in Central Africa) and the lack of economic growth (eg, Zimbabwe).
Each country has developed its own way of the economic development. There are various models of economic development (the model of Germany, USA, China, Japan and South Korea, South East Asia, Russia and other countries). But with all their diversity and national characteristics, there are common patterns and parameters that characterize the process. Model of economic development is determined based on the characteristics of each country.
As each country chooses its way of economic development, every country developed unevenly. Uneven economic development of individual countries and regions is particularly apparent in the second half of the 20th century, when Asian region became the fastest growing region. Thus, success in economic development reached such countries as Japan and South Korea, followed by China and the newly industrialized countries of South-East Asia. Largely due to their GDP growth in developing countries over this period (from 1950 to the present) exceeded almost twice the economic growth rate of developed countries. In result share of developed countries in the world economy fell from 63 % to 52.7 %, while the share of developing countries rose from 21.7 % to 31.4 %. The most difficult economic situation was in the countries of tropical Africa. Here, the GDP growth rate was the lowest among the countries with market economies, their share in the world economy by the end of the 20th century has decreased from 2.3 to 1.8 %. The world map below displays the approximate development level of the world's nations, with the purple coloured nations being more developed, and the redder nations being less developed. (Source: Forbes.com LLC™)
For example, twenty years ago, in 1991, the GDP of Russia and China were roughly same. But now Russia's GDP is 20 % of the Chinese. It means that China's economy has grown ten times faster than Russia. If Russian economic policy has been as successful as China, Russia would have earned an additional 8–10 trillion. So why is it so? The reason of it the different perform of each country in development of the economy. So why do countries perform differently in their economic development?
Why do countries perform differently in economic development?
Each country performs differently on the way to develop its economy. The way of economic development determines based on the internal capabilities of the state. I think that availability of natural and other resources seriously impacts on future strategy and performs related to economic development of the country. Although natural resources are very important factor of economic prosperity, but their availability is not a main condition for high growth and high economic efficiency. Indeed, the rapid development of the U. S. economy was initially associated with the abundance of available land which is suitable for agricultural use, and Kuwait and Saudi Arabia became the richest countries in the world thanks to huge oil reserves. However, for example, Japan has become one of the leading countries in the world, having very small raw stocks. Rapid economic growth in South-East Asia (the so-called «Asian dragons» — Hong Kong, Taiwan, South Korea and Singapore) are also caused by no means an abundance of natural resources. Similarly, availability of human resources and its volume can determine the way of development. For example, in such most populated countries as China, India and Brazil it is preferable to develop their labour intensive manufacturing sectors of industry in order to achieve optimal economic development. In these countries have comparative advantage in labour intensive industry sectors against other developing countries. In other hand for such countries as USA, Japan, South Korea and European countries it is more preferable choosing another way. These above mentioned developed countries have more capital than others, so it’s better to develop the economy by using capital resources rather than labour resources. This idea was offered by Heckscher Ohlin and had succeeded in practice of world economic development.
In addition to previous idea I can say that to develop the industry is most efficient factor in countries economic development. As mentioned above China’s economy developed 10 times faster than Russia during last two decades. The reason of this can be explained very simple. After collapse of Soviet Union each former state began develop its economy differently. All manufacturing factories and industry of Russia was outdated and it couldn’t to produce items which was able compete with other developed country manufactures. In addition the size of domestic market and total volume of demand decreased for new formed Russian Federation after getting independence of 15 states of USSR. Also main items of the country were products of capital intensive industry. Even so Russia continued to produce new products and export manufactures. But after some period main manufactory forces stopped their work and Russia’s exports became highly related to natural and mineral resources. At that time China paid more attention to developing their manufacture sector and export more labour intensive products. Russia gained more on selling mineral resources than manufacture, so country became more and more related to exports of natural resources. In other hand China by developing its manufacture did investment for future of the country. China developed manufacture because of it hasn’t so much natural resources comparing to Russia. And Russia because of its mineral resources didn't pay more attention on manufacture. So my simple case shows that, available natural resources of the country can affect to perform on the way of economic development.
Moreover I think that influence of geographical factors also can describe why countries perform differently in economic development. Firstly geographical location of the country affects to define countries strategy of economic development. For example, In the case of Africa, there is the problem of a harsh climate that made it difficult to prosper economically. Africa, compared to the other continents, has a much shorter coastline making it more difficult to have major ports for trade of goods and ideas. The tropical heat also increased the dangers of having disease and food spoilage and along with other factors, geography must have had a negative influence on the historical development of a stable African economy. In making strategies of economic development most of countries are perform based on their geographical condition. For example, China has three of the world’s busiest ports, and so does the US. With ports country can raise money through tolls and shipping services. If you have no access to the coast, not only do you miss out on these services, you have to transport everything by land, which is much more expensive. Oppositely, in case of Uzbekistan it is too ineffective or less effective exporting its products to other continents because of geographical location of the country. Uzbekistan is one of the two «doubly landlocked» countries (another one is Liechtenstein) in the world. «Doubly landlocked» country is that country which surrounded only by other landlocked countries. Person in such a country has to cross at least two borders to reach a coastline. Uzbekistan has borders with Turkmenistan and Kazakhstan that border the landlocked but saltwater Caspian Sea, from which ships can reach the Sea of Azov by using the man-made Volga-Don Canal, and thence the Black Sea, the Mediterranean Sea, and the oceans. So Uzbekistan has to cross at least two countries for export its manufacture products to developed countries and it means that transportation cost will be higher. Therefore Uzbekistan couldn’t gain much on trade of manufactured products. So for such country like Uzbekistan it is better to choose import substitution policy rather than export oriented. And other countries, like Ethiopia or Lesotho, are not only landlocked, but mountainous as well, making trade even more expensive. This case shows that every country performs differently in economic development due geographical factor. As can be seen, geography is a significant reason for development or stagnation of a nation's economy. In reality, it goes hand in hand with other factors, yet economic wealth and progress has been influenced and determined to a significant degree by the location of a particular country.
As mentioned above one of the most important factors in development is geography. So depending on where the country is in the world it can choose its own specific development strategy. Moreover climate of the region also can influent into economic performance of nations which are situated there. It’s no coincidence that the poorest countries are in the tropics, where it is hot, the land is less fertile, water is more scarce, where diseases flourish. Conversely, Europe and North America profit from huge tracts of very fertile land, a temperate climate, and good rainfall. In extremes of climate, either hot or cold, too much energy goes into the simple business of survival for there to be much leftover energy for development. You have to work twice as hard to get enough to eat out of the ground, you have to irrigate where others can depend on rainfall. It may be too hot to work some hours in daytime, so you lose some hours out of every day. Rain patterns may give you a short growing season, while others can get two harvests in one year. According to these examples we can say that some countries are just at a natural disadvantage, which unfortunately effects on their economic indicators.
As another factor that can influence to economic development of the country I want to mention about religion and culture. Governments of some nations choose certain religious principles as a rule for that country which can influence to the way of economic development. I shall try explaining it by case of Islamic countries. In Islamic countries like Saudi Arabia, Iran, Afghanistan rules of the government are strongly based on the Quran and they use the Holy book as a constitution of the country. Every Middle Eastern Country has a Constitution based on the Quran. Also I have noticed that economic development level of Islamic countries is different from others and Islamic countries perform differently in many aspects of economic development from other developing countries. The facts are undisputed: Muslims make up 19 percent of the world’s population but earn only 6 percent of its income. The issue is whether there are any causal relationships between religion and economic development. Many scholars suggest that religion is typically not a problem, pointing out those Islamic beliefs and values that appear inimical to growth (e.g., the ban on interest and restrictions on speculation) are routinely circumvented. The corporation is now an acceptable and popular organizational form in most Muslim countries. Insurance contracts are legally enforceable. Banks are integral components in every Muslim country’s economy. And contracts involving interest payments are commonplace, although payments are sometimes disguised as commissions or fees.
The Islamic economy is built upon the real economy with agriculture and manufacturing the key sectors in the economy that generate wealth. Islam does not recognise the interest-based financial markets in their current form as seen in the west. The Islamic economy creates wealth through the manufacturing of real goods and the value added at each stage of production. This in no way means Islam is against a service sector, in an Islamic economy the emphasis is upon the real economy. As a conclusion of my case I want to mention that the Islamic economy fundamentally creates growth through unrestricted wealth circulation. In Islam even mandated the central government to intervene in the economy in cases of misdistribution of wealth in the economy. Islam at the same time has the necessary tools to achieve sustainable economic growth and a distributive wealth system where all can live in relative comfort and ease.
Culture also can be one of the factors of different economical development performance of various nations. For example, cultural issues such as gender inequality, lack of social capital, and diminishing cultural heritages, contribute to a downgrading economy. But cultural factors do not explain all variations of performing in economic development of the nation. Every economy experiences significant fluctuations in growth rates from year to year as a result of short-term factors such as technological stocks or unforeseen circumstances that effect output. These could not be attributed to cultural factors, which change gradually. A society’s economic and political institutions also make a difference. For example, prior to 1953, North Korea and South Korea was one country and had a same culture even still now, but it is fact that South Korea’s economic performance is far superior.
In conclusion, I feel that each country on its economic development would perform differently based on nation’s individual potential. And all above mentioned by me factors which can influence to economic development way of each nation are strongly related to potential of the country. Also effectiveness of development policy associated with all those factors. So it is very important for each government to deliberate the nation’s potential and available factors for determine how country would perform on its further economic development.
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