Asiaphoria Academic Essay Requirements
Each answer to each question should be no more than 350 words in length. You must do all three questions.
Q.1 What is the central argument of the Asiaphoria by Lant Pritchett and Larry Summers? (300 words)
Q.2 Do you agree with the argument of Pritchett and Summers? Is it compatible with the BRICs thesis? (300 words)
Q3. Assuming it is true, what are the implications of the Asiaphoria argument for multinationals based in Western Europe? How should they adjust their strategies in light of the arguments of Pritchett and Summers?
Your answers should be fully and properly referenced. You should include a bibliography.
Question 1: The central argument of the Asiaphoria
China and India’s economies have been growing at a higher rate than any other country in the world for the past decade. In light of this, economists predict that China and India will keep recording high economic growth rates (Golley, 2015). However, Lant Pritchett and Larry Summers, two American economists, believe otherwise. The two came up with the Asiaphoria theory which argues that China’s economic growth rate will regress to the world means in the near future.
Most economists use the countries’ past trends to predict the future of their economies. Pritchett and Summers, however, differ greatly with the methods that these economists use in predicting China and India’s growth rates. These two American economists strongly believe that China and India, just like other countries in the world, will not keep recording high growth rates in the coming decades. The two economists argue that predicting the future of the two countries should not solely rely on their pasts but on the history of other countries. Pritchett and Summers, through their research, predict that the growth of China and India will come to a fast and surprising halt due to past growth patterns of other wealthy developing countries. In the last century, growth patterns have been such that rapid growth was of a short duration and ended by regressing towards the world’s mean growth rate. Summers and Pritchett believe that past performance is not a guarantee of future performance. Their research finds that in forecasting economic growth rates of a country in the long term, more weight should be given to the growth rates of all countries rather than the country in study past growth rates. According to them, past forecasting errors are mainly due to placing too much emphasis on a country’s recent past. (Summers and Pritchett, 2013)
Question 2: Compatibility with the BRICs thesis
I agree with Pritchett and Summers that in future, China’s economic growth rate will regress to the world’s average. Usually, developing countries have the potential to grow faster than developed nations mainly because the law of diminishing returns is predominant in developed nations while increasing returns are predominant in developing nations. Therefore, as China and India keep growing, it is highly likely that they will experience diminishing returns in the sense that the incremental of a factor of production such as technology, ceteris paribus, will yield lower incremental returns. Also, economic convergence is likely to occur. According to the convergence theory, per capita income across countries tend to close due to catch up. Developing countries aim to catch up with developed economies (Mpoyi, 2012). Therefore, as per capita incomes between developed and developing countries converge, the growth rates of developing economies tend to slow down. Eventually, China and India’s economic growth rates will slow down and regress towards world averages.
The BRICS thesis forecasted that Brazil, Russia, India, and China would experience high economic growth rates and become larger forces in the world economy. The thesis suggests that the four economies together might be bigger than the G6 in less than forty years and that by 2050 they will be part of the G6 with the US and Japan. The thesis further suggests that the growth of the BRICS will be immense in the first thirty years but will slow down significantly towards the end of fifty years (Wilson and Purushothaman, 2003). The BRICs thesis is compatible with the Asiaphoria theory which suggests that China and India will not keep recording extraordinarily high growth rates like before. The Asiaphoria theory suggests that in the next two decades, their growth rates will slow down and regress towards the world means. The BRICs thesis draws on the convergence theory to back up the claim of the four economies experiencing slower economic growth rates. The two theories are compatible in that they both suggest that the end game for both China and India is to have lower economic growth rates in future.
Question 3: Implications of the Asiaphoria argument
The growth of China and India saw to the gradual shift of manufacturing, especially in the automobile industry, from the US and Western Europe to China and India. Today, most of the world’s cars are produced in Asia, unlike before when manufacturing was mostly in the G6 countries. The growth of China, India and other BRIC countries led to the increase in commodity prices and a decrease in manufacturing and labor costs (The Economist, 2013). Trade between China and Western Europe has grown ever since with Europe exporting luxury cars, medical equipment, pharmaceuticals and capital goods such as machinery, space equipment, and electronic equipment while China exports a variety of commodities to this region (International Banker 2014). According to Liu (2016), China’s largest export market is Europe while some European countries such as Spain and Germany consider China their biggest export market. Today, China’s invest in Europe is larger than that of Europe in China.
If China’s growth rates tend to regress towards the mean as expressed by Pritchett and Summers, China will cease being as attractive as it used to be for manufacturers, exporters, and importers. The manufacturing and labor costs are expected to rise in China as their per capita income approaches that of the US. At the same time, a decrease in their economic growth rate may lead to waning demand for some commodities and belt-tightening (Allen and Stewart, 2015). Alternatively, the Chinese buying power will increase thus exporting to the country may be lucrative.
Already, the Chinese economic growth rate is slower than a few years back. Multinationals in Western Europe should be careful about this market as they may experience lower profits than in the past years. They should review their marketing strategies and preferably widen their world market share by increasing their ventures in other parts of the world and cease relying heavily on China for most of their sales.
References
Allen, K. and Stewart, H. (2015). China’s Slowdown Means Vigilance is Key for UK Firms Trading in Far East. Retrieved from: https://www.theguardian.com/world/2015/jan/25/china-slowdown-vigilance-key-uk-firms
Golley, J. (2015). China’s Growth Prospects: ‘Sinophoria’ or Despair? The China Story Journal. Retrieved from: https://www.thechinastory.org/2015/06/chinas-growth-prospects-sinophoria-or-despair/
International Banker. (2014). Global Impact of China’s Slowdown. Retrieved from: https://internationalbanker.com/finance/global-impact-chinas-slowdown/
Liu, L. (2016). Europe and China in the Global Economy in the Next 50 Years: A Partnership for Global Peace and Security. Intereconomics 51:1, 37-42.
Mpoyi, R. T. (2012). The Impact of the ‘BRIC Thesis’ and the Rise of Emerging Economies on Global Competitive Advantage: Will There Be a Shift from the West to East? Journal of Applied Business and Economics, 13:3, 36-47.
Pritchett, L. and Summers, L. (2013). Asiaphoria Meets Regression to the Mean. Retrieved from: https://www.frbsf.org/economic-research/files/Pritchett-Summers-AEPC2013.pdf
The Economist. (2013). When Giants Slow Down. Retrieved from: https://www.economist.com/news/briefing/21582257-most-dramatic-and-disruptive-period-emerging-market-growth-world-has-ever-seen
Wilson, D. and Purushothaman, R. (2003). Dreaming with the BRICs: The Path to 2050. Global Economic Papers No.99. Retrieved from: http://www.goldmansachs.com/our-thinking/archive/brics-dream.html
Place your order now for a similar paper and have exceptional work written by our team of experts to guarantee you A Results
Here is another sample relating economic growth in Asia FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH
Why Choose US
6+ years experience on custom writing
80% Return Client
Urgent 2 Hrs Delivery
Your Privacy Guaranteed
Unlimited Free Revisions
