I Aim To Write An Essay.

Aim

This assessment challenges students to collect, compare and contrast economic data on two countries (one rich, one poor)  and develop a multi draft essay and presentation that includes two policy recommendations for the poor country on ways it might try to improve its economic performance and social welfare.

1. Students select two countries (one poor; one rich) that they are interested in.

 2. Write the essay using the following structure

Content

Part A: Theoretical overview                                     

Comprehensive overview of economic growth theory  (describing the role of factors of production, technology and fundamentals in economic growth disparities).

Part B: Application of theoretical insights toa pair of countries (one poor; one rich)                 

Collect and present relevant data (aim for 20 years of  data) to describe developments in ‘key variables’ from Part A for both countries in order to understand differences in economic growth and sustainable development between the two countries.

Part C: Make economic policy recommendations to the poor country.

Draw Parts A and B together, i.e. make two policy recommendations (using your findings in Parts A and B) to the poor country, which should help to improve its economic growth.

Part A: Theoretical overview

Economic growth is defined as the rise in overall output of an economy from one time period to another. This means that production of goods and services in the economy has increased the overall output level. Economic growth can be effectively measured from real or nominal terms with adjusted rate of inflation. The aggregate economic growth is evaluated in terms of gross domestic product (GDP) or gross national product (GNP) through alternative metrics. It is an important measure to study the performance of an economy with respect to its efficiency can improvement by comparing data of two periods. The economic growth is referred to as the rise in the aggregate production level with improved economic condition as measured in terms of output and income.

As the productivity goes up when there is an increase in economic growth, sometimes it can be related with increased average marginal productivity (Panayotou, 2016). The marginal productivity is described as the output gained with the addition of one unit of labor when all the other parameters remain constant. When the productivity of the economy is considered, the average is taken which is evaluated by summing the total productivity with the number of productive persons. When the growth of an economy goes up, if indicates a good economic performance which is effective for an economy to sustained for a longer time period. The reason is that when the output or the average marginal productivity goes up, the production grows up that is needed for generating local and global demand. Moreover, as income goes up, the demand for goods and services goes up which creates employment opportunities for a large group of people.

As a result, the profits pf the companies goes up and they are able to make profits provided that they can supply goods in bulk amount at prices that devices consumer demand or they have a strong consumer base that is effective for the generation of adequate profits (McCombie & Thirlwall, 2016). The goal is the change the price of goods such that they are able to supply the goods at a price level that is flexible for generating huge demand in the market place and enhance the level of economic profits. However, economic growth raises the inflation rate due to increased demand for goods which push up the average price level of goods and services. This is why economic growth is measured from the rise in real GDP for an adjusted inflation rate. The inflation rate keeps changing with respect to rise in demand and the expenditure on goods and services by the people of the economy. A minimum amount of inflation is good for the economy which studies the demand for the goods and services which is effective for the economic growth. On the contrary, if the prices rise at an increased rate, the purchasing power of the people would go down (Law, & Singh, 2014). This can induce people to use more of foreign goods rather than using domestic goods as the prices of domestic goods has increased. As a result, value of imports can rise with respect to value of exports which can create a deficit in foreign trade.

Part B: Application of theoretical insights to a pair of countries (one poor; one rich)

The growth or improvement of an economy is measured by the economic growth which indicates the income level and the standard of people. This is used as one of the effective measures in order to draw a comparison between two countries about their economic condition and its performance as to identify which economy is performing better. However, the evaluation of economic growth and the estimation of economic performance in terms of GDP growth has several drawbacks (Cecchetti & Kharroubi, 2015). This is because the growth rates are compared with the usage of GDP to population or per capita income. The growth rate are determined from several factors such as productivity or factors of production, technology and innovation, human capital and the structural change.

The factors of production are related to productivity which are land, labor, capital and entrepreneurship. The production factors are the inputs that is required in the process of production or manufacturing goods and services. Decreased cost of factors of production leads to an increase in the production level due to lower aggregate production costs. Businesses requires a proper place for production which varies from sector to sector such as mining, manufacturing, retail and service sector. Rents are different as retail industry needs land in cities, mining is only possible in mining regions and industries needs ample places for production. Availability of cheap skilled labor raises production which will be profitable if the labor costs are low.

Generally developed economies have skilled labors and developing economies have plenty of cheap and unskilled labors (McCombie, & Thirlwall, 2016). Having skilled labors is effective for the economic growth as they use modern production techniques which can lead to efficiency in production with less resources and time, although skilled labors have a high cost due to high wage rate. On the other hand, plenty of cheap labor are available at low wage rate which can raise production by using traditional techniques which takes more time. There is trade-off between plenty of cheap unskilled labors and small number of skilled labors. They are effectively allocated with respect to the sectorial needs and production processes n each industry or firm (Law, & Singh, 2014).

Capital is another important production factor which are the raw materials, equipment and techniques used in production. This is related with human and working capital where human capital is the skill and knowledge of the workers and working capital are machines and raw materials. Developed countries has large number of skilled labor due to quality education and research which makes it effective for the operation of large number of industries who use modern production techniques (Cingano, 2014). The efficiency of unskilled labors are increased with training and provision of knowledge which is significant for the production of large number of goods in the most effective way. Availability of raw materials varies among economies such that for mining the economy needs to have mining areas, for extraction of oil it is important to have oil mines. All these resources availability is not same which can affect the production and therefore the economic growth (Cecchetti, & Kharroubi, 2015). As a result, several firms try to import raw materials from other economies who has adequate resources to provide at low cost. Similarly, technologies are transferred or bought from other economies in order to raise the efficiency in production. However, both of these factors can be essentially affected when there are restrictions on the foreign trade which can make imports costly for production (Jones, 2016). Entrepreneurship is the ability to run a business by using the other factors of productions who allocate the factors of production efficiently in order to extract greater profits,

Part C: Make economic policy recommendations to the poor country

Technology an innovation is regarded as the most effective parameter for discussing the economic growth of an economy. The size of an economy has an impact on the economic growth. Technological advancement leads to an increase in economic growth when other factors does not change. The usage of advanced technology can increase the production level in a short period of time and with low cost which raises demand for the goods and raises the income of the domestic economy as income flows from foreign to domestic economy (Khan, Nallareddy & Rouen, 2015). Technology serves as the primary source for economic growth as rapid growth can be achieved with technological advancement. Developed economies have increased modern technology with respect to underdeveloped or developing economies.

Modern technology raises industrial production which serves as the base for the growth of tertiary sector. Technological advancement has led to the growth of service sectors which has improved the efficiency of other sectors (Matejovsky, Mohapatra & Steiner, 2014). However, if the rate of technological advancement remains constant, there would be no change in economic growth. When economies adopt to modern technologies at a faster rate, the economic growth goes up at an increased rate.

As mentioned, economic growth is measured with respect to the average income level which is a good measure for economic well-being. Economic development and sustainable production plays a key role in the economy. Moreover, high average income cannot ensure the standard of living when there is an increase in inequality (Berend, 2016). Equality means equal distribution of goods and services to all individuals in the society. The average income can have a high value if some people has very high income and other people does not contribute anything to average incomes. Moreover, private companies trend to use unsustainable production techniques in order to lower the production cost and enhance the profit margin. Calculation of GDP is not designed to consider the welfare of the economy such as usage of renewable resources for production or other sustainable methods has not value. It only considers increased out and average income level (Masud & Haron, 2014).

Per capita income or average income can be misleading as per capita income can increase with the production of goods that is not healthy for human consumption such as items of addiction like alcohol, cigarettes and liquors. Firms producing items of addiction has increased profits as the demand for additive items are inelastic in nature such that a price rise does not have much effect on the quantity demanded (Memili et al., 219). Demand is potential high for these goods which raises the output level. However, an organization that provides quality education at low prices or provides treatment at low price can have a less profits. However, economic growth is more for the firm who provides items of addiction mad low for organizations offering education at low prices. This creates a disparity in the measurement of GDP as the value of inequity is not taken into consideration. In many developing economies, there is a high level of inequality although the growth rate is potentially high (Greiner, Semmler, & Gong, 2016). The economic problem of scarcity will not be solved when resources would be effectively allocated. Moreover, productivity effectively varies across sectors such that mote sectors have high employment opportunities which rises the income level in such sectors in companies to sectors which has slow growth and low employment opportunities. GDP growth rate does not consider parameters like happiness which is crucial for people to have a good life irrespective of the living standard (Uwubanmwen, & Ogiemudia, 2016).

Economic Growth

On the other hand, economies with high economic growth has a high standard of living, increased living cots with increased price level which makes it difficult for people from all societies to balance with the living standard. This creates a greater disparity in the growth parameters. Population demography plays a huge role while considering the GDP growth. A country with high population index tend to have low economic growth as the estimation of per capita income gets divided among all people in the economy (Baker, Merkert, & Kamruzzaman, 2015). This difference is significantly high when an economy has high number of old and infant population who does not contribute to the output.  

Malaysia is a developing economy which is the third largest in Southeast Asia. Malaysian economy has a high labor productivity with respect to its neighboring countries. The economic growth in Malaysia in 2018 was 4.742 which is significantly high due to large number of knowledge based industries. Malaysia has adopted the cutting edge technology in digital economy and manufacturing which is has raised the growth rate of GDP. Although, Malaysia is denoted as a developing economy, the standard of living is affluent. The economy has an average per capita income of about 11,137 dollars with a value of 32,881 dollars as the Purchasing Power Parity index. The inflation rate is about 2.1 in Malaysia and has 15 percent of people living below the poverty line with a unemployment rate of 3.36 (Salahuddin & Alam, 2015).   The reason of such growth is due to its economic export oriented manufacturing and domestic service sectors.

The national income tax is relatively lower with respect to its living standards with a high availability of local food. The health care systems are subsidized by public health care officials such that the health care system is available to all people in the economy. This serves as an important metric for the quality of living in Malaysia. Transport fuel price is available in large amounts at very low price. There are many social welfare benefits provided to the people of the economy since 2011. Malaysia has adopted to a new market industrialized system which is relatively open and state-oriented which effectively allocates goods and services across all people in the economy (Azpitarte, 2014). This can be significantly used with respect to other parameters which is effective for the economic growth and availability of goods and services in the economy.

Factors of Production

Australian economy is highly developed with a GDP value of 1.89 trillion as measured in 2019. The economy was recommended as the country with the largest medium per adult in 2018. The economy of Australia grows at the rate of 2.7 percent as measured from data in 2018. Australian economy is based on the export and import of goods and services. The most effective sectors of Australia are service, construction, manufacturing and mining. The inflation rate is about 1.4 in Australia which is significantly lower than the Malaysian economy. Like Malaysia, the percentage of people below the poverty line is below 13 percent. The unemployment rate is about 6.2 percent which is very low as compared to that of Malaysia (Salahuddin et al., 2015). The service sector is the most effective sector in Australia which employs about 62.7 percent of the Australian labor force. The tourism sector is effectively important as it derive huge profits to the Australian economy which comprise of 64 percent of goods. Australia has huge amount of natural resources which makes it effective for the productivity of the mining sectors. Australia has over 66.58 billion in foreign assets which serves as an effective measure for the economic well being.

The trend in GDP growth in Australia and Malaysia is shown in Figure 1 from 2000 to 2018. This is important in comparing the performance of two economies with respect to significant changes in the market conditions of the two economies. The trend shows that economic growth is more for Malaysia and less for Australia as measured in terms of real GDP. The growth rate was very high in Malaysia during 2000 which dropped significantly by 5 percent in 2001, which again increased in 2002. This time, the growth in Malaysia is more than that of Australia which effectively increased due to the rise in manufacturing sectors which raised the production of goods and services in the economy. The rate remained high and revolved around 5-7 percent which shows that the economy performed effectively (Kotey & Sorensen, 2014). Only in 2008, Malaysian economy faced huge problem as the growth rates dropped by 10 percent due to the great financial crisis which lowered the price of goods and services in the economy and deteriorated the economic growth. Malaysia was successful in recovering the downfall in 2010 due to potential growth and significant outcomes. This shows that Malaysian economy was significantly based on export volume such that any impact on the financial environment affected the growth rate in Malaysia. Australia on the other had did not face much fluctuation in 2001 and 2009 respectively when the Malaysian economy faced significant fall in output (Rubin, Aas, & Stead, 2015). This shows that economic growth in Australia is very static and does not fluctuate much with financial crisis and other parameters. However, it is a very contrasting factor that Australia being a developed economy has lower growth rate than Malaysia who has high growth rate. This shows that Australia has been effective in balancing economic conditions with respect to significant changes in the market as compared to that of Malaysia. On the other hand, Malaysia has high economic growth in comparison to Australia which proves that economic growth is not an effective measure for the performance of the economy (Cumming & Joha, 2016).

Technology and Innovation

The reason is that Malaysia's overall development and other macroeconomic parameters are like other developed countries. The overall living standard is not like other developed economies. The income level is high with respect to the middle income countries (Salahuddin, Alam & Ozturk, 2016). Yet, Malaysia is not considered as a developed economy due it living standard with low transport cost, low tax systems and less skilled workers. There are large number of industries in Malaysia which has significantly created employment opportunities for foreign workers. As a result, it uses less skilled cheap labour which enables them toh provide goods at low prices. The reason is that provision of low wage enables firms to lower the overall production cost which helps them in the process of economic growth (Siddique, Selvanathan, & Selvanathan, 2015). This helps the firms to produce goods at a low cost with respect to the factors of production such that they are able to generate maximum profits. The economy of Malaysia is dominated by low skilled workers. In a report made by  , it was evident that among 100 jobs provided in Malaysia, 89 was for the low skilled workers. Only 4 jobs wer for skilled labour, remaining were for the medium skilled workers.

The low skilled workers helped in increasing the economic growth. The unemployment rate in Malaysia is very low. Since 1990s there has been an increased level of foreign workers from Indonesia, Philippines, Thailand, Bangladesh and other south-east Asian countries. Population is low in Malaysia which is inadequate to raise the output level (Haseeb et al., 2014). The low skilled workers were mostly hired in agriculture, construction, manufacture of wood, paper-furn, chemicals, transportation of equipment, fishing, mining, manufacturing of metals, retailing. These sectors provide jobs for the high skilled people which is effective for the low population of Malaysia for high posts such as managers and other operation officers who looked after large number of low skilled workers. Malaysia uses labor intensive production techniques with unskilled labor. This has raised increased employment opportunities for the foreign workers who were hired at low wages.

The production level is very high which has raised the per capita production and raised the value of exports which serves as the key measure for economic growth in Malaysia (Lee & Ng, 2015). The flow of labor to Malaysia is very easy due to the trade system such that Malaysia has about six million foreign workers. On the contrary, it has been said that Malaysia has over 2.5 to 3.7 million illegal foreign workers who were exploited with low wages and long working hours. Even in the sectors which required skilled worked, the migrant workers were employed in jobs which needs unskilled workers. As a result, Malaysia maintained a high level of production which has raised the aggregate income of the Malaysians who were employed in jobs which required high skilled labor (Albiman & Suleiman, 2016).   

Inflation

This helped in the creation of jobs for the more skilled Malaysian workers at the cost of low skilled jobs for migrant workers. Australia, on the other hand uses highly capital intensive technologies that is significant for high skilled workers who use modern production techniques. Most of the jobs are dominated by high skilled people in finance, service, retail industry and mining. Low taxes, cheap transport and availability of cheap local food allows the migrants to manage their living in Malaysia (Lean, CHONG, & HOOY, 2014). This is why Malaysia is still regarded as a developing or less developed economy in comparison to Australia whose growth rates are much lower than Malaysia. Therefore, it is significant that economic growth is not an effective measure of economic well-being, although high output or income level helps in investing in modern technologies and adopt capital intensive production techniques.

Therefore, there are several ways by which Malaysia can shift itself from a developing economy to a developed economy with increased growth rates. Malaysia can adopt several economic policies in order to be a developed economy with respect to high economic growth. The problem which is preventing Malaysia from being a less developed economy is due is low living standards with respect to large number of low skilled foreign migrant workers who are hired at low wage (Sohag et al., 2015). They use old traditional production techniques which creates employment opportunities for the people needs to be transformed with modern methods of production.

Malaysia needs to lower the number of less skilled labors into skilled labors which requires more number of employment opportunities in the less developed economy. Malaysia can adopt the policy of quantitative restrictions in order to control the number of foreign migrants entering the economy of Malaysia (Islam et al., 2016). This is referred to as a type of price mechanism such that quantitative restrictions will enable the Malaysian firms to adopt to other methods of production which is effective for improving the economic standard in Malaysia. Moreover, there are illegal employment practices in Malaysia due to easy entry of foreign immigrants.

Imposition of quotas against foreign migrant workers prevent the Malaysian firms to stop illegal employment practices and hire low skilled workers at low prices (Ahmad & Othman, 2014). Imposition of quotas will raise the wage rate at which workers are hired or the government can make certain policies that regulate the entry of foreign migrant workers. There can strict tax systems for the migrant workers which would make it less effective for the migrant workers to work at low wage and balance the economic costs. Another policy is designed for improving the economic scenario of Malaysia that is related with the cheap skilled labor. Provision of goods and services with increased production can be done effectively if the Malaysian firms adopt to modern production technique. This means that firms will use modern technology that raise the efficiency level (Abidin, Bakar & Haseeb, 2014).

Equality

Investment in capital and research was needed which can be given by the government such that firms are able to use modern production technique with the usage of latest technology. This would enhance the productivity of firms in the most effective way. For this, the government needs to invest in research and technology and support firms for adapting modern production techniques. They must encourage firms to provide proper trainings for the unskilled workers such that the efficiency per person goes up which can significantly beneficial for the Malaysian firms (Foo, 2017). Technology can be bought from other economies that will improve the production and efficiency level with respect to other production factors which helps to drive adequate profits from sectors like manufacturing, fishing, and construction respectively.

Thus, in order to convert the economic structure of Malaysia, the government must impose quotas and restrictions against the entry of a low skilled migrant workers which raise the wage rate and living standard of the migrant work (Kassim, 2017). Companies using less skilled labors should shift the production towards capital intensive production techniques by investing in capital and research and buying modern machinery from foreign countries.  Moreover, trainings should be given to the less skilled workers about adapting modern production technique and technologies which raises per capita production and income of the less skilled workers (McCombie & Thirlwall, 2016). This will raise the employment opportunities for the skilled workers from other economies. As a result, the standard of living can significantly improve in Malaysia which is effective for transitioning the economy into a developed economy by balancing the economic growth which is mainly generated from the low skilled migrant workforce. 

References

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Average Income

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