Category: Economic Development

Japan is a highly developed first world country and is currently (2019-2020) ranked the third largest economy in the world after China. Japan has gone through major economic success and challenges through the years but its ability to learn, adapt and combine the skills and knowledge acquired has enabled it to always hold and avoid. The paper below looks at the various changes that the Japanese economy underwent from the early 1600s to date. It also looks at the role the political system played in shaping Japan’s economy and how it also changed to adapt to the world order.

In the early 1600s to the mid-1800s Japan’s economy was characterized by gradual economic growth. This was the period during which there was growing urbanization, spread of popular education and rise of the merchant class. However, a huge gap existed between Japan and western powers due to its isolation from the rest of the world. In 1853 Commodore Matthew Perry and a naval unit of the U.S. Navy went to Japan and demanded that Japan open commerce with the West. This resulted in unequal treaties forcing Japan to concede its economic and legal powers to the westerners. However, there were some middle-ranking samurai who were not willing to let this be the fate of the Japan so taking matters into their own hands they overthrew the ruling Shoguns government that could not defend its people from the westerners and in 1868 and set Japan on a new path of change. These new leaders studied and adopted the economic, political ways of the westerners that best suited them which propelled the industrial growth in Japan. The constitution was officiated in 1889 which saw the centralization of power as the accountability parliamentary government was left to the emperor as opposed to the people. During this period a national military was established and a mandatory education system enforced to teach the citizen skills and to foster patriotism to the country.

The period from 1890 to 1930 saw Japan industries grow that is the light export industries like textiles, which were necessary to pay for the raw materials needed from abroad, and also in heavy industries like steel and ship building. More people moved into the factories and offices which resulted in the growth of the cities. The leaders in Japan continued to pursue modernization and equal treaty rights and in 1894 it succeeded in revising the equal rights treaty and regained its parity with the western powers. Japan gained its first colony –Taiwan in 1895 and in 1902 signed a treaty with Great Britain which meant growth in its international status. In 1904-1905, Japan won a war against Russia and this expanded it empire. Japan continuously grew and even allied with the westerners in the World War I, but gain no political or territorial gains which felt like an insult to them. This insult was further perpetuated when Japanese were barred from immigration. 1929 Japan was hit hard by the Great Depression as it was mostly dependent on foreign trade. The impressive economic growth the country had gained started to deteriorate. Social problems were now on a rise and this was mostly felt in the country side as most silk farmers who had planted the crop in hope of exporting it didn’t have a market for it as a result of crash in the silk and stock markets.

In 1931 Japan was confronted with an accomplishment they could not ignore when the field commanders in Manchuria used a local provocation as an excuse to put all the Japanese territory in Manchuria under control of the military. The military-industrial machine went into high gear, pulling Japan out of its depression as it continued to expand Japanese hegemony across the Far East. As Holland, France, and Germany were enveloped in turmoil in Europe, Japan looked to replace them in Asia. Japanese troops invaded China in 1937 and French Indochina in 1940, setting up puppet governments to administer areas too vast to be controlled by the Japanese armies. The United States was alarmed by the increase in power of the Japanese and gave them an ultimatum of leaving China or steel and oil supplies would be cut off from Japan. But Japan was not having it and it organized a surprise attack on Pearl Harbor in December 1941, where most of the United States troops were and this took the United States a year to recover from which bought Japan time. On recovering the United States started gaining back most of the islands that Japan had colonized. In 1945 United States dropped two atomic bombs on Japan one Hiroshima and the other in Nagasaki which left the country devastated and in shambles resulting in its unconditional surrender. Before the Second World War Japan had spent most of its strength trying to gain power through war but in the Second World War Japan was defeated, and everything, they had built, destroyed in the world war. Even though the Japanese had been left in abject poverty and the factories and industries left in waste ruins the country was able to start over.

The United States came to its rescue and led the Allies in the occupation and rehabilitation of the Japanese state. Led by General Douglas A. MacArthur they set forth a series of reforms that helped the country get back on its feet and also make it democratic so that the people would never be led into aggression war again. In 1947 a new constitution which transferred the power from the emperor to its people was established and democracy became popularized. The Korean War that happened 25 June 1950 – 27 July 1953 was a major contributor to the economic development of Japan, as Japan re-established most of its wartime industries with the help of the United States to help the US forces in this war. The war saw the turn of Japan from the economic depression that had crippled the country. In 1952 the occupation ended, and by 1955 Japan had become stable politically and had regained its prowess in production. Through the 1960 to the mid-1980s Japan maintained a stable political system and also an economic growth averaging around 10% every year. Japan now grew to be the third most politically and economically strong country in the world falling behind the United State and the Soviet Union. Its industries such as steel, chemical, and technological continued to boom and face enormous growth. The Japanese enjoyed prosperity and the benefits of a mid-class thriving society.

In 1989, the emperor who had held the country together for the longest era died. 1991 marked the end of the cold war which meant the end of a global geopolitical system that had provided Japan with the shelter it had needed within the American premium. This was followed by lengthy recession two years later. Japan’s was failing, the markets were collapsing, the businesses were plagued by debts and there was hardly any investment into the country. The unemployment rates were high the gross domestic product was declining, industries had minimal output. This condition has plagued Japan over the last two decades and it has never quite fully recovered. In 2015 it had another recession and in 2020 the same happened again due to the effects of coronavirus but has still maintained its position as the third largest economy in the world.

In conclusion, Japan has gone through so many challenges as a country from being the most technologically advance country in the world to becoming a country crippled with debt and high unemployment rates.

Zafar Iqbal and Ghulam Mustafa Zahid from the ‘Pakistan Development Review’ worked on the ‘Macroeconomic Determinants of Pakistan’s Economic Growth’ in 1998. The study explores the effect on Pakistan’s economic growth of some of the most significant microeconomic variables, such as education, physical growth and the budget deficit. A multiple regression method was used to analyze the period between 1959-60 and 1996-1997.

According to quantitative evidence, primary education and economic openness are essential factors for accelerating growth. However, the budget deficit, on the other hand, negatively linked to production and inflation. The study also shows that our best shot is to focus on domestic capital for finance, as external debt is also negatively linked to growth. In order to maintain economic development, the study focuses on coming up with long-term economic growth policies.

The findings indicate that real GDP growth and per capita income have a positive relationship with the labor-force ratio for primary school enrollment. It is concluded that primary education is the foundation stone for Pakistan’s growth. It is cretinously that the government should make every effort to provide everyone of age who wants it with primary education and then it can go off to the road of economic development. It has also been shown that physical capital is also a significant part of growth in any form, such as infrastructure.

The tests also conclude that economic openness has a positive relationship with growth, meaning openness to imports and exports of products. On the other hand, the study also indicates that the most dangerous factor affecting economic growth is the budget deficit, along with external debt, which suggests that lowering the deficit by cutting non-development spending and using only domestic capital to boost finances is our best shot for economic growth.

The 2004 research ‘Entrepreneurship Selection and Performance: A Meta-analysis of the Influence of Education in Less Developed Countries’ by Van Der Sluis, Mirjam Van Praag and Wim Vijverber offers an empirical view of the impact of education on entrepreneurship selection and the impact on less developed countries. It also indicates that a marginal year of education increases the company’s profits by 5.5%. Such returns differ by residence in urban rural areas, gender and the amount of agriculture in the economy.

More trained workers often end up in wage jobs and tend to do non-farm business instead of farming as well. Instead of self-employment, skilled women are more inclined towards wage employment.

The rate of female literacy in Pakistan remains poor compared to male literacy. Women have a poor proportion of social activity. The status of women in Pakistan is poor, especially in rural areas, because of social and cultural barriers. One of Pakistan’s strangest aspects is that the family is against educating girls in some places, particularly in northern tribal areas. The situation is most serious in NWFP and Baluchistan. The literacy rate for women is 3-8%. In the areas that provide education, several organizations have opened such schools. Unfortunately, in these regions, the government has not taken any steps or measures to encourage literacy for the education of girls. For women in developing countries and those living in urban areas, the benefits of additional years of schooling are greater. The results also show that uneducated women are mainly working in low-income sectors such as food or textiles. This implies that education allows women to work in a higher income setting.

The dissertation of Mamoon Dawood from the Institute of Social Studies was also of particular significance in 2004. The study raises a very significant argument regarding Pakistan’s education policy. It studies the impact of increased government spending on Pakistan’s higher education sector on the development of Pakistan’s economy, while ignoring the primary education sector.

Like every other developed country, our education strategy is to spend more and more on higher education at the cost of primary education. Compared to investing in the primary education market, higher education creates skilled labor that reaps higher rewards. Via foreign trade, which is very important for every developing world, these incentives are achieved. What this does is establish a wider divide between skilled and unskilled labor, leaving the economy in a very unbalanced situation like the one India is currently facing.

The study concludes that in order to solve the problem of inequality the government should have a very balanced approach towards spending in both the primary and the higher education in Pakistan. Like every other developed country, our education strategy is to spend more and more on higher education at the cost of primary education. Compared to investing in the primary education market, higher education creates skilled labor that reaps higher rewards. Via foreign trade, which is very important for every developing world, these incentives are achieved. What this does is establish a wider divide between skilled and unskilled labor, leaving the economy in a very unbalanced situation like the one India is currently facing.

In 2005, Mohsin S. Khan researched the subject of ‘Human Capital and Economic Growth in Pakistan’. The paper examines the factors explaining the relative growth of Pakistan. The economy of Pakistan has developed faster than other low- or middle-income countries, but some others have done much better in South Asia, the paper emphasizes what Pakistan has done to achieve the rapid growth and what it has ignored that has left it behind other more excellent countries. This paper focuses on the role of differences in the quality of human resources and its effects on the economic growth factor, in addition to the other obvious factors. Four variables with respect to human resources, the accumulation of physical capital, the efficiency of institutions, health care and education have been given special importance here. Here, human capital is the dependent variable, while the independent variables become these four variables. Then the dependent variable becomes economic development, and the independent variable becomes human resources.

These four factors have a profound impact on human capital development, and human capital development contributes to economic growth. These variables have a positive relationship with the development of human capital, and the development of human capital has a positive relationship with economic growth, which means that improving each of these four variables contributes to improving the economic growth of the country. The obvious reality remains that developing institutions and growing investment are critical keys to achieving economic growth, but that economic growth is greater for countries that invest more in human resources.

The research ‘The Information Economy and Education and Training in South Asia’ was conducted in 2007 by Michelle Riboud, Yevgeniya Savchenko and Hong Tan. This study assesses how education and training in human resources countries can have far-reaching consequences for developing countries in terms of job creation, sustainability of growth, productivity and poverty reduction. The study takes into account the growth of skills in South Asian countries and how the effects of the labor market are affected. Here, ability acquisition requires both educating and preparing individuals.

The main objective of the analysis is to record and compare developments in training and education in the area of South Asia and to observe the shifts in earnings and jobs purchased by them. The research uses surveys of families, business levels and labor force from the 1090s to recent years. The study focuses primarily on Pakistan, Sri Lanka, India and Bangladesh, compared with East Asian countries and other areas.

In some cases, it can be seen that the difference between East Asia and South Asia in terms of education can expand rather than close. It also concludes that countries’ development has been unequal and skewed in this regard. There has always been unequal improvement in education in terms of gender equality in this part of the world, but this disparity has decreased dramatically only in primary education, and a great deal of work needs to be done to address this gap in the secondary or higher education sectors. Highly skilled labor is in demand and policymakers should pay careful attention to the availability of education and training.

Later in the same year, Asma Hyder of the Pakistan Institute of Development Economics conducted a study of ‘Wage Differentials, Rate of Return to Education, and Occupational Wage Share in the Pakistan Labor Market’. This labor force survey is a nationwide survey containing data on demographics and job information from all over Pakistan. It assesses the inter-sectoral earnings of the three major sectors of the private, state-owned and public economy. The rate of return from various stages of schooling is analyzed in order to observe the pay difference in human resources.

Education is one of the most important variables that influence the wage gap and the wage gap and poverty gap can be substantially reduced by reducing the educational gap of the people of Pakistan.

Arshad Hasan and Safdar Butt worked on ‘The Role of Trade, External Debt, Labor Force and Education in Pakistan’s Empirical Evidence of Economic Growth Using the ARDL Approach’ in 2008. This paper studies Pakistan’s economic growth factors over the period 1975-2005, using the co-integration method of the Autoregressive Regressive Distributed Lag (ARDL). The ties between economic growth and external debt, trade, labor and education, along with their short-term and long-term consequences, have been addressed. Education, total trade, external debt and human capital are some of the determinants which affect Pakistan’s economic development.

Many research on economic growth have been performed before and there are many theoretical growth models, including Lucas (1988), Becker, Murphy, Nelson and Phelps (1966) and Rebelo (1992), Tamura (1990) and Sala-i-Martin and Mulligan (1992).

It is the growth of human capital in order to achieve economic growth. And education is the most critical aspect of building human capital. Therefore, education plays a major role in a country’s economic development and is directly connected to one another. In the past, research has assumed that education increases the capital stock of human beings, which enhances their productivity and ultimately contributes to growth. However, Bils and Klenow (2000) take the problem differently and find that different levels of education are associated positively with different growth rates.

However, the findings of the study suggest that a very positive relationship exists between a country’s labor force, trade and economic development. External debt has been shown to be related to economic development. This also showed that economic development in our country has not been used correctly and that this may also be one of the reasons for the country’s slow economic growth. The combination of sufficient debt flow, trade and a highly efficient labor force will contribute to growth and speed up the process of growth.

Later, in 2010, Babar Aziz, Tasneem Khan and Shumaila Aziz carried out a report on the effect of higher education on Pakistan’s economic development. The study estimates and uses the Cobb-Douglas output function to assess the effect of higher education on Pakistan’s economic growth from 1972 to 2008. In order to assess whether their enrollment affects the efficiency of the labor force, which in turn affects economic development, the enrollment of students in higher education has been studied. The results of the International Labor Office are taken into account in this report, which establishes that education is one of the most significant measures in the labor market.

The influence of higher education on changes in GDP is also seen as a very significant driver of economic development. So, GDP is taken as the dependent variable to see the returns of higher education on Pakistan’s economic development. The analysis also discusses higher education, registration and GDP as variables that are both dependent and independent.

The study concludes that higher education is having a positive influence on the development of Pakistan’s economy. Student participation in higher education implies more skilled labor, leading to a positive effect on GDP in turn. But education expenditure has to increase in order to get students to enroll in higher education, which allows us to conclude that these three variables, education expenditure, higher education enrollment, and the availability of a skilled labor force and GDP are all positively linked and are a very important determinant of Pakistan’s economy’s growth.

All studies show that education and economic growth have a clear positive relationship, and every state should invest time and money on the education sector in order to gain economic strength. Although there have been many studies in this regard, the reality remains that the availability of data is not up to Pakistan’s expectations and it poses many difficulties in carrying out a study and coming to a conclusion. In order to be able to make more accurate and precise decisions, a lot of work needs to be done in this regard. But we can be sure, even with the data available, that a great deal of work needs to be done in Pakistan’s education sector in order to achieve sustainable economic growth and prosperity.

North America and Latin America have always been two nations, which possessed fairly different characteristics. North America, the third-largest continent in the world, consisting of twenty-three countries, occupies the majority of the northwest hemisphere. Latin America, based in the southern part of the western hemisphere, consists of a group of countries and dependencies. Latin America consists of the entire continent of South America as well as Central America, Mexico and the Caribbean islands, where citizens in the area speak languages such as Spanish, Portuguese and French. From the early years of colonization to the present day, the two nations have differed in various ways, specifically in their economic performance. North America, in present-day, is considered to be one of the largest most successful economies in the world as it generates gross domestic product (GDP) values which range within trillions (US$) per year and experiences positive gross domestic product growth percentages annually. Latin America, on the other hand, has a less successful economy. However, this was not always the case, in the previous century, initially, Latin America seemed to be the prosperous nation between two and exhibited immense potential for growth and development. Latin America was a nation with an abundance of natural resources, such as sugar, rubber and metals this lead many to believe Latin America would be one of the greatest economies in the modern world. However, this view has changed drastically and Latin America currently has very low economic growth prospects. Several researchers have studied the case of North America and Latin America, to deduce why the economic disparity exists between the two nations. Some have argued, “North Americas priority in development was predetermined by nature” (Landes, 1998). While others believed that culture and institutions were the driving force that led to North America’s economic performance outweighing that of, Latin America. It is evident that, in terms of economic performance, these two nations lie on opposite ends of the spectrum. This paper aims to analyze and assess the various factors, which have led to the difference in economic performance between North America and Latin America.

Institutions

The economic performance of a nation is determined by a combination of factors, one of which is the presence of institutions. Institutions occur quite frequently in discussions about development, as they account for the differences that occur in the economic performances of different countries. Institutions such as rule of law, regulation, transparency, accountable government and low levels of corruption are all necessary for economic growth. The presence of institutions within a nation could be the differentiating factor between a thriving and prosperous economy, compared to an economy without economic institutions, which often lacks markets and is less prosperous. Institutions play a great role in determining a country’s long-term economic growth and performance. Institutions are defined as, “systematic patterns of shared expectations and accepted norms” (Chang and Evans, 2005) and can be further broken down into two categories, political and economic institutions. Economic institutions can be inclusive or extractive economic institutions. Acemoglu and Robinson (2012) describe inclusive institutions as institutions that “create inclusive markets” which allow individuals to participate in economic activities. Inclusive institutions are institutions that help propel growth and improve economic performance. These institutions encourage people to participate in economic activities. Inclusive institutions are considered to be institutions that contain public services, which provide people in the economy with equal opportunities to exchange and they allow for entry into new businesses. Understanding the definition of inclusive institutions and the impact they have on economic performance, helps one identify why a nation such as North America, performs better than Latin America, economically. Colonial Latin America, unlike North America, exhibits patterns of extractive economic institutions. Extractive economic institutions are institutions that mainly generate growth in the short-term but in the long run, ultimately result in poverty within the nation. These institutions are designed to “extract income and wealth from one subset of society to benefit a different subset” (Acemoglu and Robinson, 2012).

The economic institutions in the Americas, as presented by Acemoglu and Robinson (2012), highlight the main reason that North America and Latin America, differ in terms of economic performance. The economic institutions in North America fostered economic activity as well as economic prosperity. This was achieved through the secure private property rights, which consequently encouraged individuals to invest and increase production throughout their economic activities. Secure property rights, rule of law, public services and freedom to contract and exchange were characteristics that North America possessed as a result of their inclusive economic institutions. Colonial Latin America on the other hand lacked property rights for the indigenous individuals, only the Spaniards had access to private property, this ultimately resulted in very little investment from the indigenous population, as it became evident that in the presence of extractive economic institutions, resources would be saved for the elite (Acemoglu and Robinson, 2012). Acemoglu and Robinson (2012) highlights the role of institutions play in helping an economy grow. For North America, the presence of inclusive economic institutions created incentives and opportunities, which aided the nation to prosper through technology and education. The absence of such institutions is the main reason Latin America’s economic performance is below that of North America. Once institutions have been formed within a nation it is fairly difficult for poor nations to adopt good institutions. Sokoloff and Engerman (2000) states “once on a particular path economies find it very hard to fundamentally change direction because of the built-in characteristics of institutions”. This reinforces the reason why a disparity occurs in the economic performance between North America and Latin America. Latin America is unable to improve their economic performance, because of the persistent extractive institutions within the nation. This also accounts for the inequality Latin America experiences in the long run compared to North America.

States

States are necessary for economic growth and play a vital role in the economic performance of a nation. The state actively ensures that the country can meet the needs of the citizens through the effective use of resources and economic development. The state also focuses on ensuring that equilibrium is met between developing the society and the economic growth of the country. States come in several different forms. Large states, which have very little capacity and have large autonomy amongst the state and the society, are considered to be predatory states. Evans (1989) defines predatory states as states, which, “extract investible surplus and provide so little in the way of collective goods in return”. Predatory states often hamper economic transformation in a nation. Alternative states, which encourage economic transformation and development, are called developmental states. Developmental states are those that “foster long-term entrepreneurial perspectives among private elites”, these states “increase incentives to engage in transformative investments” in doing so, they lower the risks which may be associated with the investment. Developmental states possess high levels of autonomy and embeddedness. Evans (1989) highlights that the most effective states are those which have “autonomy and join well-developed, bureaucratic internal organization with dense public-private ties”. It is clear that the type of state that a nation follows will have an impact on whether economic transformation will occur or not.

Latin America is said to have followed a predatory state approach and as a result, struggled to catch-up to North America’s rapidly growing economy. After World War II, Latin America attempted to implement the developmental state as a means to tackle underdevelopment. However, when Latin America faced a serve debt crisis, which resulted in a financial crisis and hyperinflation, the developmental state ceased to exist. Instead, Latin America, followed the approach taken by North America, and became a Neo-liberal state. The neo-liberal state focuses on the reduction of government spending, increase of free trade as a means to increase the role of private sector in the economy.

Markets

Markets play a fundamental role in a nation’s economic performance. The right markets offer opportunities for investors to specialize in certain markets or services; nations are also able to diversify economic risks using markets. Markets were considered to be the most efficient way to make decisions about the allocation of resources. Although markets effectively allocate resources-markets, without institutions, often fail. When markets fail it is more often than not caused by failures in the institutional arrangements that support the market. There are four main economic systems that countries can subscribe to, these include, the free market system, mixed market system, command economic system, and the traditional economic system. While all four have particular benefits, Smith and Cannan (2003) advocate for the use of free-market systems. Free markets are known as markets; which have the ability to regulate themselves, through the supply and demand of goods and services. Smith suggests the laissez-fair approach towards markets. Smith believed that free markets could regulate themselves and needed very little involvement or regulation by governments.

North America, adopted the mixed economic system. The mixed system merges free markets with market systems, which encourage economic prosperity. In contrast, Latin America used a traditional economic system approach. This system relies on customs and history to make decisions about resources, production and the economy. This system seemed to be the ideal system at first, as it was a system that worked well for economies that dealt with agriculture. The traditional approach, however, does not foster economic growth and development. Many believe that the adoption of the traditional economic system played a role in Latin America’s lack of development and poor economic performance.

Social Conflicts

Economic growth and the economic performance of a nation requires political order and very little social conflict. A difference, which largely created and affected the inequality in economic performance within North America and Latin America, can be linked back to the colonizers of each of the nations. Although both nations were colonized, the British colonized one of the nations while the Spanish and the Portuguese colonized the other. The British colonized North America. Landes (1998) states that the British based their behavior mostly on trade rather than domination, this equipped the individuals with the necessary skills to become trade-minded and this ultimately assisted North America to achieve better economic performance. Latin America was conquered and colonized by the Spanish and Portuguese. The Spanish and Portuguese lacked governance and wealth-creation skills. The Spanish and the Portuguese focused on domination rather than trade and their main goals focused on increasing their empire, rather than growing the nations they colonized. Thus, the people of Latin America lacked the skills needed to truly develop the nations and achieve economic prosperity. This became evident in Latin America when war broke out throughout the nation, years after the nation gained independence from the Spanish and the Portuguese. The lack of governance skills, as a result of “autonomous institutions of self-government which only existed local level, and possessed heavily circumscribed authorities” (North, Summerhill, Weingast, 2000), meant that the people within the nation had no institutions of their own and had to create them without any framework to refer to for decision making, this often ended in conflict. This social conflict within the nation ultimately impacted the economic performance of the nation. “The instability imposed several types of costs. It diverted resources from economic activity and channeled them into caudillo armies and a variety of praetorian effort” (North, Summerhill, Weingast, 2000). North America on the other hand, experienced a different fate, the nation possessed a set of political arrangements, which ultimately provided the nation with stability after they gained independence and they were able to protect their markets from predation.

Conclusion

In summary, the economic performance of a nation can be a result of a various factors. The comparison of North America and Latin America finds that North America exhibits greater economic performance than Latin America. This is largely due to the presence of inclusive economic institutions in North America and the extractive economic intuitions in Latin America. The type of markets, social conflicts all resulted in the disparity between economic performance in Latin America and North America. Thus, North America in contrast to Latin America is a nation that exhibits: efficient markets, national institutions as well as political stability.

References

1. Hofman, A. A. (2000). The Economic Development of Latin America in the Twentieth Century. ECLAC.
2. Evans, P. B. (1989, December). Predatory, Developmental, and Other Apparatuses: A Comparative Political Economy Perspective on the Third World State. In Sociological forum (Vol. 4, No. 4, pp. 561-587). Kluwer Academic Publishers-Plenum Publishers.
3. Landes, D. S. (1998). The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor. New York: W.W. Norton.
4. North, D. C., Summerhill, W., & Weingast, B. (2000). Order, Disorder and Economic Change: Latin America Vs North America. Governing for prosperity, 19.
5. Robinson, J., & Acemoglu, R. (2012). Why Nations Fail. Crown Publishing Group.
6. Smith, Adam, and Edwin Cannan. (2003). The Wealth of Nations. New York, N.Y.: Bantam Classic
7. Sokoloff, K. L., & Engerman, S. L. (2000). Institutions, Factor Endowments, and Paths of Development in the New World. Journal of Economic perspectives, 14(3), 217-232.

The case for free trade in Georgia has been a prolonged process ever since the fall of the Soviet Union. It geographically resides in the Caucasus region and has seen an increase in free-market economics in a bid to increase foreign investment and economic prosperity (Erikson, 2018). It has utilized this liberalization of economics after the disintegration of the Soviet Union; after that, the state has struggled with economic and governmental reforms. Nevertheless, 20 years after the fall of the Soviet Union, the restoration of Georgia’s independence with the application of the minimum shock/maximum therapy technique has brought about some detrimental changes. However, the first-generation post-communist reforms of shock therapy were less fortunate but were corrected for a minimum shock/maximum therapy approach (Papava, 2011). Georgia has been following in the steps of Poland and the ‘Balcerowicz Plan’. The transition to a market economy, according to Papava (2002), has been a significant social and economic development in the last decade, and several theoretical works were dedicated to this notion. Be that as it may, and notwithstanding the multiplicity of research and investigative examinations, numerous issues still must be discussed, and some perplexing issues–regardless of whether hypothetical or viable–still need solutions. By and large, these issues are common ones, which turns the building up of some universal approaches for their answer into an issue of particular significance. At the same time, it should be stressed that the practice of using uniform approaches to form economic policies (with total or almost complete disregard for the peculiarities of individual countries) is still quite widespread. By the way, this is one of the reasons (not the only one) because of which theoretically faultless schemes often fail to implement successful reform programs (Papava, 2002).

The former President of the United States, Harry Truman, once said he was searching for a ‘one-armed’ economist because, often, when he asked them for advice on economic matters, they would reply with “On the one hand…, On the other hand…” (Mankiw, 1998, p.27). However, a true economist cannot be ‘one-armed’ as, according to Papava (1998), “while applying universally proved approaches to the process of post-Communist transformation, one has to attach due importance to specific national context as well’ (Papava, 2002). The issue with a transition to a market economy has been an underlying factor of several interesting studies. Professor Leszek Balcerowicz stood as a ‘two-armed’ economist and was not only a renowned researcher but also an equally distinguished politician and statesmen (Papava, 2002). So far, as the issue of post-communist transformation is concerned, Balcerowicz follows the economic teachings of Ludwig von Mises, Leader of the Austrian Economic School, and Fredrich A. Hayek and Milton Friedman, Nobel Prize winners in economics. It is therefore not surprising that the phrase, ‘democracy requires capitalism’, appears as the crucial element of almost all Balcerowicz ‘s works (Papava, 2002). It is a common understanding that democracy primarily implies freedom of choice. A choice is a prerequisite for competition, while competition is an impetus for development.

Other countries in the region had already commenced the transition, and Poland embarked on a so-called ‘shock therapy’ model of transition to market economy under the leadership of Balcerowicz in the late 1980s (Balcerowicz, 1994, 1995; Blanchard, Dornbush, Krugman, Layard, Summers, 1994; Johnson, Kowalska, 1994; Lipton, Sachs, 1990; Sachs, 1993; Schaffer, 1992). However, ‘shock therapy’ as a term is not exclusive to any case and has had alternating names, such as, ‘bitter pill’ (Adams, Brock, 1993, p. XIII) or ‘big bang’ (Kowalik, 1994, p. 116). Generally, it means maximization in the shortest time possible; radical transformations are aimed at liquidating (or at least mitigating) state budget deficits and furthering strict monetary policy under nominal money supply or fixed exchange rate conditions. The ‘shock therapy’ concept derives from the ‘orthodox scenario of macroeconomic stabilization’ (Papava, 2002). However, Kiselva (1996, p. 113) suggests that the objectives of liquidating (or minimizing) the state budget deficit and working to ensure a strict monetary policy under the conditions of nominal money supply or fixed exchange rates should be accomplished very rapidly within a minimal amount of time. Simultaneously, success depends primarily on political stability (Jochem, 1999). It should also be noted that the concept of ‘shock therapy’ is the same as the so-called ‘Washington Consensus’, the basis on which the IMF’s transformative approach is built (Papava, 2002).

The ‘shock therapy’ method was first applied in West Germany shortly after the end of World War II. However, according to Papava, (2002) “Post-Communist Poland breathed ‘new life’ into the ‘shock therapy’ method and was then implemented by some post-Soviet republics with different variations and different levels of success” (Stroev, Bliakhman & Krotov, 1999). For instance, if the ‘Balcerowicz Plan’ was developed in Poland, the ‘Marcovic Plan’ was developed in Yugoslavia, the ‘Klaus Plan’ in Hungary, and the ‘Kupa Plan’ in Czechoslovakia. It should be noted that each such plan was virtually the same as the other, except for some insignificant details in which they differed (Papava, 2002). In January 1992, Russia decided to join the countries that had previously implemented the ‘shock therapy’ method and Egor Gaidar, vice-president of the Russian government, took the lead. What was different from other countries in Russia, however, was the fact that no one officially used the term ‘Gaidar Plan’ in regard to the actual transformations. After a month, the ‘Balcerowicz Plan’ of ‘shock therapy’ was also put on the agenda in Georgia in its Russian variant.

As in Russia, the Deputy Prime Minister of the Government of Georgia, Roman Gotsiridze, accepted responsibility for this plan. Although, like Russia, the Georgians did not call it the ‘Gotsiridze Plan’. The rational question it raises in this respect is: Was Georgia prepared to implement this renowned reform method at the time? To understand this question, an important difference between countries with and without statehood on their limit to affect regulations must be looked at. States without statehood include countries of Eastern and Central Europe such as Bulgaria, Poland, and Hungary; on the other hand, the new sovereign states were conceived as a result of the disintegration of the former USSR, such as Czechoslovakia and Yugoslavia. It is necessary to distinguish those who succeeded their disintegrated predecessors since they preserved almost all state attributes (e.g., independent monetary systems, embassies, customs). Russia retained all the attributes of its precursor after the breakdown of the former Soviet Union, which is why Russia could be identified with the first group of post-Communist countries. As for the others, they had to start rebuilding their government institutions from ground zero. Georgia could be identified as one of those. Indeed, it had to tackle two problems that are nearly equal in complexity: establishing its government institutions and commencing on a transition to the market economy (Schmitter, 1994; Balcerowicz, 1995; Papava, 1996; Milanovic, 1998). The consistent utilization of a government’s budgetary and monetary institutions is required for the ‘shock therapy’ model. Therefore, it is not worth considering that the ‘shock therapy’ model would succeed in the absence of such institutions (Papava, 2002). This assumption can be verified by the case of Georgia, comparing the initial ‘Balcerowicz Plan’ (considered to be the classical model of ‘shock therapy’ and the most recent) to the plan implemented by Georgia, which was seen through the Russian lens.

To execute the ‘Balcerowicz Plan’, Poland was required to implement the ensuing concurrent measures (Papava, 2002):

1. Multiple increases in all types of prices and the deliberate encouragement of inflation with the aim of balancing the market.
2. Imposing stringent restrictions on individuals’ incomes.
3. Increasing interest rates dramatically and decreasing the amount of money circulating; increasing interest rates on savings and deposits in order to encourage people to save money.
4. Reducing expenditure on the state budget by limiting central government investments and stopping the subsidization of loss-making companies.
5. Distributing government bonds to liquidate the government’s budget deficit.
6. Establishing a taxation system in order to achieve uniform taxes.
7. Setting a uniform exchange rate of the zloty to the dollar and ensuring the convertibility of zloty in the domestic market.
8. Implementing new customs tariffs in order to limit imports and promote exports.
9. Within the limitations of the government’s actual capabilities, social benefits are provided to the groups that needed them.
10. Finally, the elimination of monopolistic structures and abandonment of bureaucratic interference into enterprises by the government.

Now we will compare the initial ‘Balcerowicz Plan’ with the Georgian implementation of ‘shock therapy’, to see to what extent it was implemented (Papava, 2002):

1. The price formation reform began in Georgia in the spring of 1991, when free prices were first enacted for certain types of goods. Since February 1992, many radical changes have been made to Georgia’s pricing system: government-controlled prices for a certain group of goods and services have been dramatically increased. This was all done in order to balance the market. If the consumer price index was 1,82 in 1991, it grew to 25 in 1992. We can, therefore, state that the first item of the ‘Balcerowicz Plan’ in Georgia has been adequately fulfilled.
2. In 1992, the Georgian government indexed the minimum wage and social benefits significantly. If indexing took place only once in 1991, in 1992, in the course of comprehensive price liberalization, income indexation was carried out six times. In 1991, the minimum and average wages were increased by 1.85 and 1.26 times, and by 13.14 and 17.94 times in 1992 compared to 1991, respectively. The government of Georgia has never taken preventive measures to control wage increases, such as Poland, where the wage increase of up to 2 percent of payroll would require the company under discussion to pay a penalty of 200 percent of the increase in wages, and increases over 2 percent would lead to penalties ranging from 300 to 500 percent. The wage growth rate and social benefits were lagging behind that of prices; it could, therefore, be recognized that item two of the ‘Balcerowicz Plan’ has also been implemented to some extent.
3. In 1992, compared with 1991, annual interest rates increased from 2% to 5%, and from 9% to 80% on demand deposits and up to 10-year deposits. However, even that rate of interest rate growth did not match inflation. However, it must be acknowledged that no interest rate increases could help to control the amount of money in circulation since the country did not have its own monetary system at the time. Georgia, at the time, was using the ruble of the former Soviet Union and the, only just established, Russian ruble. In the summer of 1992, the administration decided to ‘double deposits on an ahead-of-time basis’ (Papava, 2002, p. 9), especially on July 25, when the government declared that due to the devaluation of deposits, they would double by August 1, 1992. The people directly responded by rushing to banks to make more deposits. However, the government decided on August 1 to lengthen the doubled deposit period till August 10, 1992. A surplus obtained as a consequence of doubling may only be withdrawn after the expiry of a one-year period. However, it could be used without any restrictions for privatization purposes. Moreover, the privatization process was actually at a deadlock at the time. During the second half of 1992, it became significantly more challenging to get the necessary amount of Russian ruble bills from Russia in a convenient fashion. Besides, only Russia, of course, can issue Russian currency. The deposit accounts mentioned above were paid as salaries and pensions. Such conditions practically prevented the reformist government from regulating the amount of money in circulation. We can, therefore, conclude that item three of the ‘Balcerowicz Plan’ has not been fulfilled in Georgia.
4. The share of central government investments in accumulative state budgetary expenditure did not decrease in 1992 and fluctuated anywhere between 20% and 25% by 1992. Moreover, compared with 1991, the total sum of subsidies increased almost 5.1 times in 1992. However, the share of government subsidies in state budgetary expenditures in 1992 fell to 30.1% from 47% in 1991. This proposition is not sufficient to persuade us that the fourth requirement of the ‘Balcerowicz Plan’ has been met due to many increases in the actual number of subsidies.
5. In 1992, domestic government bonds were issued; they were only offered for sale in the fall of 1993. Besides, this was mainly done in order to replace the old bonds of the former Soviet Union with new Georgian bonds. As regards the use of state bonds to fill the government budget deficit, at that time, such a tool had not been used at all. Clearly, item 5 of the ‘Balcerowicz Plan’ had also not been implemented.
6. The reform of the tax system, following the demands of the market economy, began in the summer of 1991. Accordingly, item six of the ‘Balcerowicz Plan’ should generally be deemed gratified; nevertheless, it should be acknowledged that, as in many countries around the world, the optimization of the tax system in Georgia is a somewhat gradual process.
7. In 1992, Georgia did not have a national currency, so it was virtually impossible to attain item seven of the ‘Balcerowicz Plan’.
8. Uniform customs tariffs were established in 1992. Imports and exports were taxed by 2% and 8%, respectively. Of course, with this policy in action, neither exports could be encouraged nor imports controlled. That mere fact proves that Georgia did not enact item eight, either.
9. As stated previously, the government carried out income indexation in 1992, as it did in 1991. During that period, there was no particular social program for the benefit of low-income families. That is to say; the national social security model lacked a mechanism to separate social benefits by income levels. Under such circumstances, if wages doubled, for instance, the difference between low-income and high-income household earnings would also double. Indeed, the status of low-income families perished even further at the outset of general indexation. As a direct effect of this indexation in 1992, the real minimum wage amounted to only 86% of the wages in 1991. Since the 1992 income indexation program in no way helped achieve the objective of allocating focused assistance to the poor, we must acknowledge that Georgia has also failed to comply with prerequisite nine of the ‘Balcerowicz Plan’.
10. In 1992, the legislative and executive authorities of Georgia took the first decision to constrain monopolistic practices and promote competition. From the beginning, however, these decisions could not function adequately. Even though the Soviet centralized resource system had already collapsed in 1991, the practice of bureaucratic interference by the government with companies managed to survive. This suggests that item ten of the ‘Balcerowicz Plan’ has not been enacted adequately in Georgia.

The Georgian government, in its attempt to implement ‘shock therapy’, ended up with only three of the ten requirements being actually implemented. However, there was a major drawback since Georgia lacked a monetary system of its own at the time (Papava, 2002). The extensive anti-reform steps taken by the government ran for a year-and-a-half and defined the periods from 1993 to the first half of 1994 (Gurgenidze, Lobzhanidze, Onoprishvili, 1994). However, after 1994, Georgia reignited cooperation with the World Bank and the IMF. Although a significant factor in the resumption of the economic reform was aimed at filling the gaps left behind by the badly executed ‘Balcerowicz Plan’, which by that time seemed an achievable goal since Georgia had established suitable governmental institutions and more significant offices in the state were undertaken by professional economists (Wang, 1998).

All in all, the case for a free market in Georgia is a strong one because it is a post-communist state that is lacking statehood and significant governmental institutions. However, the ‘shock therapy’ method would not succeed in a state that is witnessing fruition, as Papava (2002) argues that the method worked in Georgia because the people of the state were experiencing an impoverished economic environment, which then, in turn, allowed them to accept such extreme governmental reforms. Georgia, today, has seen a large amount of foreign investment from countries and individuals from all around the world, trade deals with the EU, and a bite out of the Chinese belt and road initiative, proving that it is capable and accepting of the free market and globalization.

Bibliography

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21. Wang, J. (1998). From Coupon to Lari: Hyperinflation and Stabilization in Georgia. Caucasica. The Journal of Caucasian Studies, Vol. 1.

Poverty has no root cause. Success is the one that has. Heat is analogically a result of active processes; it has sources. But cold is not a result of such processes; it is just the absence of heat. Simply put, the great cold of economic stagnation is just the absence of economic development. Economic development transforms basic, low-income, national economies into modern industrialized economies by a dynamic interaction within local and foreign systems. The question now is not whether to integrate, but rather how does one effectively and efficiently integrate?

The word ‘development’ does not mean ‘catching up with the highly industrialized countries’. Most of every individual misinterprets economic development as a race. Development isn’t just externally motivated to some extent it is also internally driven. Japan went through a lot of peaks and valleys yet manages to stay on top after a long time. Although, Japan from the past has different manifestation from its present economy, both old and new elements coincide flexibly. Given their multi-layered identity, depending on the present or existing circumstances, different characteristics of the Japanese people and their economy can surface.

In the 19th century, Japan was classified as one of the weak countries in various aspects. Japan had a difficulty in industrializing its economy, yet according to Dr. Tadao Umesao, a Japanese anthropologist, somehow Japan succeeded albeit those struggles. He stated that the traditional view of Japan succeeded as a backward country, a country that does not have modern industries and machines, is incorrect as it is also later on proved after the post-war era until the present days.

During the Edo period, the foundation for the future industrialization and modernization were formed. From political unity and stability, applying the class society ruled by samurais, farmers, craftsmen, and merchants respectively. And a centralized system of the government having daimyos pledged loyalty to shogun and disobedience is not tolerated with ritual suicide and family termination are done as a punishment. Furthermore, Han’s promotion of local industries, development of agriculture and handicraft, transportation, finance, commerce, and education are also upgraded resulting in to increase in power and also cultural development, all under the government of the Tokugawa Shogun.

Moreover, in the Meiji period, a total switch to foreign systems occur which happens to be the way in modernizing Japan’s economy. From Tokugawa (Edo period) to the Meiji period, Japan transitioned to being the first Asian industrialized nation. With a strong government under an emperor and Fukoku Kyohei – a slogan meaning ‘rich country and strong army’, Japan adopted the open-door policy, rapid Westernization and industrialization supported by the government. Japan hires foreign advisors from hundreds in any year to decrease in officially contracted foreigners and an increase in private hired ones to teach English in universities.

Despite the succeeding modernization and pre-war era, it is predicted that there would be a huge bonanza to the Japanese economy. Given the severe shortages of high-quality machines and industrial materials, Japan succeeds as the global demand shifts. This is because their products, despite its quality, could be a substitute for the European products which became unavailable during the post-war era. Japan studied its strengths and weaknesses well enough which led to recognizing their opportunities and preventing threats to their growing economy. Because of the sharp rise in demand, Japan manages to get out of the pre-WWI balance-of-payment crisis.

Nowadays, industrialization is more dynamic and transferable with great leadership and ideas, there are various efficient ways in developing an economy that is fitted in a certain country. Japan did a great job of accepting their flaws and used it to improve upon themselves. Starting internally to externally being influenced and be an influence on the other developing countries. Nevertheless, Japan may be a model or a guide to an accurate economic development, but one should always remember that in a different country there are also different ways and different possibilities to consider. Can a developing country attain a legitimate economic development if graft and corruption are existing? If the government isn’t aware of some major problems? Or even in a simple event of prioritizing? A country could if the government would and its citizens won’t be misunderstood.

Texas being the second largest state of the United States of America in terms of area and population was once considered as a mediocre, agricultural state after it was granted freedom from Mexico. Fortunes changed for Texas in the 20th century, and a massive increase was recorded in the economy of the state. Firstly, there was a massive increase in the oil industry then and afterward by its broadening into petrochemicals, aerospace, computers, and many other industries. Thus, making it a major destination for business and forcing people to migrate for a good living. We cannot deny the sincerity of the government which made sure the state gets not only economically strong but also socially. One of the significant achievements of the Texas government this century has been to keep the tax rate low. At the same time, we cannot deny the fact that low tax rate can cause difficulties to face the future challenges. Keeping the next generation in mind the government needs to create a favorable business plan that does not hurt the economy. The unbalanced policies of the government can boost the economy but hinder the health, welfare, environment and education rate of the state. Thus, keeping the economy, taxes and services in mind, in this essay I will discuss the role of government that can help in keeping the state socially and economically balanced.

Role of Government

The government of Texas has played a vital part in boosting the country’s economy. It has the ninth largest economy in the world. The favorable business plans introduced by the government are acceptable for small business or short-term future plans. The low tax rate and weak labor can create a non-flexible economy. Government has been quite lenient when it comes to tax rate. The tax rate is extremely low which results in less revenue collection. The policy makers need to increase the tax rate specifically on products like oil and cigarettes. New taxes should be introduced on unhealthy food or drinks and even on objects that cause rapid climate change. This would not only increase the revenues but also improve the lifestyle of the nation.

The policies introduced by the government can be healthy for the economy but when it comes to state services Texas has always been on the lower side of the chart. Public policy is termed as ‘unequal’ because the government spends a low amount of money on health, education, welfare, environment and the arts. This has a major effect on the poor citizens who can barely afford bread and butter. Due to ‘unequal’ policy the poverty rate has remained consistent throughout the period. One of the reasons why the government has not spent much on education, health and other services is due to less revenue collection. If we compare Texas with other states in terms of state services Texas has been on the lower side, that will also be discussed later in detail. But we cannot deny the fact that the quality of life in Texas is way much better than other states, thanks to their great policies and decisions. This can be seen through the rise of population since the start of the 20th century.

Texas Rank Among States in Expenditure and Taxation

Texas has ranked among the lowest in terms of state services. Due to poor policies while developing strategies to improve the economy the state has suffered in other departments. Because of low tax rates less revenue is collected from the nation, thus the amount spent by the government is quiet low as compared to other states earning the fourth lowest spot in ‘state government per-capita spending’. Education sector has not seen wonders since a long time. Teachers have earned of low income as compared to other sectors like oil, pharmaceuticals, information technology etc. The education rate in Texas is quiet low, thanks to less support from the government. Same goes for the health department. The rich can afford medical expenses while the poor has no choice but to suffer. The society has to take care of itself while no support from the government. Infants, children, women have to work themselves to earn their living that creates serious issues in the society. As the children have no support from the government, they are forced to do child labor. The infants require vaccines for protection from various diseases, unfortunately no such facility is provided by the government which ultimately leads to nutritional issues. Not a single penny is spent by the government to improve the nutritional problems hence Texas earns the lowest (50th) rank in the country. The government has given zero importance on climate issues which is resulting in serious weather changes. The burning of carbon from vehicles, industry pollutes the environment that results in serious medical issues. Below average tax policies introduced by the government has left no choice but to rank worst among other states in terms of services.

Texas Rank in Measures of Quality of Life

We cannot deny the fact that the quality of life in Texas is far better than other states. The average income per person is much higher as compared to other states. With large number of industries functioning there are numerous job opportunities for individuals that reduces the overall crime rate and murder rates in the state. No doubt there is low-cost living due to low tax rate but at the same time the state experiences pollution in terms of water and air (burning of fossil fuels). Many liberals believe that these problems are caused due to poor expenditure and taxation policies. The standard of living is highly satisfying. The land is cheaper as compared to other states in the US but quality of living sheds a bad impression on the state. With on-going burning of fossil fuels, the rate of hurricanes is getting disastrous each year, floods are increasing and the sea level is rising every year. Texas is considered as one of the most uneducated states in the country. The government is doing efforts by introducing plans to save the environment and make this state a better place to live. The policies shared by the government may boost up the economy but the government needs to invest more in infrastructure, environment, education and reforms. Poorly designed policies look impressive in the start but as the time goes on their effects are disastrous.

Conclusion

The policies of government for tax, economy and services needs to be changed or should be revised at least to make this state a better place for living. While the state having a strong economy, multiple new taxes or ongoing taxes need to be increased in order to generate a high revenue. The services offered by the state are extremely poor and they can only be improved if government spends more revenue while making sure the air and water pollution is under control creating a low probability for weather storms and other health issues. Thus, a proper check and balance policy needs to be introduced.

References

1. Tax Policy Center. Page 5 Website. https://www.taxpolicycenter.org/briefing-book/what-options-would-increase-federal-revenues
2. Wikipedia. Economy of Texas. Website. https://en.wikipedia.org/wiki/Economy_of_Texas
3. Dennis Hensley. 2016. The Context of Texas Politics. Website. https://slideplayer.com/slide/6378493/
4. Louise Gaille. Vittana.org. Website. https://vittana.org/22-living-in-texas-pros-and-cons

The conflict within Syria, which started in 2011, has been going on for just over 10 years and has caused major impacts on the country as a whole and its future development. They have many short-term impacts but will also face many long-term impacts such as education and the long-term impact this will have on the younger generation. Hospitals and the healthcare system are also struggling greatly due to underfunding which has led to many excess deaths and this has resulted in a lower life expectancy. Infrastructure has also felt the effect of the war as many buildings and houses collapse leaving people on the streets, where they are vulnerable to diseases and infections spreading rapidly. This essay will explore to what extent and how the outgoing conflict within Syria has had an impact on the country’s development.

The conflict has not just affected the overall development of the country, but also education and the younger generation living within Syria. There is evidence that shows just how severe this impact could be on the UNICEF website, where they stated, “The crisis in Syria has taken a devastating toll on education leaving over 7,000 schools damaged or destroyed and 2 million children out school”. The Syrian conflict has had and continues to have an extremely large impact on education and the younger generation. A reported 8.4 million children are affected by the conflict in some way- this is more than 80% of the children in Syria. Almost 100% of the younger generation were accessing and using the education system before the war broke out, so this is a drastic drop that the Syrian war has caused- 100% down to 20%. Many children can’t go to school due to the physical building being severely damaged or destroyed, but others can’t due to safety concerns, schools being used for refugee shelters or military bases and due to fleeing and so not having access to education. Therefore, the Syrian conflict has had an extremely large effect on education and the younger generation.

The conflict going on in Syria has also severely affected infrastructure which has then resulted in grave economic loss. The Borgen Project, which helps countries experiencing conflict to repair infrastructure, wrote on their page in 2018, “The prolonged crisis has resulted in the destruction of infrastructure systems including the provision of water, electricity and sanitation”. The Syrian conflict has caused a great amount of damage to infrastructure which then results in the spreading of diseases and viruses, loss of hospitals and health care facilities and people ending up on streets, in need of shelter, due to the destruction of their houses. The outgoing war in Syria has already cost them over 226 billion dollars in GDP. This is around four times the amount of the overall Syrian GDP. Experts have also estimated that 27% of Syria’s housing stock and half of the country’s medical and educational facilities have been damaged beyond repair or destroyed. Therefore, infrastructure, or lack of, has and will continue to have for the foreseeable future, a huge impact on Syria’s development.

The Syrian conflict has also taken a huge toll on healthcare and the healthcare facilities within Syria. The World Health Organization wrote on their page in 2019, “8 years of conflict has taken a huge toll on a health system that was once among the best in the region’. The conflict in Syria has not only impacted education and infrastructure, but also healthcare and their demand of supplies. Many hospitals and doctors’ surgeries have been destroyed due to the use of weapons or forced to shut down because of underfunding. This has led to many people dying unnecessarily due to lack of access to healthcare and supplies or not being able to get the right treatment or medication. The life expectancy in Syria has dropped by over 20 years since the outbreak of the war. Before the conflict, the life expectancy within Syria and surrounding areas used to be around 79.5 years, however it has now dropped to just 55.7 years. It has the lowest life expectancy of the Middle East region with Afghanistan next. Therefore, healthcare and the lack of supplies, has and will unfortunately continue to have a large, long-term impact on Syria’s development.

In conclusion, the Syrian war has and will continue to have a great impact on the country’s development as well as surrounding countries. The future for Syria will be a very different one as the younger generation will not have been educated or been put through the education system as they should have, and the healthcare facilities will take ‘many generations’ as experts have said to be back to where it was before the conflict commenced. Infrastructure and the impact this has had on economic loss will take an extremely long time to all be rebuilt and engineered. Therefore, the impact that the conflict has had on Syria’s development is a very great one that will take a long time to get back.

Bernard and Austin (2012) argue that traditional theorists believed that financial market in general has no correlation with economic growth, this proposition aroused studies on finding the effect of financial market on growth. Ample of studies have conducted on the traditionalists and established association between stock market and economic growth. In developing economy like Bangladesh and Nigeria, the development and growth of stock markets have been widespread in recent times. Despite the size and illiquid nature of stock market, its continued existence and development could have important implications for economic activity. For instance, Pardy (1992) has argued that in less developed countries capital market are able to allocate funds mora efficiently. For that reason, stock market can play a role in inducing economic growth in less developed country like Bangladesh, Nigeria, Ghana by channeling investment where it is needed from public. The economic development and growth are increased by mobilization of such resources to various sector. Stock market development has presumed a development role in economics and finance because of their impact they have applied in corporate finance and economic activity.

Recent theoretical studies have already conducted that the first step to connect the financial market and the rate of economic growth; it intends that higher per capita income may affect many sections of the economy and stock market performance (Masoud, 2013). Gurley and Shaw (1955, 1960, 1967) argued that financial improvement is a positive function of real income and wealth. This study supports the quantitative work of Goldsmith (1969), who invented that, in most of the 35 countries investigated both developed and developing, the ratio of financial organization to GDP tends to increase with supported by more recent evidence from the World Bank (1989). Much of the research within empirical studies conducts that finance is strongly associated with economic growth rate.

Stock Exchanges and Economic Development

Overview of Modern-Day Stock Market

A stock exchange is an organized market place, recognized by a relevant regulatory body, where companies are listed and traded financial securities such as stocks (share) listing of companies at first indicates ‘primary market’ where a portion of company’s shares are made available to the public. The company often exercises the listing to accumulate funds through issuing new equity shares (an initial public offering). Investors can buy and sell easily these listed shares in the so-called ‘secondary market’ while listing in the primary market may result in a flow of funds from investors to the firm, the transaction between investors in the secondary market does not. The activity in both the primary and secondary market operates within a framework of laws, rules and regulation, aimed at ensuring the existence of fair, transparent and orderly markets. Stock exchanges are supervised by a securities market regulator, different jurisdictions have different models of who is responsible for what elements of market regulation. There are many requirements taken by regulatory body such as the listings requirement, the membership requirement, the trading rules, the process for clearing and settlement of transactions etc. to stipulate markets (UNCTAD, 2015).

A Review of Academic Literature

It is one of the most contentious issues in economics that the stock market whether is able to serve as a key indicator for the future economic growth and vice versa (Choong et al., 2003; Mun et al., 2008). Many believe that future economic growth or recession respectively could be changed due to increasing or decreasing in stock prices significantly (Mun et al., 2008). A significant number of studies have been carried out so far on the issue relationship between stock markets and economic growth, and “there is no clear-cut solution in which policy-makers could rely upon” (Choong et al., 2003). “Results of the studies on the issue can be summarized as followings: 1) there exists both long-term and short-term relationships between stock markets and economic growth; 2) there exists only a long-term relationship between stock markets and economic growth; 3) there only exists only a short-term relationship between stock markets and economic growth; 4) there exists bi-directional causality between stock markets and economic growth; 5) there exists only unidirectional causality between stock markets and economic growth, i.e., stocks markets cause economic growth or economic growth causes stock market growth; 6) there exists no directional causality at all between stock markets and economic growth. Therefore, findings of the study failed to suggest homogeneous results. The fundamental reason behind the diverse results is due to the factor that different research has been carried out on different countries ‘economic growth and stock markets. i.e., every country’s economic policy and stock market characteristics are unlike others” (Hossain, 2013).

“Levine and Zervous (1996) carried out a study based on data of 24 countries where they found that a strong positive correlation exists between stock market development and economic growth. Later they conducted another expanded study (1996) on 49 countries for the period of 1976-1993 where they used several variables such as the stock market liquidity, economic growth rate, and capital accumulating rate and output growth to ascertain correlation among them. They found that all the variables were positively correlated with each other. The same authors (1998) argued that both stock market and banks have an impact on economic growth” (Levine and Zervous, 1996, 1998).

Stock Exchanges and the Real Economy

In 2016, there were approximately 50,000 companies listed on 81 exchange groups around the world, the combined market capitalization of these companies was nearly $70 trillion, while many people think of stocks markets as representing large companies, the companies listed in these markets (which in many instances include dedicated markets for small and medium size companies) range in size from a market capitalization of less than $1 million to well over $100 billion (Economic, 2016). The author argues that the companies enlisted in stock market come from all economic sectors: services, manufacturing, mining, and information technology. They earn revenues that buy goods and services from other companies, pay salaries, pay taxes and return dividends to shareholders. They are also important employers: WFE calculations suggest that the 24000 companies across just 26 of the WFE’s equity market exchanges employee over 127 million people.

Role and Function of a Stock Market

This is the section based on theoretical overview in the previous study by describing how modern stock exchanges may contribute to economic development (SSE, 2015). Basically, the ability of entrepreneurs is increased by exchanging as well as establishing corporations with expansion plans (SSE, 2015). The same authors argue that the saving of domestic investors who are looking for investment growth is used as the source of funds, stocks markets are able to perform this ‘saving mobilization’ function for a number of reasons like: investment horizon, transparency, pooling funds, investor protection etc.

Stock markets provides investment opportunities to investors by accessing trading securities, by which stock markets enable investors (through diversification) to reduce their risk of income volatility by diversifying their investment portfolios.

Financial Stock Market’s Impact on the Economic Growth: Theoretical and Empirical Overview

Levine (1990) argued a positive relationship between financial stock market and economic growth by issuing new financial resources to the organizations. Filer et al. (1999) examined stock market-growth nexus and exhibited positive casual correlation resources to the firms. In early stages of development, financial intermediation induced economic growth (Spears, 1991). The financial stock markets make economic growth indirectly, facilitates higher investments and the allocation of capital. Sometimes investors investing directly to the firm because they cannot easily withdraw their money, rather they can buy and sell stocks quickly with more independence. Levine and Zervous (1998) investigated stocks market development associated with different magnitude and have recommended that strong statistically significant relationship between initial stock market development and subsequent economic growth. “An efficient stock market contributes to attract more investment by financing productive projects that to economic growth, mobilize domestic savings, allocate capital proficiency, reduce risk by diversifying, and facilitate exchange of goods and services” (Mishkin, 2001). Further, Levine and Zervous (1999) discovered strong statistically significant positive relationship between stock market development and economic growth. “The result of Filer et al.’s (1999) studies show that there is positive causal correlation between stock market development and economic activity”. Finally, we can conclude that the stock market development and economic growth of a country strongly positively correlated to each other. The stock market plays a very important role in the development of an economy.

Discussion and Conclusion

As a conclusion, we can be summarized that the role and significance of a stock market for the betterment of a country’s economy can never be ignored. It plays a role of nexus between individual investors and the corporations. Stock markets ensures the availability of funds for a corporation by which mobilization of savings is possible. As a result, it is able to add extra benefits to economy of a country by producing goods and offering employment opportunities. Evidence collected from theoretical and empirical studies, the stock market has played an important role within both the advanced economy and the emerging market, more specifically, this study argues that the connection between economic variables with growth and stock market. Finally, we can say that the findings of this study contribute toward a better understanding of stock market development related to economic growth.

Economic development is a process of promoting and creating a healthy economy. This process requires a change in the different aspects of society, such as living standards, health care, education, etc. Since there are several different domains of economic development, there are several factors that determine economic development. Some of the main factors are culture, institutions, trade, geography, etc. In this essay, I’m going to talk about geography as a major part of economic development and how its influence has changed over time with improvements in transportation and communication.

Climate is a geographical feature that plays a vital role in economic development. A great example is tropical countries where the climate is extremely dry, with insufficient rainfall and intense sunlight. This extreme climate in the tropical region has an impact on crop production and productivity. The climate does not allow people to produce abundantly, and human productivity is also reduced due to extreme working conditions. While other temperate countries in Europe and North America have thrived over time as they have more fertile soil, good rainfall, and temperate climates. The effect of climate on economics can be seen in sub-Saharan areas where not many crops are produced. Furthermore, climate hazards, such as natural disasters like cyclones as well as droughts hinders development in the tropical region.

Diseases are another geographical factor that influences development. In the hot and damp tropical climates, illnesses like leishmaniasis, malaria are prominent influencing the productivity and cost of medical services. Whereas, in temperate climates, there are fewer diseases because most of the pathogens are in hibernation because of the lower temperature. The diseases also decrease life expectancy, which affects human capital and creates unfavorable conditions that hinder rapid development.

Resources are another geographical factor that plays a vital role in economic growth. As indicated by the Hecksher Ohlin model, which says how nations export what they can produce most efficiently and abundantly, and with the help of the model, we can see how nations with more resources would export it which affects the economic status of the country (Blaug, 1992). Modern economies, such as Saudi Arabia, Qatar, etc., are extremely dependent on their natural resources, i.e., oil for their economic development. These resources lead to industrialization and urbanization in the country resulting in economic development.

The location also plays a great role in the economic growth of the country. The countries with access to the busiest ports like China and the US are developed whereas landlocked countries in Africa like Lesotho and Ethiopia and Asia like Nepal and Bhutan are less developed because they must depend on other countries for their access to markets overseas. Further, countries surrounded by mountains and hills are isolated due to high development costs and difficulty to control by the central government in the upper region. The Zomia region of Southeast Asia is an example of this isolation. The plains are favorable for the control by the central government, such as the plains in Southeast Asia. Another example of development due to geography is China where homogeneous geography helped them to achieve political unification and was able to become a large centralized state (Fang et al., 2014).

Geography plays an important role in the policymaking of the nation as it affects the international trading arrangements, the policy followed by the region, and the investment in the infrastructures based on the location of economic activities. Comparing the effect of geography even in modern times and how it affects policymaking, we can see the example of Bolivia and Vietnam in the 1990s where Bolivia was a better institution as well stability wise than Vietnam. But even after than Vietnamese were more developed over time and the reason was the vast coastline with water ports located in southeast Asia economics whereas Bolivia, on the other hand, was landlocked mountainous and lacked any access to the coastline. Vietnam was able to utilize geography to make policies regarding trades and investment in Southeast Asia whereas Bolivia was not able to do that.

Even though geography plays a vital role in the development that does not mean geography is the only factor that defines economic growth. We can take the example of Australia and Mauritius who are in a tropical region and have been doing great. Other factors like infrastructures like communication and transportation also play a big role in economic growth. The ability of the country to communicate with other countries and transport goods plays a major role in the trade market which results in economic development. As Adam Smith said in the 18th century, countries with coastal area access would have a better transportation system, leading to better growth of the country (Sachs, 2001).

With the development of technology and infrastructure, the world has turned into a global village, and it has made a lot of change in the process of economic growth. The example is the global community involvement in most of the war in this era. The stability of the country is important for the development of the country as conflict and chaos hinder the development process. The US influencing the war in the Philippines resulted in the change of economic scenario in the country. Further, no country in the contemporary era is isolated economically and the integration with the international community has played a big role in the economic growth of countries. The engagement in global finance, education, trade helps the country to create policies to promote the development of the country. The example of the vaccinations of HIV/AIDS or medicine of malaria is not only the effort of individual nations but the global community. This certainly improved the productivity of manpower in tropical countries. Further, with the improvement of transportation and the growth of the idea of comparative advantage, economic growth has been highly related to the trade flows. Another affected by globalization is the increase in the rate of a foreign direct investment in which the business of one country would be controlled by the entity based on other countries. There has been an increase in technology transfer, increasing innovation at the global level. These examples show how economic development is affected by the development of infrastructures in this integrated world.

Yes, the technological progress in communication and transportation has enabled countries to have strong relations with other countries resulting in the change in the culture, institutions, and policy of the country. The example of this change in policy is the preindustrial relation of South Korea and China with the acceptance of the Chinese tribute system. This results in the economic development and growth of the political ability of South Korea (Lee, 2010). But that does not decrease the role of geography in development. Even in this era of technological processes, transportation and communication are also dependent on the geography of the country. For example, trading through waterways and roadways is much cheaper than the airways and this results in countries with coastal ports, navigable rivers, and plains having better trading options than countries with physical barriers. Moreover, the issue of remoteness created by geographical barriers in transportation can be solved with the help of the creation of a policy that promotes trade and investment flow and brings countries together. Communication is also dependent as countries with fewer barriers would have better communication with the people. The improvement of these infrastructures certainly improves the growth and might overcome the barriers of geography, but geography will keep on playing its role as a factor of development.

The role of infrastructures like transportation and communication is more important to the countries with a geographical disadvantage. The example of the role is the rural roads and the communication facilities between the market and supplier which will improve the development of the market as well as the local community. An example of this can be seen in Vietnam and Bangladesh, where after the construction of roads, the wage of the local farmers increased and the improved lifestyle. According to the research published by Calderon and Serven, infrastructure development is directly associated with the decrease in income inequality (Calderon and Serven, 2014).

The study of geography is important to understand the systematic way of development for both traditional and modern ways of development. So, we can conclude that even though transportation and communications can lead to a better life for many people and result in development, it cannot eliminate the importance of the geographical features and its effect on the social as well as economic development but it would not be able to reverse the effects that have occurred due to the restrictions of geography for the last 1000 of years and the changes it has caused in society and ideas around the world (Sowell, 2016).

Historians such as Jurgen Kocka have argued that Germany followed a special path of development due to the absence of social and political modernization during economic development. This caused pre-industrial mentalities and structures to remain prominent within all aspects of society. Hence, he argues that this led to an inevitable crisis during the 1930s and therefore, resulted in a logical dictatorship.

Jurgen Kocka’s supporting views towards the Sonderweg thesis are demonstrated in his article ‘Causes of National Socialism’. In an extract from the article, Kocka makes a compelling argument by suggesting that “the German path of economic modernization without thorough social liberalization and political democratization now took its revenge”. This is evident as the public maintained hostility towards a democratic system due to the opposing egalitarian attitudes within the ruling classes which, allowed bureaucracy to continue and exert a substantial influence within the German society. During Bismarck’s chancellorship from 1871-1890, he constructed a strict framework within the German government which restricted the powers of the Reichstag by only allowing them to discuss legislation introduced by the Bundesrat (federal government) and the imperial government. Despite the balance of power changing over time, the structure of the chancellorship remained up until the end of the Second World War due to Article 41 and 48 in the constitution, allowing presidential rule by decree. This significantly supports the Sonderweg thesis as it shows how Germany never went through any radical changes in its political and social structure and, displays how the attitudes sustained from the latter 1800s have led the country down a familiar pathway; therefore, enabling a logical dictatorship to arise.

In terms of context, Kocka’s social and political perspective of history is demonstrated to be greatly influenced by his career. At the time of writing, Kocka was a professor of social history at the University of Bielefeld in Germany as an academic, practicing historian. This is a strength because it demonstrates that Kocka conducted detailed research into his specialist area and is clearly well educated about Sonderweg thesis. Also, Kocka included other historians’ perspectives, as demonstrated in the beginning of the article, which further supports the credibility of his research. This is because it shows a strong judgement of what Kocka truly believes caused the rise of National Socialism in Germany and the pathway of its development. However, social history was a relatively new perspective in the 1980s that had recently emerged and had been criticized for putting politics down to culture and reducing individuals to structures. This limits the validity of Kocka’s view because his perspective could be seen as too deterministic. Also, Kocka’s background could be seen as a weakness as it negatively affects the reliability of his argument due to his predisposition of analyzing history from a social and political angle. Therefore, his argument may not be as balanced as a whole.

Overall, Kocka’s interpretation of the Sonderweg thesis is substantially convincing because he accurately presents how pre-industrial mindsets were a significant continuance within society which, resultantly allowed a restrictive government to develop into a logical dictatorship. However, it could be argued that he places too much emphasis on these factors which, could cause his perspective to become reductionist and deterministic. As a result, Kocka’s article demonstrates his strong support for the Sonderweg thesis and that modern Germany did follow a Sonderweg.

On the other hand, Geoff Eley argues that radical nationalism and fascism were both new concepts within Germany thus, demonstrating his anti-Sonderweg perspective. His argument suggests that radical nationalism was an attraction in Germany during the post-war period, triggered by the short-term crisis of political legitimacy and therefore, this resulted in a dictatorship.

Eley has demonstrated his perspective in an extract from ‘What Produces Fascism: Pre-Industrial Traditions or a Crisis of Capitalism?’. His argument strongly suggests his rejection of the Sonderweg thesis by stating that “radical nationalism was a vision of the future, not the past”. This is visible in the post-war climate of 1918 where a counter-revolution against the new, liberal Weimar government had developed. There was great instability within all aspects of German life due to the imposition of the Treaty of Versailles that had been signed, ensuring that Germany would accept the harsh terms of the treaty. Consequently, this allowed extremist groups within the left and right to take advantage of this new crisis. Although there was a short period of constancy due to Stresemann’s domestic and foreign policies from 1923-1929, the Wall Street Crash of 1929 soon returned the disorder and divisions within society, causing the public to turn towards extreme groups once again. This substantially supports Eley’s argument as the outbreak of unemployment and uncertainty due to the Wall Street Crash made a leader such as Hitler desirable once again. This is because he was demonstrated to be a strong and unifying character who had nationalist interests at the heart of his cause, contrasting to the weak democratic government. The combination of humiliation and antagonism, whilst being left in unfamiliar circumstances, allowed the idea of radical nationalism to build within society. Therefore, this considerably supports Eley’s claim that it was a new concept as nationalism was shown to only thrive in times of crisis which, consequently led to a logical dictatorship.

In terms of context, Geoff Eley’s book was published in 1986, during the time of the Historikerstreit (historians’ debate) about the crimes of Nazi Germany and if there was a ‘special path’ of development. This is significant because the mood of the period Eley was writing in was openly confrontational and when historians began to look at the more disconcerting areas of German history. Therefore, Eley’s argument would have to be firmly true to what he believes, producing a credible argument. Additionally, Eley has taught and been educated in the West as he has been teaching at the University of Michigan since 1979 in the Department of History and Department of German studies since 1997 therefore, this shows that he is an expert in the field. However, this could be seen as a limitation of his argument because his Western ideas and values of what could be considered ‘normal’, may affect his judgement. Hence, he is an outsider looking into German history which could potentially limit the validity of his argument.

In summary, Eley’s interpretation of the Sonderweg thesis, to a large extent, convincing because he clearly demonstrates the short-term effects that caused a dictatorship to occur and why he rejects that there was a special path of development for Germany.

Kocka’s argument is partially shown to be more convincing because after 1918 there was a great amount of uncertainty, and because of this, people resulted back to the ideologies that they were familiar with and the pre-industrial mindsets that had survived. Subsequently, this led to a logical dictatorship in Germany. However, Eley’s argument is also credible because the unique circumstances that Germany was in drove radical nationalism to spread across Germany in the great way that it did.

The main difference between the two interpretations is that Kocka believes that pre-industrial traditions were the most important factor that led Germany down a pathway to a logical dictatorship, in contrast to Eley who believes that national socialism only developed in Germany after the First World War and therefore, there was no special path of development. This is might be due to their different backgrounds and settings that they have studied. On one hand, Kocka has had a more insider’s perspective as he has taught in Germany and been surrounded by other German historians; on the other hand, Eley has been analyzing German history from outside of Germany.