Category: Economic Growth

With a population of 32.7 million, Malaysia is a multi-ethnic religious nation, distinguished primarily by three major ethnic groups: Malay and indigenous people, Chinese, and Indians. Malaysia has been effectively converting itself from a poor nation into a middle-income country since its independence in 1957. Despite difficult external factors, the economy of Malaysia has shown periodic expansion. It may also certainly assert its fighting success against poverty. Despite its progress in decreasing poverty, for certain geographical and societal factors, a vulnerable class of people in the country is still facing poverty.

Poverty is viewed as a mixture of diverse elements that goes beyond the claim of scarcity of income and is not limited to a single-faceted condition. The word ‘poverty’ applies to numerous detrimental social and psychological consequences, including domestic abuse, crime, alleged insufficiency of social investment and human capital expansion challenges, unfair distribution of services, and weak political involvement. The concept of poverty, however, is essentially country-specific.

In its earliest form, changes were made to the poverty line for discrepancies between the three major regions of Malaysia -Peninsular Malaysia, Sabah, and Sarawak – in average household size and cost of living. No adaptations have been made for rural or urban areas. Three ethnic poverty lines have culminated in this (besides the national one). These poverty lines, with inflation adjustments and changing average household sizes, were in place between 1976 and 2004 when they were introduced. While consumption established the poverty line, the poverty level was calculated in comparison rather than expenditure to gross household income. Therefore, families with incomes below the poverty line are classified as living in poverty, and those with incomes below half the poverty line are defined as living in ‘pretty tough’ or abject poverty. A modification was made to the poverty line in 2004.

The new poverty line has now been established for each family and measured for each state and rural or urban area, keeping track of the overall cost of living, the structure, and the scale of the household. Extreme hunger or hard-core poverty was often characterized by this current poverty line as households with wages beneath their food poverty line or families unable to fulfill their basic food needs. The national average poverty line in 2009 translates into an unadjusted RM6.50 per household per day (equivalent to US$3.00 per day). Poverty line income (PLI) is currently being updated and segregated for each state in the nation. In the updated edition, various sizes of households are taken into account, with a distinct division based on urban and rural areas. Specific features of each household considered for the PLI calculation include the number of inhabitants and their location and demographic aspects.

Malaysia has achieved immensely in fighting poverty. The poverty threshold was 49.3 percent as of 1970, and it was lowered to 8.1 in 1999. It was optimally decreased to 5.5 percent in the year 2000. The policy which was employed for reducing poverty led to accommodating a successful poverty reduction enclosure and quick economic growth with the continuous development of its micro-economy. Hardcore poverty decreased from 1.2% in 2004 to 0.7% in 2009, and the rate of total poverty dropped from 5.7% in 2004 to 3.8% in 2009. In Malaysia, the general poverty rate is 3.7 percent (Department of Statistics Malaysia, 2011).

Despite the clear achievements in eliminating poverty, owing to many deprived situations, poor parts of the population remain stagnant. But I believe that the right approach of the government and renewed models of economic development will give results and, in a certain time, Malaysia will still be able to overcome the problem of poverty.

In recent years, there has been a growing trend that people tend to buy things on the Internet. This presents both pros and cons, however, in my opinion, its benefits are much more significant than the drawbacks.

On the one hand, shopping online brings consumers some disadvantages. Initially, since people are unable to touch or see the products they want to buy in reality, it is always hard for them to examine the quality of these products. As a result, they might purchase the items with poor quality. In addition to that, as consumers do not feel happy with the items they have bought online, they tend to abandon these products or don’t use them at all. This is a waste of money. Moreover, buying things on the Internet often makes people confused since there are a great number of shops on the Internet. To be specific, buyers might see the same products in several shops, but the prices for these items can be very different, ranging from reasonable to prohibitively expensive prices. Consequently, they will not know which products they should purchase.

On the other hand, I am of opinion that shopping online brings people several benefits. First, shopping online allows consumers to browse for products and check prices between these online shops. In this way, people can make a better decision to buy what they like after taking prices, sizes, and models into consideration. From my experience, I used to buy an elegant dress at the virtual shop, which was cheaper compared to some shops near my house.

Second, buying things on the Internet helps people save a great deal of time. That is to say since people nowadays are often so caught up with work and study, shopping online is a wise choice that doesn’t require them to go to the stores. With a click of a mouse, they can buy the things they need and the shippers will deliver their products to customers as soon as possible.

Third, since there is a high demand for buying things online, many people can realize their dream of starting up their own business and achieving success in the long run This can be seen as a positive trend because it creates good job opportunities for people and thereby help people to improve their income and well-being. This also contributes to boosting the economy of a nation in general.

In conclusion, although buying things on the Internet exerts some adverse aspects, the advantages can justify these.

According to economic theory, economic growth in a given country is possible in only three cases. The first is when investment flows: when capital accumulation outstrips the growth of the labor force, so the share of workers is more capital. This growth is named after the American economist Robert Solow – ‘Solovian’ growth. The second – economic growth can occur in connection with the expansion of the exchange of goods and services, it is commonly called Smithian growth, because of economist Adam Smith. The third is the growth caused by the accumulation of knowledge, the actual technical or technological progress of society, named after the Austrian economist Joseph Schumpeter, who defined capitalist expansion as continuous, leaps and bounds, technical change and innovation.

However, there is another type of growth that is simply associated with population growth. However, given that the population of Ukraine has been declining for the past 25 years and the demographic dynamics does not inspire optimism, we will not consider this type of growth as a likely factor in future economic growth in Ukraine.

Thus, there remain three types of likely economic growth in Ukraine. We will probably have to exclude Smithian growth for the near future. Since in the world, after the ‘great Chinese economic slowdown’, there is a certain pause in development in developing countries – because many of them flourished precisely on trade with China. Over the past 25 years, China has been growing rapidly, and therefore the economies of countries that traded in raw materials and low-value products (including Ukraine) have grown with it. Now this growth factor has ceased to work. The American economist Mohammed El-Erian, with his ‘new norm’ that in the 21st century the developing countries will outstrip the developed ones, appears to be wrong. We could have economic growth, like the developed countries of the West, continuing to trade on world markets (including the Chinese market) with high-margin products. But we do not have one (or we have, but very little for growth). Therefore, no matter how you look at it, Smithian growth is not expected in the near future.

There remain two types of growth – Solowian (investment) and Schumpeterian (technology). They are connected. Let me explain why. Investments, and by them we mean capital investments (that is, investments in the capital of enterprises) are long-term in nature. And what could be the investments during the third and fourth industrial revolutions taking place in the modern era? That’s right, only those that enter, first of all, the technology sector. Of course, investments are also possible in non-technological sectors (for example, in agriculture or infrastructure), which will create for a short time the illusion of economic growth in Ukraine, but in the long term they cannot be effective, and again after a while we will see a slowdown in our economy. China has behaved like this in recent years, trying with all its might to maintain high rates of economic growth – by burying millions of tons of concrete in the ground, building countless highways and million-plus cities, many of which now no one lives. But all the same, it did not help, and this component of artificial growth in the overall growth of China (which produces a lot of high-tech products) ended its effect. And now we do not need to repeat these mistakes of the planned Chinese economy.

We see that in fact all types of growth are interconnected, and first of all, investment and technological growth are interconnected. The correct model of economic growth looks something like this – Ukraine needs investments in high-tech sectors that will provide us with the production of high-margin products that are in demand on world markets. And only when in all these stages we have long-term growth, the Ukrainian economy will grow, selling more and more goods and services on world markets (Smithian growth). It will be possible to sell them, because we will trade high-margin high-tech products that are in demand on world markets (Schumpeterian growth). And we will be able to create these products because we have previously accepted investments (both external and internal) in these high-tech sectors of the economy (Solowian growth), national science and technical education.

Here is a model for a real possible long-term economic growth! All other models in terms of attracting investments as factors of economic growth that will be offered to us, at best, will be able to give only a short-term effect, and will very quickly end their action. Therefore, the cry of officials and journalists: ‘Ukraine needs investments!’, without defining what these investments should be, and in which sectors of the economy they should be directed, is harmful and not constructive.

Let’s go further. Since we have seen that growth-beneficial investments can be channeled into technology geological sectors, can we define in which specific sectors they need to be directed? By and large, the answer is no. Modern capitalist development is characterized by an extreme degree of uncertainty, so it is impossible to know for sure where the next technological breakthrough will take place. No expert, even the most famous, will tell you for sure. Therefore, in the West, this issue was resolved quite elegantly. In the West, primarily in the United States, a four-tier system for attracting investment in the technology sector was created – a venture financial model (first, investments in a technology company come in the form of money from family and friends; then money from ‘business angels’ comes; then money from venture funds; then followed by an IPO). It is this model that helps to overcome the risks of uncertain technological development. But even there, the number of successful investments is quite small. However, it was on this system that companies such as Apple, Microsoft, Google, Amazon and Facebook were created.

So, the indignant reader will ask, we don’t need to raise money for our dilapidated infrastructure? No, we need to attract, but now it needs to be done in much smaller quantities than in the technological sectors and in the construction of social institutions of the new industrial society! Because a developed industrial society will then build for itself (using the funds received from the trade in high-margin technological products that are in demand on world markets) the infrastructure it needs. But, if this infrastructure is built before such technological development, then it simply will not be in demand by society. Look at the ruins of Palmyra and Petra (Syria and Jordan), as well as modern Detroit (USA) – this is the fate of the Ukrainian infrastructure. Hungarian economist Janos Kornai calls such a society ‘a society of premature welfare’. No, we must first learn how to create technological goods, then learn how to sell them on world markets and at home, and only then can we spend money on ourselves.

In addition, the recipients of investments should be primarily Ukrainian national companies. American John Perkins wrote in ‘Confessions of an Economic Killer’ that some Western investments in developing countries do not even cross the borders of these developed countries: money from the account of one American company is transferred to the account of another American company, and the work is carried out in another country. The US government, for example, allocates funds to Ukraine for the construction of renewable energy facilities – and this money is invested in the production of ‘wind turbines’ by an American company. As a result, there are ‘wind turbines’ in Ukraine, and there is simply no national industry that manufactures products that are in demand on world markets, which can use the energy produced by these ‘wind turbines’, since no one bothered to create it in due time.

Again, this is why investments must be ‘smart’, and first of all, directed to the education of our national technological specialists in Ukraine, so that they stay with us with their labor competencies after the end of the commercial project. And which, according to new educational methods, approved in the developed world, taking into account all the good that was created in the scientific, educational and production process during the times of the Ukrainian SSR and during our independent development, with the help of the national venture financial industry created for this, will create, in cooperation with international companies, artifacts of the third and fourth industrial revolutions. And only there, dear reader, first of all, we must direct our investments (and create conditions for foreign investments), if, of course, we want to remain in the world economic and political history, as a single and indivisible Ukrainian state.

Main Hypothesis and Nature of Relationship

For the testable hypothesis, we posit that sustained economic growth is a function of stable government (or rule of law), proximity to export markets, gross domestic investment, and an outward-looking economy. These are operationalized as follows:

1. The effect or dependent variable is annual growth rate in per-capita income (G in the ACLP codebook).
2. The first independent variable selected is the stability of government. In the codebook, this is “RSPELL: Number of successive spells of political regimes as classified by REG. A spell is defined as years of continuous rule under the same regime.” One expects an inverse relationship, anticipating that the fewer the spells, the more consistent are the laws and edicts that regulate business and therefore, the greater the chance that economic activity will flourish.
3. For the second independent variable, geographic location matters because a nation that is just beginning to flex its muscles, so to speak, in international trade would benefit from lower costs of shipping to industrialized neighbor countries in North America, Europe or East Asia. On the other hand, robust importing demand is unlikely in South Asia or Latin America. The variable of choice is REGION because of the numerical values assigned to Southeast Asia and the OECD countries.
4. The third variable is investment, operationalized as INV: Real gross domestic investment as a percentage of GDP at 1985 international prices. This is premised on the rationale that no economy can attain sustainable economic growth unless there is continuing public and private investment in infrastructure, educating the (future) labor force, in health care facilities, in new factories and R & D.
5. Finally, the fourth variable is degree of participation in foreign trade. Expressed as “OPENC: Exports and imports as a share of GDP (both in 1985 international dollars)” inclusion is based on the rationale that, all other things equal, foreign trade gives a nation not only capital surpluses but also access to technology transfer.

Univariate Summaries

Table 1:

Over the four decades covered by the “Democracy and Development: Political Institutions and Material Well-Being in the World” database, annual economic growth adjusted for population sizes in the 132 countries has ranged from minus 17% to as much as 21.4% (see table above). The mean value of 0.75% implies a negative skew in the distribution (see also charts below) and that, on the whole, economic growth as measured by gross national product has expanded marginally faster than population growth. Globally, nations were not better off in 1990 than in 1950.

The first independent variable (IV), regime stability, is interesting for being bipolar. The calculated mean years of being ruled by the same regime, 110 years (see Table 1 above) is actually deceptive because most countries skew towards either highly stable rule (upwards of 150 years under either democratic or dictatorial rule, see Figure 1 below) or rapid transitions from one to the other.

The second IV, geographic location, is of course a static categorical variable since regional “affiliation” does not change over time. For the moment, univariate analysis of this variable can consist solely of counting the number of countries belonging to each. Table 2 reveals that the two regions of interest in this analysis, East Asia and the OECD member-nations, collectively comprise 42 countries or a shade under one-third of all nations.

Table 2: Distribution by Region

The third IV, real investment, ranged from 1% of gross domestic product to as much as 49%, though more typically at around 15% or 16%. This suggests wide disparities in resources that could be devoted to investment, as well differences in in the will of either the private or public sector (or both) to deploy those resources for fueling economic development.

As to the fourth IV, foreign trade in relation to gross domestic product was recorded at from 2.5% to 343.2% (Table 1). The realistic benchmark is the modal class interval of from 41% to 60% (see Figure 2) rather than the mean of 66% since the latter is unduly influenced by outliers (e.g. Singapore, Taiwan) that frequently achieve foreign trade totals twice or thrice their domestic product.

Relationships Between the Dependent and Independent Variables

We test for the existence, direction, and strength of the relationship with a combination of crosstabulation and scatterplots.

Table 3:

Given the categorical nature of REGION, a crosstab was tried with G recoded into class intervals. The result, Table 3, suggests that location within a trading region alone is inconclusive. First of all, 8 in 10 countries experienced low per-capita income growth (1% to 10%) or typically endured sluggish contractions (-1% to -10%) throughout 1950 to 1990. This is true for the OECD countries and, with one exception, those in East Asia. On the other hand, 10% of the Latin American and European countries outperformed the rest of the world by averaging 11% per-capita income improvement or better, albeit this really stands for just two countries. Hence, steady and satisfactory improvements in per-capita income were not the preserve of either the industrialized economies or Japan and the “little dragon” newly industrializing, export-oriented nations of East Asia. Plainly, other variables were at work besides proximity to robust trading partners.

Visual inspection of Figure 2 above suggests that regime stability may have the weakest link to G among the three IV’s that were scale variables and could therefore be drawn on a scatter plot. The trend line would likely be perfectly flat (no relationship) and growth in per-capita income may continue to fluctuate slightly above or below zero regardless of how long a nation has remained under a democratic or dictatorial regime.

The openness of the economy in terms of foreign trade in relation to purely domestic output of goods and services (OPENC) may reveal a positive trend line. But this demands adjustment of the data and further manipulation because most of the data points cluster between 0% and 100% share to GDP. As first step, one would have to see what happens when the high share of GDP outliers are removed.

In contrast, the test of G against INV, real gross domestic investment as a percentage of GDP, has better potential for discovery of a positive relationship because: a) The scatter plot will accommodate a slightly sloped trend line; and, b) The data points are more satisfactorily dispersed from 0 (a negligible share) to around a 36% share of domestic investment in GDP. In fact, a preliminary stepwise regression run on all three IV’s (see Table 4) lends credence to a model where:

G = -3.01 + 0.10 (INV) + 0.02 (OPENC) + 0.01 (RSPELL)

INV brings about the largest change in G and a significance index better than 0.05 at the partial equations stage.

Table 4: Stepwise Regression Results:

Interpretation of the Relationship

Though INV gives the most grounds for optimism, the β value does not seem especially large. A good part of the explanation may lie in the fact that there is a lagged relationship between domestic investment and a favorable impact on per-capita income. After all, registering with the government a $1 million investment to build a factory this year impacts on domestic output many months or a year later. In national income accounting, increased output also equates with either savings or personal consumption expenditures (PCE) by the employees and suppliers of the new plant. Hence, the beneficial impact of the investment on family incomes eventuates some time later.

Alternate Hypotheses

On a global scale, in fact, per-capita income can be a misleading variable since it is derived by dividing the estimated value of domestic production of goods and services into the population that year. That per-capita figure masks many disparities across industrialized economies, the middle-income developing countries (MDCs), and the less developed countries. “Per-capita income” conceals inequity in income distribution among the upper-, middle- and low-income strata of a nation. An investigation into the antecedents of well-being should therefore consider income distribution as the DV at some stage. In the Codebook, this is the variable GINI, standing for the Gini ratio of income earned by the upper and lower extremes of the population.

• A second alternate hypothesis…
• Yet a third alternate hypothesis…
• Statistical Tests of Causal Hypotheses