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Discuss About The Progressive Taxation and Stability System.

Introduction:

Asian countries are one of the highest growing countries around the world that has been facing rapid growth since last three decades. This spectacular growth of the Asian courtiers has attracted lot of attention of the researches, which caused rigorous research to trace the hidden cause of this rapid growth. According to latest statistics, Per Capita Gross Domestic (GDP) has grown during this last three decade by more than 4% annually in the case of China and the figure is as high as 3 to 4% for the other Asian economies like Singapore, Indonesia, Malaysia, Thailand, Korea and  Philippines (Gereffi et al. 2014). With a sharp contrast to the economic performance of the East Asian countries, it has been observed that developed economies have grown only by 2.6% during the last three decades (Diao et al. 2017). In this context, this essay is aimed to review the changing economies of Asia with special focus to trace the salient features of the phenomenon growth of south Asian economies. Besides this, the essay will try to portray the economic growth of these countries under the light of endogenous growth theory and reinforce the argument by summering them at the conclusion.

Long run growth model of the economy till 1980 was based on the exogenous factors, where the factors of change were mainly sourced from outside the organism (Vasilev 2018). For instance, researchers were focused to trace the importance of technology change and change in savings rate as one of the key factors of growth. Neo classical model of economic growth used to consider savings rate and the rate of technical development as the exogenous determinant of the economic growth (McCombie and Anthony 2016). Model proposed by the Solow model and Harrod-Domar model, argues that using the technological development and the interest rate, macroeconomic performance of an economy can be explained (Bertola et al. 2014). However rate of technological development and savings rate failed to determine the growth theory and they remained unexplained. In the backdrop of this precarious situation various economists turned to argue against the present exogenous model of growth. Over the year work of Kenneth Arrow, Robert Lucas brought another explicit model of growth known as the endogenous growth theory in order to counter the present belief of growth model (Spear and Young 2016). This new model of growth is more focused on the factors like innovation, emphasis on human capital and knowledge as the main contributors of the economic growth. The new proposed model tried to overcome the drawbacks of the present neo classical model through developing macroeconomic model on the microeconomic foundations. According to the new theory of growth, households are aimed to maximise their utility subject to their budget constraint and the firms are targeted to maximize their profit subject to the factor endowment (Laeven, Levine and Michalopoulos 2015). Most of the focus according to this model was provided to the human capital and in the case of innovations. Policy measure is acknowledged as another key instrument that provides endogenous growth model ability to deal with the explanation of long run growth model (Romer 2015). For instance, new growth model believes in subsidies in the case of education and R&D to enhance the growth rate of the economies through providing incentive for the innovation. According to AK model, endogenous model is as simple as the Constant Returns to Scale (Choi 2016). It can easily be determined through the increase in number of goods and service produces, enhancement in service quality, innovative development and various other endogenous factors. On the other hand in a more complex scenario, endogenous growth theory believes in spill over effect and positive externalities, where knowledge based economy can lead itself to higher growth through diminishing return in the capital accumulation. Besides this, endogenous growth model makes it possible to construct a framework in the case of perfect competition considering marginal product of capital is diminishing in nature and it does not tends to zero. Additionally ability to holding patent allows the firms to enjoy some amount of monopoly in the market with the endogenous framework. R&D is one of the key factors that allow the endogenous growth sculpt to describe the monopoly market, making it one of a stable model that determined both the extreme market condition (Janoski et al. 2014).

Governmental Role In New Growth Theory:

Endogenous growth model is based on the factors like human capital, innovation, R&D, infrastructural development and other internal factors to determine to assess the economic performance of a country. Thus, governmental intervention is highly desired according to the new growth model. Owing to higher governmental intervention, factors like infrastructural development, innovation can be hailed to a great extent (Van 2016). In addition to this, investment by the government in the factors like infrastructure, education, R&D will allow more population of a country to get engaged in the growth of the country. For instance, if the government enhance the public expenditure in the infrastructural development and education, then it can create more jobs with enhanced availability of the skilled labour (Leigh and Blakely 2016). It will inherently increase the aggregate demand through rise in disposable income. Through this cyclical process government can provide big push to economy to overcome the barrier of the developing economy.

Externality is one of the factors that have various views. According to a group of economists externality possessed by the worker of by the firm through experience, aids it to have better growth (Feldman and Storper 2018). On the other hand, another group of population entails that introduction of new goods and service is another form of externality that helps the economy to face higher growth.  According to the Romar, externality sourced through knowledge can bring in Constant Returns to Economy leading to better growth. On the other hand, Lucas has argued for providing additional importance to human capital, because according to him, it will aid the economy in long run to have better growth, not only through better employment generation, moreover it will aid the economy to have skilled labour (Parker 2018). Thus, externalities and new growth theories are connected with each other.

Protection is another important prerequisite of the endogenous growth theory. Without protection, firms cannot compete with the firm of the international market due to lack of adequate technologies and skilled labours (Buckley and Casson 2016). Through internationalisation markets are now wide open, where any player can join into the market.  In this situation, under the endogenous model, government need to cash out higher amount of support in terms of protectionist policy. It will provide the economy enough time to develop required technology and have economies of scale leading to possibility of long run growth.

Evidence Of Growth In Singapore:

Singapore is one of the fastest growing nations in the Asian region, which is mainly lead by the focus of government on the industrialisation and rise in export. The country has been facing an average growth rate of 10% annually since 1970 making it one of the highest growing economies (Van 2016). According to the figure 1, it can be seen that over the period there were various ups and downs in the economy of the country; however, since 1970 it has performed well to keep the economy on ideal trajectory of growth (Leigh and Blakely 2016). Key strategic decisions of the country like export led industrialisation rather than focusing on import substitution and going after specific MNCs to enhance the FDI inflow has benefited the economy largely.

With series of structural reform since 1990 to 2015, Singapore has enhanced their per capita GDP from 3389 USD to 52600 USD during the year 1970 to 2013. In addition to this, the country has increased level of government expenditure and annual prospect of 12000 job creations leading to better endogenous growth of the economy.

China is one of the rapidly growing newly created industrialised economies, which is acknowledged as the economic miracle owing to their rapid growth during the last three decades. During 1970s China was a poor country with most of the population employed with primary sector and the lack of Foreign Direct Investment (FDI) has constrained the ability of the country to grow. However, during 1980s staged reform of the country has put it where it is now; the fastest growing economy in the world (Morrison 2014). According to the statistics, China high rate of government intervention that has helped the country to have wide range of growth.

The government of China is poised to attain high level of employment and developing skills of the population in order to have sustainable growth in future. With ever rising job opportunity and growing scope of further industrialisation, the country has become one of the fastest growing economies. according to the figure 2 country has rapidly grew from 2000 to 2010 and since then it has falling growth rate meaning the government is focused to enhance the share of endogenous factors in the growth.

China and Singapore are two rapidly developing countries in the Asian continent. According to statistics, Singapore grew at a rate of 10% on average during the year 1970 to 2010 making it one of the fastest growing countries in the world (James 2015). On the other hand China during the same time frame grew at a rapid rate. During 1970s, China was facing whopping 19.3% annual growth rate, which was unstable in nature and moving forward during 2010 it had annual growth rate of 10.6% (Chow 2015). According to the available literature, both China and Singapore has showcased rapid growth during the 1970s due to their substantial growth over last decade through depending upon the exogenous variable. However, soon it becomes clear for both the countries that their rapid growth strategy is not sustainable in nature and subject to external factors. In the case of Singapore it has been observed that oil shock of 1985; Asian Financial Crisis of 1998 has shaken their economy to the core (Elson 2016). When it comes to China, then it can be seen that successive Chinese government has failed to bring in industrialisation in the country until 1978 (Van 2016). Till the 1980s China remained constrained by the Malthusian Poverty Trap and then government focused more on the endogenous factors to gauge the situation considering the model of western economies (Popov 2014). Both the countries post 1980s started to provide focus greatly in the endogenous factors like infrastructural development, skill development through well established education plan, R&D, innovation and generating human capital (Lee 2016). According to same source, during 1990s China grew with a humble gradualist approach with its economy that has germinated a well structured industrialised economy. Impressive economic performance of the Asian countries over the last three decade is no more over yet. According to the forecast of Rodan (2016), growth of China and Singapore is highly potential and their endogenous growth strategy of past is germinating fruitful results in present.  Singapore is now posed to enhance their export drive industrialisation banishing the import substitution policy and China aimed to attain a full employment level and enhance the per capita income. This clearly highlights the level of focus of both the countries on endogenous variable for growth and it also supports that growth stories of the selected countries can easily be explained in the light of the new growth theory.

Conclusion:

Endogenous growth theory is one of the most suitable economic models that can provide sustainable growth to the economies. From the above analysis it has been seen that focus of the Asian economies has been moved from exogenous to endogenous growth model. It has not only provided them scope of to face high growth rate, besides this it has made the growth of these countries sustainable in nature. At present day China and Singapore as facing highest growth rate around the world owing to their investment in endogenous factors like education, human capital, innovation and R&D. When most of the developed economies are struggling hard to catch up the pace of development or falling behind further both these Asian countries are cannon balling the market with their ever rising scope of producing new goods and services. Thus, it is true that high rate of growth of the newly industrialised Asian economies can easily be explained with the endogenous growth theory.

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