Category: Economic Development

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.

How do superpowers influence the global economy?

“The sun never sets on the British empire”, (Brian Doone, 2019) is a famous historian quote that rings true to Britain’s situation before World War I. The rise of global superpowers has influenced the global economy in many ways and this trend started all the way back when the first world war occurred. Imperialism in WW1 was a huge deal, the most powerful countries in the world were invading the smaller countries to get stronger, most notably Britain. Britain’s imperialism was focusing on maintaining and expanding their trade, bringing raw materials and the sale of manufactured goods. Britain was regarded by many that they are the strongest country in WW1 because of its imperial power with its powerful navy which was the most powerful one in the world back then as well as having a lot of colonies. Africa got affected the most because of imperialism. The reason superpowers invaded Africa is because of the incredible resources that they found like diamonds, gold, ivory, rubber, and more. Africa couldn’t stand a chance against their military so instead, they surrendered as well as the invasion has made Africa left behind in technological development in the world later on.

“Do America’s closest allies view it as the clear global superpower? What about the countries that neighbor China – surely, they must witness China’s economic might firsthand”(Research, 2019). Many people have been debating whether China or America is the number one superpower country in the world. According to a source from the research center, there is a survey that shows that people voted for America as the number one global superpower in the world as well as it shows that the United States has the biggest global GDP in the world with 42%. The strength of the source is that it has statistics that could be searched online and the weakness is that the source is not that reliable as it mentions that wherever people live will be based on who is the biggest superpower in the world.

“China wants to dominate in Asia, its backyard. At the regional level, projections of the Middle Kingdom’s economic growth, population size, and defense spending suggest it will have outstripped the U.S.A by 2030.”(Marc Champion, 2018). This source mentions that China one day will overtake America as the number one country in the world because according to the source it says that China has a larger economy than the United States and that it is likely to grow on becoming richer as well. China’s military has also improved, they have spent three times as much as Russia but they lack carrier fleets and some equipment that can cover the corners around the globe and that’s why some people still think the United States is the true superpower.

“Today’s China will never be a superpower”(Charles Parton, 2019), This source is different from the others as it states many reasons why they won’t be the superpower country in the world ahead of the United States. The source states three main problems when it comes to their long-term economic growth, the first one is their debt which the costs of them have to be transported either by companies, government, or people which can inflate the debt away by increasing taxes or cutting public investment. The second thing is the structure of the population which will continue to grow in the future, but the labor force is decreasing and the birth rate of children per woman is one of the lowest in the world the problem is that it could lead to instability in a gender imbalance. The last most important thing is the water crisis which is in 12 northern states which are 41% of China’s population, 46% of its industry, 38% of its agricultural, and 50% of its power. According to the source, climate change will affect these areas and make them drier and the water transfers can’t prevent social, economic, and political dislocation which would result in inflation. The strengths of the source are that it provides facts, and evidence and explains several things on why China won’t become a superpower if they don’t fix these issues however the weakness is that the source is not reliable and some of the things that are being said are biased because according to the source that is China won’t become a superpower is a prediction and who knows who will become a superpower in the future and how things will eventually change

As of today, the United States is the number superpower country in the world because they are flourishing with its military, political and economic strength so that it could convince other countries around the world to do things that they wouldn’t like to do. Many experts have thought of China becoming the next superpower but in some key areas it doesn’t that would be the case instead America will most likely remain to be a strong force as well as keep its title as a “superpower” for the future going forward. There are facts that prove that the United States is the number one country and one of those many things is economics, 80% of the financial transactions in the world are conducted in dollars as well as 87% of foreign currency on market transactions. Even though China’s economy is growing at a splendid rate, they lack the quality that the United States has over them, “According to the World Bank, GDP per capita in the US was $53,042 in 2013; in China, it was just $6,807” (Lucas Jackson, 2014). What it basically states is that China’s economic growth has managed to find its way to the Chinese consumers, the byproducts of the economy which is driven by its huge state-owned businesses rather than the private industry and that’s why America is doing better economically because they are allowing their citizens to grow along with it.

America’s military is completely unrivaled as they are dominating through the seas, land, air, and space and that’s because they have spent 37% of their total money on their global military which is four times the amount that China has spent on their military. The United States is also exceeding in political power “In 2013, the U.S. doled out $32.7 billion in financial assistance; the second was the UK at $19 billion”( Lucas Jackson, 2014). The money that they have can buy strong political cooperation from countries that are in.

The United States has the oldest national constitution in the world with the rule of law and strong institutions to accompany it. The fourth thing is innovation in the technology sector, nine of the largest tech companies in the world, there are eight of them which are included in the United States as well as being number one in the world for producing oil and natural gas. America’s research universities and scientific institutions focus on it’s where it is needed the most, 30% of research and development is spent in the United States.

The last thing is cultural/lifestyle, American citizens have spent millions of dollars on their lifestyle, and from a recent charity survey, they are ranked number 1 in the world for helping strangers. According to the source Americans continue to enjoy their life which is unmatched by the rest of the world and these 5 things it’s why America is still the true superpower in the world today. The strength of the source is that it has a lot of facts and evidence as well as statistics that can be checked and the weakness is that it could be a biased source since it is written by a bunch of people who are from the United States.

The strength of perspective 1 shows a survey in which it shows on many people voted for the countries that are the top global superpowers. There are also a bunch of different perspectives on the source which is something mentioned, it shows statistics of countries that are working with either China or the United States so that we could tell whether some of the people’s opinions are biased or not. The weakness of the source is that it doesn’t have some facts and mostly all of it has a bunch of opinions which could easily be biased depending on which countries they like the most or the country that they are living in. It doesn’t state on why one of the countries of China or the United States is number in the superpower rankings, there has to be evidence to back it up. In perspective 2 the strength is that it shows a lot of facts, statistics, and evidence unlike perspective 1 which was all opinion based, almost all the information is clear and straight to the point as well as the information could be researched online. The weakness is that some of the things that are being said are biased, for example when it mentioned that “Americans continue to enjoy a quality of life unmatched by the rest of the world”, in my point of view I think this something biased because anyone from almost every country which is stable enough can enjoy their own lifestyle and some Americans don’t really have the best life either. The reason this source is biased is that the article is written in the United States itself and also this website is about them so of course there are lots of biases to be expected so the debate could go either way on who is the most dominant country and some of these sources could be unreliable.

Since ancient times, there was interdependence between shipping activity and the degree of economic development. Civilizations who managed to exploit natural advantages like waterways have managed to develop economically. Thus, in ancient times, countries such as Egypt, China, Greece and the Roman Empire grew economically by developing river and maritime transportation routes. Since the eighteenth century, the importance of transport was highlighted by Adam Smith. In Smith’s concept, transport was a productive branch that creates value, but not the use-value. In Chapter 3 of ‘The Wealth of Nations’ Adam Smith has developed the importance of labor division in society. As businesses increased and produced more goods than they can sell locally, it need access to wider markets, at which stage, water transport gained an important role: “For any industry, water transport leading to a wider market than can provide land transport” (Smith, A., 1998). In the nineteenth century, the links between the national economy and transport were points of interest in theoretical research. Thus, in 1850, J. G. Kohl study the structure of transport networks correlated with the geographical distribution of natural resources, on the example of Russia, highlighting the importance of an internal transport system for the future development of cities. Also, during the nineteenth century, E.G. Ravenstein develops a study of traffic flows referring to internal migration of the British, creating traffic flow distribution, which was important for the future development of transport networks. Transport system made the transition from ‘isolated state’ revealed by Von Thünen’s theory, to an open economy. Necessity of developing economically space of a country is based on national and international transport system. A well-developed internal transport system leads to linking economic activities by identifying locations that offer favorable conditions of production, there is even a geographical boundary with the impose prices of certain products and the area criteria.

Faster development of a transport system compared to the whole economy can be a disadvantage for a country in terms of inequality conditions generated in the formation and development of various industrial and commercial locations. Due to advanced transport infrastructure, local economy gets in the position to not be able to develop industrially because the local community has the opportunity to procure the necessary goods from other economically developed regions. Based on the concept of sustainable development of society, the transports have a significant importance for the balanced development of economic and social systems of a country.

The external dimension of transport leads to opportunities and benefits of economic and social influence throughout the economy. When transport system is lagging behind losses occur due to decreased international trade. In the development and diversification of trade between countries worldwide, international freight transport has an important role. Transport, by assumed role, is an important part of material production shaping the other sectors of the world economy, mainly international trade. Transport activity is a premise in achieving economic cooperation agreements, in order to bring in world circuit regions around the globe, by creating a distribution system opened to needs of potential beneficiaries.

In the current period, countries interrelation is based to economic resorts, international trade, by transport activity, is one of the main elements of globalization. With the transition to an open economy, evolution growing of transport capacity worldwide has a similar trend to that international trade. Among the factors contributing to the upward trend include: 1) boost economic exchanges between countries, by increasing the number of partners and areas involved in international trade; 2) cross-border relocation of world production as part of globalization resulting in the formation of international value added chains; 3) uneven distribution of primary factors; 4) structural changes occurring in trade accentuated the diversification of production of goods; 5) development of related services, in particular the storage and handling, which required improvement of work organization; 6) quality of services of international shipping companies with the implementation of quality standards in service providers.

Transport has a social and environmental task that cannot be neglected. Social task is outlined by transport activity role in society and which is closely related to environmental task, because transport is a potential pollutant of the environment with implications for humans. The effects on the economy of transport activity, can be direct or indirect. Direct effects refer to the availability of markets, in which case transport provides connections to large market outlets and saving time and money. The indirect impact is related to the economic multiplier effect when the price of goods or services increases with diversification. The fact that transport makes the connection between international markets indicate a vulnerability to random shocks suffered by the economy of a region or internationally. One such example is the financial crisis of 2008 that led to the decrease in the volume of goods imported or exported to developed countries or developing due to production contraction.

The relationship between transport and economic growth is not a direct one, but rather related to its influence on the structures and processes of production, location and size of enterprises, structures and processes of distribution and other characteristics of production organization. Increasing specialization in the production process, pronounced separation stages of international value-added and increasing economic activities of companies leads to increased transport volumes and increase the average length of haul.

Since the 1970s, value creating processes determined the intensification of transport activity. Between 1985 and 1998 freight transport measured in tonne-kilometres increased by 54% at EU level, while GDP growth was only 35% (Gilbert, Nadeau, 2001). The rising tendency is manifested by the year 2007 with an increase of 5.4%, while in 2008 and 2009 record decreases by intervening economic crisis, the effects of which were felt in 2010, 2011 and 2012, years in which the indicator don’t stood even in 2000 level, the reference year.

The EU is one of the world’s leading providers of services, equipment and transport technologies. EU companies control 30% of the global air transport and 40% of global maritime fleet. Transport equipment accounts for 60% of exports of EU member states. An important part of transport activities is conducted in an international competitive environment, especially in the case of air and sea transport. Access on markets outside the EU countries is crucial for transport system of the EU. EU enlargement has had significant effects on transport. A number of international cooperation mechanisms, such as those in the area of river and roads, refer to the future EU Member States and neighboring countries with which the EU is already a special relationship, which is working well in transport activities. Cooperation in the field of transport in the EU and neighboring countries will contribute to the necessary interconnections on major transport routes, taking into account economic, environmental and social dimension. The objective of sustainable transport policy in the EU is the implementation of transport systems that meet the demands of economic, social and environmental needs of society. The transport sector contributing to the whole European economy, have an important role in the competitiveness of European industry and services. Transport policy in the EU has a strategic role in the Lisbon strategy in view of establishing a balance between economic growth, prosperity and environmental protection.

Economic growth is linked to the development of transport. While some regions have benefited from the development of transport systems, others are often marginalized by the existence of conditions not adequate development of properly transport system. The transport itself is not a sufficient condition for development, and the lack of transport infrastructure can be seen as a constraint on development.

In conclusion, with each stage of development of human society, a certain mode of transport has been developed or adapted. However, it was observed that throughout history, no mode of transport was solely responsible for growth. Thus, the development of modes of transport was correlated with economic structures and mobility of labor. For example, important international migration flows that have taken place since the 18th century were related to the extension of international and continental transport. Transport has played a catalytic role in the migration, leading to economic and social transformation of many nations. Development, diversification and development of the transport system had as a cause expansion and intensification of production and circulation of goods. Investment in transport infrastructure is a tool for regional development, especially in developing countries, mainly for the road sector. Therefore, the complexity of the relationship between transport and economic development lies in the variety of possible effects: increasing development of economic exchanges between economic agents, establishing trade relations with the far trade area and positive indirect influence on the development of other economic sectors. The difficulty of separating the specific contributions of the transport system of a country’s economic development derives from the fact that during the development of the transport system may precede or follow simultaneously to economic progress.

References

1. Smith, A. (1998). The Wealth of Nations, Oxford University Press.
2. Fistung, F.D. (coordonator), (2008). Transportul durabil. O perspectivă viabilă de evoluţie, Academia Română, Institutul Naţional de Cercetări Economice.
3. Gilbert, R., Nadeau, K. (2001). Decoupling Economic Growth and Transport Demand: A Requirement for Sustainability. Conference Paper for ‘Transportation and Economic Development 2002’, Transport Research Board.
4. Button, K., Reggiani, A., (2011). Transportation and Economic Development Challenges. Edward Elgar Publishing, Cheltenham, 2011.
5. http://www.flexibility.co.uk/issues/transport/time-mobility.htm

Milton Friedman, former presidential advisor, Nobel prize winner, and coauthor of Income from Independent Professional Practice, was a world-renowned economist, well known and respected throughout the economic community for prominent advocation of free markets in society. In Friedman’s video ‘There Is No Such Thing as a Free Lunch’, Friedman discusses many popular political aphorisms, as well as one particular aphorism that he helped popularize with the title of his book, published in 1975, ‘There’s No Such Thing as a Free Lunch’. Friedman also examines how many economists believe there is no such thing as a free lunch because everything has a cost. For example, working long hours may increase income, but in the long run, so much time was wasted that could have been used to do something else. Additionally, he adds that governments control many aspects of our lives because they control taxes, government spending, federal benefits, and government programs; though well-intentioned, these regulations can cause unexpected problems. However, he goes on to explain that, in reality, there is a free lunch in the form of free markets.

Friedman argues in his speech that there is a free lunch in both the real and economic worlds. He defines a free lunch as an economic system with free markets and private property. A free market is a free lunch because there are no forced transactions or conditions; they allow people to capitalize on their own creations, ideas, and talents. In a capitalist market such as the United States, anyone can utilize their talents and efforts to sell products and services they want to sell, rather than create products that the government mandates; the laws of supply and demand regulate production and labor, rather than government policies and systems. Private property is another example of a free lunch because it allows people to be independent and live free from excessive government control without having to share the land with other people. When people own their own property, they are safe from the government overstepping its boundaries and taking land from citizens; people can also use their property to grow crops that they can live off of, providing them with a free lunch.

To exemplify his claims, he discusses the difference between East Germany and West Germany. After World War II, East Germany was communist, while West Germany was a republic and had a free market system. The only difference between the two parts of the country was the economic and political systems they employed, and West Germany prospered while East Germany was riddled with poverty and suffering; this proves that countries prosper from free lunches. Friedman also asserts that government intervention is almost never the catalyst for growth and prosperity; when a government is actively trying to orchestrate a positive outcome and does not allow the free market to run its course, it is detrimental to the overall health of the nation.

In 1993, as Friedman was delivering his speech, the United States was in a deficit of 255 billion dollars, and he asserts that the views of the president at the time, Bill Clinton, were detrimental to the economy. President Clinton and his administration preferred a method that increased taxes for the American people, as well as sacrifice. Friedman’s views were that the American people should have less sacrifice and more benefits, using the Rural Electrification Act (REA) as an example. The REA helped install communication lines for the rural Midwest in the mid-1900s. He mentioned that if we stopped funding this area, the American people benefit from having to pay less in taxes compared to the few in the rural Midwest that would be hurt. The farmers are already receiving subsidies for producing food for the United States, so their sacrifice would be minimal. In some ways, one can consider their situation a free lunch.

Additionally, Friedman argues that businesses and companies receiving government subsidies are practically acquiring a free lunch. At the time, the car industry could get special government funding if it could reduce emissions. After the vehicle was produced, the car manufacturer would sell it and people would most likely buy it because it was more environmentally friendly and possibly more efficient. These car manufacturers were getting a free lunch for the fact that they profit from selling their vehicles and the government has given them aid to produce these vehicles. This is similar to how the government is pushing for electric vehicles currently.

Friedman believes that foreign-produced goods should not be purchased. According to Friedman, liberals tend to not buy American goods if it is more expensive, but in doing so, American producers are being harmed, which in turn hurts the economy; this results in more money leaving the country instead of staying in our economy. Special interest groups are also an issue because some will lobby against local farmers or producers in order to line their own pockets. Friedman declares that the United States is a “government of the people, by the bureaucrats, for the bureaucrats”, because as American citizens we vote for others who in turn are supposed to then represent our interests, when in fact this hands over too much power to bureaucrats.

Another misconception influenced by politicians is when President Clinton proclaimed how he is responsible for a change in the economy, without acknowledging the type of change as being good or bad. However, upon further investigation into the statement, Friedman states that Clinton’s changes affected the economy negatively. First, Friedman states that President Reagan’s and President Bush’s economies were two different periods, they were not one continuous period as suggested by others. Friedman would continue with this idea and categorize all three presidents from Reagan to Clinton. Reaganomics had principles that promoted less regulation, restrained government spending, and pushed for policies that would cause less inflation. Reaganomics was not completely in effect, but many ideas were and it was more than a prosperous start. On the other hand, Bushonomics and Clintonomics did damage to Reaganomics with policies that pushed an increase in tax rates, more government regulation, and more government spending. Friedman concluded this claim by saying that President Clinton’s economy was a successor to President Bush’s economy, which was the reverse of Reagan’s economy, and that Reagan’s economy was the best of the three.

Friedman continued by explaining the two markets, categorized as the economic market and the political market. The economic market operates under the incentive of profit, and the political market operates under the incentive of authority to the people. Throughout history, Friedman observed a trend in which the economic market’s importance had declined while the political market’s importance had expanded. For many years, the nation has been starving the working class to feed the political market. Friedman also points out that society tends to focus on becoming richer today, with the sacrifice of being less secure in the future.

Though the political leaders that control government policies and programs may be well-intentioned, government programs usually cause more harm than good in our society. Friedman uses an aphorism to illustrate that when private ventures fail, they are closed down but when government ventures fail, they are expanded. This aphorism explains that when private ventures do not succeed, they are closed down because of a lack of funds and no results. However, when government ventures fail, they are expanded using taxpayers’ money in hopes to solve issues in the project. The government often believes that more money will solve the problem. Friedman explains that more money does not solve problems, but incentives will fix these issues. Friedman discusses how government spending only increases over time because of this never-ending cycle. This is why Friedman states: “Electing the right people will not solve the people’s problems, but to solve the world’s problems we must change the incentive of people”. One way of changing the incentive that has worked in the political world is giving terms to government officials. Setting a time on the number of things an official can do effectively cuts the endless loop. An example of government programs harming being well-intentioned is the Unemployment Act of 1946. The Unemployment Act was a program that allowed the government to assume responsibility for full employment if a person lost their job. After this was enacted, unemployment had increased to 5.7 percent. In the years prior, unemployment averaged 4.6 percent. The act was meant to decrease the unemployment rate, but instead, it only increased. Another example of unintended consequences is rent control. Before rent control in New York, apartment buildings were relatively well maintained and there were places available to rent out and live. Since rent control went into effect, apartment buildings decreased in both the quality of living and the number of apartments available. Government involvement caused problems not only for the people they were trying to help but also for the apartment owners who now could not make enough profit, so they had to either shut down their buildings or decrease the quality of the buildings. Additionally, the homelessness problem is also a government problem. Since the emptying of mental institutions, homelessness has increased and mentally ill people now fill the streets because they have nowhere else to go. All these government programs were meant to solve issues but instead, they created more problems not just for the people that the government was trying to help but also for innocent bystanders. In his speech, Friedman addresses that the only way to solve government programs is through private markets. Throughout the years, resources have been moved from private markets to government markets. The issue is that when government markets receive money from taxpayers, they spend money more carelessly than private ventures because their own personal finances are not at stake. Friedman argues that the only way to solve these issues is by changing the intellectual community. Friedman reasons that one vote among millions will not change anything, but when you change the incentives of the people and the way they think, you can change and improve society’s problems.

Judith Teichman in her book ‘The Politics of Inclusive Development’ explores the politics of inclusive development through an in-depth analysis of four case studies, Mexico, Indonesia, Chile, and South Korea, each with clear-cut development paths and different social welfare and distributive outcomes, and places these cases in the context of international development thinking and practice. The book tries to tackle two main concerns: what policies are necessary for the reduction of poverty, its related deprivations, and continued improvements in social well-being and the political conditions needed to achieve these ends. Teichman defines inclusive development as development that provides basic physical security for the population, eliminates poverty, and mitigates the deprivations that prevent citizens from participating fully in society. This development provides equality of access to good quality services and generates ‘decent livelihoods’, producing reasonably stable and secure incomes. The four countries examined in detail were chosen because of their distinct outcomes and the insights they offer for politics and policies instrumental in inclusive development. Teichman views South Korea and Chile as relatively successful cases in the book since the political leadership in these countries followed policies aimed at achieving inclusive development. Economic growth that was export-led and producing employment is seen in both countries. There is still some degree of exclusion and differential inclusion in these countries, but their successes are considerably more than the other two cases. Throughout the book, the author brings out clearly the key role that politics plays in inclusive development.

According to Judith Teichman, South Korea is seemingly the best case in the book as it has historically been the most successful in reducing poverty and other deprivations within a relatively short period. Its development strategies have had comparatively low levels of inequality, and within two decades it had moved from a country of poor peasants to an urbanized one with an industrialized economy and a sizeable middle class in the late 1980s. The development path for South Korea involved substantial land redistribution, significant support from the state for small peasant landholders, education policies that benefited both rural and urban dwellers, and an industrialized economy that focused on exports and generating employment. The country was able to maintain economic growth, employment creation, and low levels of inequality while developing more social programs through the 2000s. South Korea has also had leaders who were committed to keeping inequality low and promoting inclusive economic growth. However, even with the positive aspects, the country has still reported cases of the labor force facing differential inclusion, encountering lower pay and more difficult working conditions compared to those in permanent jobs. These workers have also faced unequal access to universal programs in health, unemployment insurance, and pensions.

The second comparatively successful case is that of Chile. Although the country has historically had major challenges in its development path, today it is one of the ‘tigers’ of the region having steady economic growth since the late 1980s. Poverty reduction has been significant in Chile since 1987, and the initial high levels of inequality have gone down. This can be attributed to growth in export-led nontraditional agricultural products that have generated employment combined with universal and targeted social spending. The state has played an active role in this, although there are still cases of exclusion, especially in small indigenous populations which have most of the workers being young women working in rural processing industries who face differential inclusion. Their collective bargaining rights are restricted, their pay is low, and their employment is uncertain under difficult working conditions. In the last several decades, Chile has put in place a favorable environment having developed agreements on various aspects of the market model and committing to improving social well-being.

Indonesia and Mexico have been described as newly industrialized countries in several instances. Both countries have considerable petroleum wealth, which has had significant impacts on their development growth, signifying how the benefits of opportunities can be beneficial or not based on leadership choices. While both countries were key exporters of manufactured goods, there were still no employment opportunities in the manufacturing sectors. In Indonesia, the government provided considerable support for rural dwellers by investing a substantial part of revenues from the petroleum boom in smallholder agriculture and in export-oriented manufacturing from the late 1970s. Poverty levels in the country declined from the mid-1980s, however, it still remains a problem alongside unemployment and issues of exclusion, with regional and ethnic dimensions.

Industrialization in Mexico began much earlier than in Indonesia, in the early 1950s. By 1970, the country had less than half of its economically active population in agriculture, and manufacturing contributed majorly to the GDP. Poverty was low compared to Indonesia, at 34 percent of households. With steady annual per capita growth rates between 1950 and the mid-1960s, Mexico was viewed as one of Latin America’s most promising NICs. However, Mexico has had a history of neglecting agriculture, in particular smallholder and communal agriculture, thus affecting rural welfare and leading to exclusion. While the country gained a lot of foreign exchange earnings during the petroleum boom years, Mexico encountered harmful consequences to both agriculture and manufacturing. Since the mid-2000s, economic growth rates have been slow or stagnant, in the country while poverty has either increased slightly or remained unchanged, despite the development of social programs and the expansion of social protection. Mexico still faces serious problems of exclusion and differential inclusion, with a high failure rate in producing sufficient employment opportunities.

From the case studies, Judith Teichman suggests that there are policies that can allow a country to move successfully toward inclusive growth. These policies include measures to increase the productivity of small farmers, support for productive activities that generate employment, and policies to expand exports. She recommends that policymakers ought to maintain macroeconomic stability, since economic instability, especially inflation, affects the income of the most vulnerable. State support is paramount in inclusive growth, and a progressive and adequate tax base secures funding for universal programs. Getting the politics right propels inclusive economic and social policies forward, and is necessary for the establishment of state capacity, crucial to the implementation of the appropriate policies. Committed and purposeful political leadership is an essential, ingredient and the starting point for a successful pursuit of an inclusionary development strategy. The political leadership ought to define a national agenda on inclusive growth and fair distribution and develop opportunities to propagate these ideas.

Contrary to popular opinion, the case of South Korea suggests that centralized power at the national level together with a strong inclusive development coalition and supportive and committed leadership enhances the capacity and likelihood of movement toward inclusive development. Treichman highlights that the aspect of democracy versus authoritarianism and its relationship to inclusive development is not a straightforward one as many have commonly assumed. Rather than looking at the nature of the regime, the author suggests that it is probably more helpful to look at its social base. South Korea is an example of a country that achieved inclusive economic growth under an authoritarian regime. In Korea, a strong proactive state involved in supporting employment-generating industrial export activities, industrial integration, and technical innovation led to an inclusive development trajectory. The industrial policies in the country included targeted technological promotion, financing, and skill development with high amounts invested in research and development.

Judith Teichman recommends strengthening the state capacity that was previously neglected by the Washington and post-Washington consensus. As in the case of Indonesia, the Suharto regime developed a decent degree of state capacity. They recruited technocrats into the government, who played an important role in times of economic crisis in securing policies to stabilize the economy. The regime furthermore directed petroleum revenues into rural development and employment generation activities, both of which significantly contributed to poverty reduction. This process of state strengthening, as the author states, will partly need to involve the recruitment of well-trained personnel into the state, as in the Korean experience, but is dependent on the wider political context. Improvement in the state’s ability to deliver basic social services requires revenue generated from not only a solid tax base but also from healthy economic growth rates, including the increase in productive employment. Improvement in the capacity of the state in service delivery is brought about by political commitment, resources, and well-trained personnel, an aspect that needs to be recognized in the formulation of policies considered essential to inclusive growth.

All four case studies point to the importance of attention to small-scale producers, especially when a large proportion of the population is engaged in agricultural activities. In the cases of Chile and Mexico, there were high poverty levels in the rural areas and general inequality due to lack of land redistribution, and neglect of the welfare and productivity of small rural producers and other social services, especially education. In the case of South Korea and Indonesia, the successful instruments used to support small farmers were subsidized farm inputs and credit.

From Judith Teichman’s point of view, as much as economic globalization has contributed to new forms of differential inclusion, it has also failed to reduce the large informal sectors present in most Global South countries. Under these circumstances, a purposeful and proactive state, dedicated to improved social welfare for all and backed by an inclusive development coalition, is essential in the progress toward inclusive growth.

Environment or Development? One of the most controversial ethical issues in the modern business area is the conflict between environmental protection and economic development. Economic development demands that a large number of products be produced in a time as short as possible. Mass production, therefore, requires the involvement of factory work that would generate a lot of wastewater and air pollution, which would not only influence the condition of the lands but also the health of human beings. However, economists believe that the lack of economic development would hinder the development of human civilization, which might cause the lack of advanced medical technologies to defend human beings from unexpected diseases. What is more, the insufficiency in employment positions can also deprive human beings of earning salaries and providing themselves with life necessities such as food and water. Therefore, this essay would focus on the ethical conflicts between environmental protection and economic development and discuss whether human beings should prioritize environmental protection or economic development and suffer the environmental problems it creates.

From the perspective of environmental protection, the development of the economy would generate waste water and polluted air to deteriorate the condition of nature. Environmentalists believe that the pollution of nature conditions would cause damage to human health because the Earth can be seen as a single organism. The analogy between the Earth and an organism comes from the Gaia theory, which states that the entire is like a single organism, and thus the mutual interaction between human beings and the environment can decide the overall condition of the planet (Schlossberger, 67). One of the recent articles titled ‘Another Lawsuit Seeks to Make Ottawa Enforce Its Own Environmental Laws’ published in Calgary Herald in 2019 introduces a public lawsuit by Canadian citizens to appeal for the government to enact the regulations to prevent the fish from being hunted (The Canadian Press, 2019). These fish protectors put the lives of the fish on priority, which hinders the benefits of the fish hunters who rely on selling fish for profits. Since the fish protectors aim to improve the life of the fish in the ocean by asking for the government to create a friendly environment for the fish and prevent people from hurting the fish, the economists on the contrary believe that the prevention of fish hunting by fishers can compromise the benefits of them. The economists’ statement can be supported by the principle that similar cases should be treated the same way (Schlossberger, 125). Since both fish and fish hunters are dwellers living on Earth, their benefits should both be considered when making decisions. Therefore, if the fish hunters were to be prevented from hunting fish, their living environment might be compromised because their foods are becoming less obtainable.

In conclusion, there lies an ethical issue between environmental protection and economic development. While environmentalists want better living conditions for nature and the species, economists want the market to be more dynamic with people’s business activities that might involve the transformation of natural resources into profitable products.

References

1. Schlossberger, Eugene. “The Ethical Engineer”. Temple University Press.1993.
2. The Canadian Press. “Another Lawsuit Seeks to Make Ottawa Enforce Its Own Environmental Laws”. Calgary Herald. 2019. https://calgaryherald.com/author/the-canadian-press

1.1 Executive Summary

The main objective of this report is to determine the factors that led to the issue of unemployment and disturbed the economy of Pakistan from 1999 to 2010. Unemployment is a very serious problem that causes the decline in the economic growth of a country and that also affects the international status of that country. To study the determinants of unemployment in Pakistan ordinary least square model is used. This report focuses on foreign direct investment, inflation rate, gross domestic product, and population growth to determine the effect of these independent variables on the unemployment rate during 1999-2010 in Pakistan. Findings show that there exists a positive relation between growth rate and unemployment. The trade-off between inflation and unemployment is also confirmed through these findings. To resolve the problem of unemployment a country must control its population growth. New jobs should be created. Further research on other determinants of unemployment must be taken into account.

Keywords: Foreign Direct Investment, Gross Domestic Product, Population Growth, Inflation Rate

1.2 Introduction

Unemployment is defined through different perspectives. In simple terms, it can be defined as a situation in which people are able and want to do work but there are not enough job vacancies available for them. This problem is mainly faced by less developed countries like Pakistan, India, Bangladesh, Niger, etc. This report focuses on the determinants of unemployment in Pakistan during 1999-2010.

1.2.1 Background Information

In Pakistan, for some past years, it has been observed that unemployment is constantly increasing, and to find out the causes of this problem different research and reports have been prepared. Inflation rate, economic recession, and industrial decline are the basic determinants of unemployment. In the 1990s out of 35.1 million of the labor force, nearly 2 million were unemployed. With the passage of time unemployment goes on increasing and causes the economy of Pakistan to decline.

1.2.2 Purpose

The purpose of this report is to find the determinants that led to the problem of unemployment in Pakistan from 1999 to 2010.

1.2.3 Significance of the study

This report provides much more help to the government department which is responsible for the control of unemployment in the country by comparing this study with the previous one and then applying the statistics to interpret the data and also help in deciding for further resolution of the problem of unemployment.

1.2.4 Scope of the study

This study has been conducted to study the determinants of unemployment in Pakistan from 1999 to 2010. The results may be different in further research and reports. Only those persons who are fired from their jobs due to economic issues, organization restructuring, or industrial decline are included in the problem of unemployment. Children, students, and retired persons are beyond the scope of this report.

1.2.5 Limitations of study

The results, conclusions, and findings of this study do not apply to any other country except Pakistan. This report is also related to only the time frame of 1999-2010 in Pakistan.

1.3 Review of Related Literature

Unemployment is becoming a critical problem in Pakistan. It is a common issue in less developed as well as developed countries. Every country is paying greater attention to the solutions that apply to resolving the problem of unemployment. Various studies probe the determinants of unemployment. These studies are conducted at the micro as well as at the macro level. Buffie (1993) examines the relationship between foreign direct investment and unemployment. His findings determine that foreign direct investment in high-wage zones causes the packaging of domestic capital. The job search model (Lippman & McCall, 1976; Mortensen, 1970) also contributes to the report. This model tells us that the duration of unemployment depends upon the probabilities of accepting and receiving job offers. Unemployment affects negatively the unemployed person in such a way that they might engage in criminal activities. Individual and national income decreases which affects the economy of the country negatively. Elmeskov, et.al. (1998) study the relationships between unemployment and taxation in OCED countries for the period of 1983-1994.

Housman specification test is used in this study and it is concluded that both in the short as well as in the long run, taxation has a positive impact on unemployment. Studies showed that in the long run, taxation acts as a major determinant of unemployment. Izraeli and Murphy (2003) studied the effects of the degree of industrial diversification on unemployment rates and per capita income in seventeen states. This finding shows that there is a lower unemployment rate where there is a more diversified base country. Marika, et.al. (2007) to find out the relationship between capital stock and unemployment, studied the labor market. Iqbal, et.al (2010) find out the relation existing between growth and unemployment from 1972 to 2006.

1.4 Method of Study

This report determines that how the variation in gross domestic product growth, inflation rate, foreign direct investment, and population growth, which are independent variables, affected the unemployment rate in Pakistan during 1999-2010.

The data collected for previous projects rather than for the current project is referred to as secondary data. This report consists of 12-year data from 1999-2010. Data on each independent variable such as inflation rate, gross domestic product growth, foreign direct investment, and population growth is collected from different economic surveys of Pakistan. All the determinants of unemployment were taken as variables. Some of the secondary data is taken from IFS (International Financial Statistics).

The linear model was used in the study which is as follows:

Y = βo + βF + ℧

In the given equation

Y= Unemployment rate

β= Coefficient of independent variable

µ= Error term

In the above equation error term is supposed to have zero mean and is independent across periods.

1.5 Results and Discussion

According to the findings of the study, there are four independent variables used foreign direct investment, gross domestic product, inflation, and population growth. One dependent variable is unemployment. The findings of this study show the relationship between dependent and independent variables.

Empirical results showed that FDI, GDP, and INR (foreign direct investment, gross domestic product, and inflation) have an inverse relationship with unemployment. When foreign direct investment increases in any country the unemployment rate decreases because it provides new chances and helps in finding different kinds of jobs.

When GDP increases the unemployment rate decreases. GDP has an inverse relation with unemployment. T-test is one of the tests which is used for hypothesis testing in statistics. t-test is also used to encourage the null hypothesis. A null hypothesis is a type or hypothesis used in statistics that shows that no significance exists in a set of a given observation. The T-test has a value greater than two, because of this result Null hypothesis will be neglected in the case of the GDP factor. These results are according to the previous studies by khan, et.al (2010; Walterskirchen, 2008). The probability is less than 5% which is why the relationship between unemployment and GDP becomes significant. These findings are encouraged by previous literature (M.Rafiq, et al.,2010; Rizvi & Nishat, 2009; Iqbal, et.al.2010; Walterskirchen, 2008)

According to the Phillips curve (1958), there is an inverse relation between inflation and unemployment. When inflation increases the unemployment decreases. Therefore, inflation and unemployment are inversely related to each other. There is a significant negative relation between inflation and unemployment (M.Rafiq, et al.,2010). These findings are encouraged by Phillip (1958). The following graph shows a Phillips curve of the negative relation between inflation and unemployment.

With the help of these findings, it is clear that population growth is directly related to unemployment. When population growth increases unemployment also increases.

In previous studies, many researchers exposed that an increase in the level of population growth destroyed the economy and had a bad impact on macroeconomic variables (Kalim, 2003; M. Rafiq, et al., 2010).

The findings of the study show that in Pakistan the annual population growth has increased by 1.8% which is very high and it is a major cause of unemployment in Pakistan. This report indicates that 86% of the change in the dependent variable is due to foreign direct investment, gross domestic product growth, inflation rate, and population growth.

1.6 Conclusion

Unemployment is becoming a drastic issue all over the world. The ratio of unemployment is getting higher day by day and becoming hard to control. This report focuses on the determinants of unemployment in Pakistan. The main determinants during 1999-2010 were population growth, foreign direct investment, gross domestic product growth, and inflation. This report concludes that foreign direct investment, inflation rate, and gross domestic product growth are negatively related to unemployment. According to the findings of the report the main determinant which can be considered the key determinant of unemployment is population growth. Results indicate that in Pakistan during 1999-2010 with an increase in population growth, the unemployment rate got higher so, we can say that population growth has a positive relation with unemployment. This report concludes that there is one other major or significant factor that is seen contributing to unemployment is the trade-off between inflation and unemployment in Pakistan’s economy. However, there is a need to do more research to find out whether this trade-off is short-run or long-run.

1.7 Recommendations

This report has determined the main determinants of unemployment in Pakistan during 1999-2010. By keeping in view these determinants government of Pakistan has paid a lot of attention to the control of unemployment in Pakistan. Many more researches and reports were examined. The government should adopt attractive policies to eradicate unemployment in our country. They should be focused on foreign direct investment. The government must encourage foreign investors to come and invest in Pakistan. Policymakers should be focused on the rate of gross domestic product that is beneficial in bringing down unemployment. The government should adopt the policies through which the population growth rate can be controlled. People should be made aware of the outcomes of large populations in the country as well as on individuals. Further researches are recommended including some more important variables such as exports, capital stock, labor market policies, etc. This research will help to get more authenticated results.

1.8 References

1. Buffie. (1993). Direct Foreign Investment, Crowding Out, and Underemployment in the Dualistic Economy. Oxford Economic Papers, 45(4), 639-667.
2. Elmeskov, J., Martin, J. P., & Scarpetta, S. (1998). Unemployment and Labor Market Rigidities in OECD Countries – The Impact of Taxes. Swedish Economic Policy Review, 5(2), 207-258.
3. Lippman, S., & McCall, J. (1976). The Economics of Job Search: A Survey (Vol. 14, pp. 155-189): Economic Inquiry.
4. M.Rafiq, Ahmad, I., ullah, A., & Khan, Z. (2009). DETERMINANTS OF UNEMPLOYMENT: A CASE STUDY OF PAKISTAN ECONOMY (1998-2008)
5. Aasyn Journal of Social Sciences, 3(1).
6. Marika Karanassou, Hector Sala, & Salvador, P. F. (2007). Capital Accumulation and Unemployment: Capital Accumulation and Unemployment: new insights on the Nordic experience. Economics Review, 90(2), 1223-1322.
7. Mortensen, D. (1970). Job Search, the Duration of Unemployment and Phillips Curve. American Economic Review, 30(847-862).
8. Rizvi, S. Z. A., & Nishat, D. M. (2009). The Impact of Foreign Direct Investment on Employment Opportunities: Panel Data Analysis, Empirical Evidence from Pakistan, India and China.
9. T. Hussain, Siddiqi, M. W., & Iqbal, A. (2010). A Coherent Relationship between Economic Growth and Unemployment: An Empirical Evidence from Pakistan. International Journal of Human and Social Sciences, 5(5).
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Youth is the best to be understood as a period of transition from the dependence of childhood to adulthood’s independence. In Western societies, ‘youth’ is defined as “life stages between childhood and adulthood” and becoming independent from dependent (Kehily 2007). ‘Youth’ is often used to refer to those between the ages of leaving compulsory education and finding their first job. The United Nations (1981) defines ‘youth’ as those between the ages of 15 and 24 years old, without prejudice to other definitions by Member States. However, the term ‘youth’ varies in different societies around the world. According to the Cambridge Dictionary, ‘jobless’ is defined as unemployed. The definition of the unemployed has been underlined in the Labour Force Survey Report, Malaysia (2002). Both actively and inactively unemployed persons are categorized as unemployed. The actively unemployed include all persons who did not work during the reference week but were available for work and actively looking for work during the reference week. However, inactively unemployed persons include persons who did not look for work because they believed no work was available or that they were not qualified; persons who would have looked for work if they had not been temporarily ill or had it not been for bad weather; persons who were waiting for answers to job applications; and persons who had looked for work before the reference week. In a nutshell, youth unemployment refers to a typical age range that covers those who have just finished high school or graduated from colleges or universities which include individuals aged 15 to 24,

As the global economy continues to recover, labor force is improving, albeit at a slower pace. Anthony Dass, chief economist and head of AmBank Research stated that global unemployment in 2018 is projected around 5.5%, slightly better than 2017’s reading of 5.6% on the back of a better global GDP outlook, with an expected growth of around 3.6% in 2018 from 3.3% in 2017. When we look into the whole, we could find out that youth unemployment remains stubbornly high and analysis shows global youth unemployment is higher than global unemployment. It was around 13.2% in 2017 and is estimated to stay around the same level in 2018. Youth unemployment will always be a common problem in developed and developing nations. Proper attention should be given as this phenomenon will become a burden, a cost, and a problem to a nation. Youths should always be productive individuals who should contribute to the development of a nation and society. Unemployment of any kind represents a potential wastage of resources (Casson, 1979). From ancient times to the present, unemployment of young people is one of the most debatable issues as well as burden people to live through it. If this cannot be addressed, it may result in serious long-term negative effects. Hence, it is high time for us to discuss the causes and solutions to emerge youth unemployment.