Category: Economic

Introduction

It is the wish of every country to realize improved and sustainable economic growth and financial development in order to improve the living standards of the greatest majority among its citizenry. Improved economic and financial development is also central to a countrys ability to safeguard its survival in a world that is increasingly facing uncertainties, and unforeseeable risks.

For these reasons, countries with visionary and development conscious leaders devise the most feasible economic blueprints that can enable them to reach greater heights of economic and financial success. In reality, a developmental state is a product of superior economic design; not accident, chance, or miracle.

That is the bitter truth that the worlds poor and developing countries leaders must embrace or condemn their countries to terminal economic and financial stagnation. This paper is a review of Chinas economic growth and financial development.

Economic growth

Economic growth refers to a rise in the capacity of a country to generate goods and services, as compared from one period of its history to another (Barro & Sala-i-Martin 2004, p.52). Economic growth is measured in real and nominal terms (Cypher & Dietz 2008, p.33). Nominal terms include inflation while real terms are adjusted for inflation.

Comparative studies of economic growth of different countries use GDP or GNP per capita because these variables take into account population differences between countries (Cypher & Dietz 2008, p.33). Economic growth is normally attributed to technological advancement in a given society (Barro & Sala-i-Martin 2004, p.52).

United States is a prime example where enormous economic growth was realised following the introduction of the internet technology. It is pertinent to note that, the growth of a countrys economy should not be seen in terms of an increase in its productive capacity only, but also as an improvement in the quality of life of its citizenry.

In short, economic growth is a process through which a countrys wealth accumulates over an extended period. Therefore, economic growth can best be thought of as a process of transformation.

According to Fitzgerald, a countrys long-term sustainable economic growth depends on its ability to increase its pace of accumulating physical and human capital, to use the resulting productive assets more efficiently and guarantee the reach of the entire population to these assets (2006, p.1).

Financial Development

Financial development refers to the creation and expansion of instruments, institutions and markets that support a countrys investment and economic growth process (Fitzgerald 2006, p.1; King & Levine 1993, p.3).

Banks and non-banking financial intermediaries such as stock markets and pension funds play the role of translating household savings into enterprise investment, keep an eye on investments and distribute funds, as well as, to price and mitigate risks (Fitzgerald 2006, p.1). Financial intermediation provides liquidity so that companies can operate the new capacities efficiently.

Some economists hold that, financial development and economic growth are intimately related (Jeanneney et al 2008, p.3). Financial development influences a countrys economic growth, and helps to alleviate poverty because economic growth is a potential way of reducing poverty (Jeanneney et al 2008, p.3).

Financial development helps alleviate poverty indirectly by motivating growth, and directly by enhancing transactions and enabling the poor to gain from financial services that raise their income, which facilitate their ability to undertake productive investments and other activities.

Literature review on Chinas economic growth and financial development

The Peoples Republic of China, popularly known as China is the most populous country with over 1.3 billion citizens. It is situated in East Asia (LaFleur 2003, P.3). It is a de jure one-party state ruled by the Communist Party of China (CPC) (LaFleur 2003, P.3). China is the third largest country by a total area and the second largest by land area (LaFleur 2003, p.3).

During 1990s, the international community started to acknowledge that Chinas economy is self-motivated and rapidly growing; therefore, its swift growth would continue for some time (Chow 1994, p.1). Today, china is one of the fastest growing economies internationally.

Since 1978 when economic liberalization was introduced in China, Chinas investment and export-led economy has grown 90 times bigger and is currently the fastest growing leading economy in the world (Wang et al 2007, p.85; Bramall 2009, p.464). According to the International Monetary Fund (IMF), during the period 2001-2010, Chinas annual average GDP growth was 10.5 percent.

This growth is anticipated to grow at 9.5 percent during the period 2011-2015 (Morrison 2011, p.2). Between 2007 and 2010; Chinas economic growth rate was equivalent to all of the G7 countries put together (Morrison 2011, p.2).

The link between economic growth and financial development has triggered a protracted debate from Smith to Schumpeter. According to research results over the years, financial development stimulates economic growth (Burzynska 2009, p.8).

He argued that via the services that financial intermediaries bring about like mobilizing savings, containing risk and enhancing transactions technological and economic development is motivated (Burzynska 2009, p.8). For him, financial intermediaries facilitate technological innovation.

Technological advancement according to Schumpeter is a process of continuous substitution of old production methods and goods with improved processes, services and goods by innovation and invention (Burzynska 2009, p.8). It has long been agreed amongst economists that financial institutions can enhance economic growth.

For instance, Hicks put emphasis on capital formation, which he argued can be influenced by financial intermediaries by either changing savings rate or by redistributing savings among different capital generating technologies. There are, however, distinguished economists who oppose the view that financial developments stimulate economic growth.

For example, for Robinson an economy in which enterprise is leading finance development follows (Robinson 1952, p.43). In other words, financial development takes place as an automatic response to rising varied financial needs. Other scholars were concerned that economists overemphasized the importance financial factor in economic growth (Lucas 1988, p.4).

Financial intermediaries play six main roles. First, they pool household savings and make them available for lending (Burzynska 2009, p.9). Doing so reduces transaction costs for firms, as well as, households themselves. Secondly, financial intermediaries distribute savings and decide who gets loans (Burzynska 2009, p.9).

Thirdly, financial institutions mitigate the overall risks of doing business by way of spreading investors funds among the diverse investment opportunities. Fourth, they produce liquidity. Fifth financial in situations facilitate trade by extending credit and guaranteeing payment (Burzynska 2009, p.9).

Finally, they exert corporate control and monitoring of managers. A properly functioning financial system should ensure increased savings and investments which either via capital accumulation or technological change leads to rise in output and consequently economic growth (Burzynska 2009, p.9).

Chinas outstanding economic growth during the last two decades has attracted considerable attention particularly from economists. Most empirical studies show that improvement in Chinas productivity can account for an important portion of its striking growth (Morrison 2011, p.5).

The source of Chinas remarkable growth has two aspects namely domestic and international even though the two are intimately related. Since 1978, China backed free trade and gradually removed trade restrictions.

The government transformed its policy of management of foreign trade by the Ministry of Foreign Trade and gave provincial governments a substantial autonomy in foreign trade and permitted private sector to take part in foreign trade (Morrison 2011, p.2; Chow 2005, p1).

According to Chow (2005), during the period 1978 to 2002, total volume of exports and imports rose from $ 20.64 billion to a staggering $620.8 billion in 2002. This accounted for 65 % of chinas GDP and a growth rate of 35% annually (Chow 2005, p.1). Consequently, China became the third largest trading economy behind Germany and the United States.

Presents Chinese exports are found all over the world. In the year 2001, China acquired World trade Organization membership. WTO pushed it to lower its tariffs for manufactured and agricultural products (Chow 2005, p.1; Bao et al 2006, p.181). The lowering of tariffs helped to increase competition among Chinese manufacturers and farmers and ended up providing inexpensive products for Chinese consumers.

According to Chow (2005), foreign trade has boosted Chinas economic growth in three aspects. International specialization, which occurs as each country produces the goods for which it has a comparative advantage in generating, has enabled China to procure more goods than by national production only (Chow 2005, p.1).

Secondly, exports are a part of aggregate demand and rise in cumulative demand has helped China to raise its national output. Thirdly, trade in conjunction with foreign investment has brought in modern technology and methods of management that has increased Chinas productivity (Chow 2005, p.1).

Another major cause of Chinas economic growth was an increase in foreign investment, and domestic investments (Chow 2005, p.2; Morrison 2011, p.5; Zhang 1995, p.2). Even though available statistics show that private consumption fell from 49 percent of GDP in 1990 to 35 % in 2008, investment increased from 35% to 44 percent of GDP by the same date (Chow 2005, p.2).

According to Clow (2005), flow of physical capital in the form of foreign direct Investment (FDI) has been exemplary in advancing Chinas economic growth. After the introduction of the 1978 economic reforms, Chinas foreign investment policies have positively changed.

The 1978 economic reforms became a point of departure for China from seeing foreign investment as a form of exploitation by outsiders, to embracing it for purposes of Chinas economic growth and development (Chow 2005, p.2; Morrison 2011, p.2). For instance, in 2001, an amount of FDI of $ 49.7 billion dollars was utilized while in 2003 $ 56.1 billion was utilized.

Foreign investment has helped Chinas economic growth through the provision of physical and financial capital, new technology and managerial skills to China (Chow 2005, p.2; Morrison 2011, p.5). Through the 1978 reforms the government also encouraged individual citizens to start their own businesses. Additionally, control of prices for various commodities by the state was gradually removed.

Clow, however, points out that, foreign investment is not a basic economic factor in Chinas outstanding economic growth, but only a vehicle boosting that growth (Chow 2005, p.2). Instead, there are three significant factors including availability of high quality human resources, which comprise properly trained and hardworking labourers, and creative entrepreneurs.

Adequately properly functioning market institutions and chinas standing as a late comer who can embrace new technology from the already developed countries (Chow 2005, p.3). These three fundamental factors have enabled china to create a centre of attention for foreign investors.

Moreover, the investors would have invested their capital in other economies. Today, China is exporting capital to developing countries, as well as, United States. For instance, Chinese investment has boosted economic development of some African and Asian countries.

Morrison has attributed Chinas swift economic growth to two main factors namely large-scale capital investments and a swift productivity growth (Morrison 2011, p.5). These capital investments were financed by both foreign investments and domestic savings.

Economists view these two factors as having moved hand in hand. Economic reforms resulted into higher efficiency in Chinas economy, which in turn, enhanced national output and raised resources for additional investment within the economy (Morrison 2011, p.5).

Furthermore, economists have concluded that productivity growth, or increases in efficiency have been a fundamental factor in Chinas striking economic growth. This improved productivity is attributed to reallocation of resources to more productive areas particularly sectors that were previously strictly controlled by the government like services, trade and agriculture (Morrison 2011, p.5).

For example, improvements in agriculture promoted production and set workers free to pursue employment in a more dynamic manufacturing sector (Morrison 2011, p.5). In addition, economic decentralization encouraged the rise of private companies.

The private firms that emerged tended to follow more productive activities than the State Owned Enterprises (SOEs), and were more market-oriented and for this reason more efficient (Morrison 2011, p.5). The export sector of the Chinese economy got exposed to competition.

Provincial and Local governments were permitted to establish and run a wide range of enterprises based on market forces and principles, without central government interference (Morrison 2011, p.5).

Additionally, China has attained high rates of total factor productivity than even most of the developed economies including United States. These high rates of TFT growth are attributed to Chinas ability to reach and make use of existing foreign technology and expertise.

Apart from the causes of rapid Chinese economic growth reviewed above, economists have explored the role played by financial development in boosting economic development in China over the two last decades.

Like other sectors, since the introduction of the 1978 economic reforms, the Chinese financial sector has experienced fundamental changes. For example, the place of mono banking was taken over by commercial banking; stock markets emerged; and modern regulatory bodies were established (Burzynska 2009, p.11; Zhang 2008, p.12). Stock markets were introduced in China in 1990.

Stock markets were established in main cities including Shanghai which is a Chinas oldest financial centre and Shenzhen, a fast growing city in the southern part of china for purposes of balance (Burzynska 2009, p.13). More than 75 percent of stock trading takes place in shanghai and the rest in Shenzhen.

Unfortunately, even though indexes may reach greater heights and transactions prosper within Chinas stock markets, some shares are not tradable (Burzynska 2009, p.14). For example, combined capitalization of Shanghai and Shenzhen stock markets as at the end of 2007 was 133% of GDP even though only 37% of GDP was tradable (Burzynska 2009, p.13).

Furthermore, stock in china is more of a political affair and thus plays a minor role in financing enterprises. Politics within the stock market has led to incorrect pricing of the stock with overpricing and under pricing alternating depending on the prevailing political conditions (Burzynska 2009, p.13). Loans offered 80% of financing compared to 13% of equity in year 2007.

Foreign companies are only permitted to obtain loans from banks only and can not borrow from other companies. According to Burzynska (2009), even though the debt market in china is developing it is considerably narrow, fragmented and inadequate in liquidity.

It was not until 1990 that the government started to take charge of and control the bond markets seriously, which began unofficially in 1980s (Burzynska 2009, p.15). In 1997 trading of government bonds was started on the inter-bank market. The corporate bond market was reserved for various SOEs, and a considerable period remained remarkably small (Burzynska 2009, p.14).

The government and policy banks issue most of the bonds. However, the volume of bonds traded has grown significantly especially since 1998 due to expansionary monetary policies (Burzynska 2009, p.14).

For example, as of the end of year 2007 total bond issuance accounted for 32% of GDP (Burzynska 2009, p.14). In a nut shell, it is the Chinese banking sector that plays the most significant role within the Chinese financial sector and is thought to have the strongest link with economic growth.

Chinese financial system has numerous banking institutions. Hence, over the last decade total bank loans have accounted for over 105% of GDP (Burzynska 2009, p.15). Chinas banking sector is categorized into four principal types of banks including commercial banks, state owned banks, foreign banks and rural credit cooperatives (Burzynska 2009, p.15).

There are also non-banking institutions. The Peoples Bank of China has served as the central bank of china since 1983. It formulates and put into practice monetary policies and controls financial markets (Burzynska 2009, p.16). However, it is not an independent entity because the government has apparent control over expansion of new financial products and levels related to interests rates on loans.

The momentous question today revolves around whether the relatively weak financial intermediaries in China have been a fundamental contributing factor to Chinas rapid economic growth. Influential economists, some of which are respected authorities on Asian economic studies, have positively focused on the role of Chinas financial system in its rapid economic growth.

Others had used the case of Chinas outstanding economic growth to prove that financial development follows economic growth given the fact that, by the time china was emerging as a dynamic economy, its financial system was poorly developed. Therefore, for such scholars current financial development is merely responding to presently required financial arrangements in a growing economy.

There is, however, evidence showing that Chinese has historically maintained a high of savings even in the absence of a properly developed financial system. For example, when economic reforms were introduced in 1978 domestic savings stood at 32% of GDP (Morrison 2011, p.5).

Even though, much of these savings were produced by profits of SOEs, the 1978 economic reforms which entailed economic decentralization, resulted into a considerable rise in Chinese household savings, as well as, company savings (Morrison 2011, p.5).

Consequently, Chinese gross savings as a proportion of GDP have drastically grown; it reached 53.9% in 2010; therefore, is one of the highest savings rates in the world (Morrison 2011, p.5). According to Morrison (2011), the high level of savings has allowed China to boost national investment.

It is estimated that Chinese domestic saving margins surpass its domestic investment levels making China one of the largest net global lenders (Morrison 2011, p.5). Therefore, there is no dispute that financial intermediaries have contributed to Chinese rapid economic growth especially during the years following initialization of the 1978 economic reforms.

These reforms apparently created a developmental space in which competition within the financial sector could thrive, and in the long run enabled it to contribute to Chinas astounding economic growth.

There is empirical evidence showing that financial development has significantly contributed to Chinas high rates of total factor production (Guillaumont et al 2008, p.3). Empirical evidence has continually shown that financial development promotes Chinas productivity by increasing efficiency.

Financial development caused a positive and significant impact on efficiency both through expansion of credit to the private sector and through promotion of competition within the financial sector, which in turn robustly promotes Chinas productivity growth (Guillaumont et al 2008, p.3; Hasan et al 2007, p.4; Calomiris 2007, p.364).

However, economists, such as Maswana, have asserted that Chinas rapid economic growth and financial development outcomes are irreconcilable because; its financial system is seriously weak and inefficient (Maswana 2008, p.1).

Avid critics of the said link between Chinas remarkable economic growth and its financial development cite intermediation inefficiencies such as non-performing loans and government controlled loan allocation (Maswana 2008, p.2).

Conclusion

Chinas economic growth is certainly remarkable and hence the enormous attention it has attracted among influential economic scholars across the globe. More literature on Chinas economic growth and financial development will keep on surfacing, since its rapid economic growth rate is anticipated to continue for a considerable period in the foreseeable future.

This argument is anchored on the fact that there is an unresolved debate on the connection between Chinas rapid economic growth and its financial development.

However, it expected that as Chinas technological advancement starts to catch up with that of principal developed countries, its level of productivity advantages and real GDP growth could slow considerably from its spectacular 10% economic growth rate, unless China transforms itself into a centre of new innovation and technological revolution.

Furthermore, thriving of business in all sectors especially with regard to foreign investment depends largely on governments ability to implement free-trade policies, which are in line with WTO principles.

References

Bao, S., Lin, S., & Zhao, C., 2006. The Chinese economy after WTO accession. Hampshire, UK: Ashgate Publishing, Ltd.

Barro, J., & Sala-i-Martin, X., 2004. Economic growth. New York, NY: MIT Press.

Bramall, C., 2009. Chinese economic development. New York, NY: Taylor & Francis.

Burzynska, K., 2009. Financial Development and Economic Growth: The Case of Chinese Banking Sector. Web.

Calomiris, C. W., 2007. Chinas financial transition at a crossroads. New York, NY: Columbia University Press.

Chow, C., 1994. Understanding Chinas economy. London: World Scientific.

Chow, C., 2005. Globalization and Chinas Economic and Financial Development. Web.

Cypher, M., & Dietz, L., 2008. The process of economic development. New York, NY: Taylor & Francis.

Guillaumont, S., Hua, P., & Liang, Z., 2008. Financial Development, Economic Efficiency and Productivity Growth: Evidence from China. Web.

Hasan, I., Wachtel, P., & Zhou, M., 2007. Institutional Development, Financial Deepening and Economic Growth: Evidence from China. Web.

Jeanneney. G., Kpodar, J., & International Monetary Fund. African Dept. 2008. Financial development and poverty reduction: can there be a benefit without a cost. New York, NY: International Monetary Fund.

King, R.G., & Levine, R., 1993. Finance and Growth: Schumpeter Might Be Right. Web.

LaFleur, R. A., 2003. China: a global studies handbook. New York, NY: ABC-CLIO.

Lucas, E., 1988. On the Mechanics of Economic Development. Journal of Monetary Economics, 22(6), pp. 3-42.

Maswana, J., 2008. Chinas Financial Development and Economic Growth: Exploring the Contradictions. Web.

Morrison. M., 2011. Chinas Economic Conditions. Web.

Robinson, J., 1952. The rate of interest and other essays. London: Macmillan.

Wang, G., Wong, J., & National University of Singapore East Asian Institute. 2007. Interpreting Chinas development. London: World Scientific.

Zhang, A., 1995. Economic Growth and Human Development in China. Web.

Zhang, J., 2008. Chinas Economic Growth. Trajectories and Evolving Institution Washington DC United Nations University.

Political Stability

At the present, the countrys political infrastructure can be considered relatively stable given that there have not been any significant amounts of civil unrest as seen in the case of Greece and Syria. Unfortunately there has been a growing level of discontent within the country over the increasing disparity between the rich and poor and the fact that no effective solution to jobless rate has been presented by the government. As such, this creates a potential powder keg situation within Spain that has the potential to erupt within the next few months.

Economic Conditions

An examination of the economic conditions of Spain reveals that the entire country is currently within a financial recession that has been brought about through a combination of the current European debt crisis which has created a region wide economic contraction as well as a recent local real estate bubble burst which has severely crippled the Spanish economy. The end result has increased the unemployment rate of Spain to 25% with little, if any, economic recovery in sight due to lackluster demand for goods locally as well as a waning global economy that has been impacted by a lack of consumer demand on the part of the U.S. as well as a slowdown in Chinas manufacturing growth (Martin-Moreno, Perez, & Ruiz, 2012). What you have to understand is that if a large percentage of the population is unemployed this would also affect localized demand since fewer people have extra money to spend on what can be defined as luxuries (Martin-Moreno, Perez, & Ruiz, 2012).

Finance Options Available

One of the current finance options available within Spain for the establishment of Coca Cola within the country is the use of bank loans or various types of bank financing in order to pay for aspects related to import and storage costs, employee salaries as well as various marketing peripherals. It is rather unfortunate to note though that due to both the debt crisis and the recent real estate bubble burst, banks within the country have been reluctant to lend money to all levels of business whether it is a well established large enterprise or small to medium scale companies (Martin-Moreno, Perez, & Ruiz, 2012). While it may be true that it is always possible to find external sources of finance from other countries, the fact remains that the ability of local merchandisers to actually pay for the product must be taken into consideration.

Reference

Martin-Moreno, J., Perez, R., & Ruiz, J. (2012). Private consumption and sector price behavior in the Spanish economy: a business cycle approach. Applied Economics Letters, 19(9), 863-868.

Urbanisation can be discussed as one of the main characteristics of the modern world influenced by the global forces and by the governments policies. If the role of urbanisation for developed countries is rather obvious, the effect of urbanisation on developing countries is the controversial question that needs to be discussed in detail. Thus, the essay aims to discuss potential socio-economic effects of urbanisation on the situation in developing countries.

Urbanisation can be defined as the significant growth of towns and cities in a certain country, which leads to changing the socio-economic situation within it. Although many researchers state that urbanisation does not provide the obvious positive effect on developing countries, the process of urbanisation can guarantee many potential socio-economic benefits for these countries because of changing the direction of the socio-economic development.

Rural territories do not provide the necessary resources for the significant economic development. That is why the developed countries characterised by the economic growth depend on the idea of urbanisation^[1]. As a result, to achieve the definite level of the economic development, it is necessary to accentuate the role of urbanisation in the process. Towns and cities in developing countries become the centres of the social and economic progress because of the concentration of the maximum of the necessary forces in urban territories.

Furthermore, urbanisation is the way to the further productive development of rural territories. The economic interactions between the urban and rural territories are a kind of investing into the progress of the rural areas. Thus, the interaction between rural and urban areas is likely to increase over time and should be supported^[2]. Rural territories traditionally develop depending on the progress of cities. That is why, the increase in cities can stimulate the positive changes in the rural areas of developing countries.

Nevertheless, developing countries are characterised by the uncontrolled urbanisation, which prevents cities from the economic growth and contributes to the urban poverty^[3]. However, poverty in cities can be overcome easier than in rural areas, and the perspectives for the economic development and for increasing incomes are greater in cities. The problem is only in the effectiveness of governing urban territories in the developing countries^[4].

Thus, urbanisation can be discussed as the first step to the economic growth of developing countries. In spite of the developed biases, there are many potential socio-economic advantages of urbanisation for developing countries because of the processs orientation to the progress and positive changes in economy.

Bibliography

Hammond, R., The positive potential of urbanization, World Urbanization Prospects, USA, 2007.

Nelson, A., Urbanisation, World Urbanization Prospects, USA, 2006.

Footnotes

1. R. Hammond, The positive potential of urbanization, World Urbanization Prospects, USA, 2007, par. 2-3.
2. Hammond, par. 4.
3. A. Nelson, Urbanisation, World Urbanization Prospects, USA, 2006, par. 3.
4. Hammond, par. 6.

Summary

Economics encompasses the study of the allocation of scarce resources, whose underpinnings accords a comprehensible understanding of the political game applied by a certain region (Vanden and Gary 151).

In this case, a susceptible understanding of the economics and politics of Latin America accords with a patent understanding of the allocation of scarce resources and ways in which this allocation is affected by political power and values.

Quote

Thus the dependentistas argued that underdevelopment in Latin America resulted from the region being brought into the capitalist system to satisfy the economic needs of metropolitan powers (Vanden and Gary 162).

Response

The above quote ascertains the fact that underdevelopment in Latin America can be attributed to the capitalistic control asserted on the region by the metropolitan powers of USA and Europe. This control was asserted with the aim of enhancing the economic gains of the metropolitan powers.

The advanced economic development of Latin America can only be attributed to requirements set by metropolitan powers originating from Europe. This is because all such economic decision as the place and time of establishing infrastructure, mines and plantations in Latin America, were dependent on the economic and wealth requirements of the European and United States metropolitan powers.

This culminated into the development of the dependency theory, under which the Latin American countries became dependent on the production and exportation of the various primary products to the United States and Europe. A good example of the primary products by country encompass coffee in Colombia, petroleum in Mexico, copper in Chile, Tin in Bolivia and bananas in Honduras.

The Metropolitan powers advocated for massive production and exportation of primary products at a low production costs in Latin America, such that the Latin American countries had to import finished products at a higher price.

In this case, the Metropolitan powers managed to take advantage of the cheap labor and available resources in Latin America to amass considerable wealth, while the Latin Americans were gaining little wealth from the same.

Further underdevelopment of the Latin American countries was stimulated by economic transition, under which the prices of the original products were set by market forces as opposed to a centralized system. This is because the metropolitan powers had advocated for comparative advantage that culminated to the production of the same primary product by various countries.

A good example of this is the production of petroleum in Mexico and Venezuela and the production of coffee in El Salvador and Colombia. This called for the development of such centralized organizations as The Organization of Petroleum Exporting Countries and the International Coffee Organization, aimed at controlling the prices of coffee and petroleum.

The success of such organization was limited as long as the metropolitan powers continued to exercises neocolonialism, through the help of the political and economic elite class in the Latin American countries, even after the end of colonialism.

The fact that the political elite of the various Latin American countries worked for the foreign corporations set up by the metropolitan powers, enhanced the dependence of the Latin American political autonomy on the metropolitan powers.

This culminated into further underdevelopment of the Latin American Countries as most of the foreign corporations became monopolies due to substantial Latin American governmental protection. This eliminated any form of free trade leading to further underdevelopment of the Latin American Countries, as they exported at a low price and imported at a very high price.

This however changed with the advancement of economic thought by the Latin American economists under ECLA. This organization advocated for import substitution industrialization, under which such countries as Mexico would utilize the foreign exchange it acquired from the exportation of petroleum to establish industries that could produce most of the products it initially imported.

This would culminate to the accumulation of more capital in the local economy. Import substitution industrialization led to the setting up of such major production industries as Volkswagen, Toyota and Chrysler in Mexico and Brazil, culminating into economic development, neo-liberalization and democratization in the Latin American.

Under economic development, the financial health of the Latin American countries was improved by the emergence of the dual economy that relied on agriculture and industries sectors, a factor that had lacked under metropolitan powers colonialism and neocolonialism.

Democratization saw the power transition from an authoritarian political system to a democratic political system in which, the local Latin Americans had a say in the political running of their countries.

The original-neo-liberalization that was controlled by the metropolitan powers was replaced by a neo-liberalization based on import substitution industrialization. In conclusion, the underdevelopment of the Latin American countries was as a result of their economic and political control by the metropolitan powers.

Works Cited

Vanden, Harry E, and Gary Prevost. Politics of Latin America: The Power Game. New York: Oxford University Press, 2012. Print.

Introduction

Electronic medical records (EMRs) are becoming the standard in the health care industry with more health care institutions replacing their old paper based medical records (PMR) with this new systems.

This move to EMRs has been prompted by the numerous benefits that these computer-based systems propose to bring to the health care industry. In recognition of the positive role that EMRs play in the health care industry, the Federal Government in the United States is a major proponent of these systems with financial incentives being offered for health care practitioners to make the switch.

These government efforts have led to the adoption of the new system by health care providers who would otherwise have cited financial constraints as the reason for not adopting EMRs. As they are deployed on a widespread basis, EMRs can be expected to have significant economic implications on the health care industry and the nation as a whole.

This paper will set out to discuss the economic impact of implementing EMRs in the United States with focus on the benefits and costs attributed to the systems. The paper will begin by highlighting the reasons why EMRs are becoming the standard and proceed to document the inherent benefits and costs of implementation.

Need for EMRs

Health care providers are constantly trying to increase their effectiveness and efficiency and one of the ways that this is being achieved is through EMRs. By definition, an EMR system is an electronic version of the paper based medical records that contains a patients personal medical history, test results, dictations, and other medical and financial information (Brooks & Grotz, 2010, p.73). EMRs are envisioned to replace the PMRs, which have been the standard documentation tool for physicians for over a century.

Part of the motivation for adopting EMRs is to overcome some of the inherent faults of PMRs. These faults include illegible handwritings, partial patient data, and data separation. These problems decrease the quality of care provided to patients (especially return patients) and decreases the efficiency of physicians.

EMR systems overcome these setbacks since the data is stored in a legible and consistent manner in the system database. EMRs promise quality improvement by increasing doctor effectiveness and efficiency, encouraging adherence to evidence-based guidelines, and fostering patient safety.

Economic Costs

Before any gains can be obtained from the EMR system, some significant costs will have to be met. Wang (2003) agrees that implementing an EMR system will have some real monetary costs for the health care organization or private practitioner who is making the change to this system. These costs can be divided into direct costs, which are the direct expenses incurred in the implementation process and indirect costs which are costs that occur as a consequence of adopting EMRs.

Direct Costs

Implementing EMRs will require the purchase of the necessary hardware and software to run the system. This is a substantial investment since EMR systems are normally costly.

It is estimated that EMR implementation for an individual physician will range from $25,000 to $60,000 while the cost will be in the millions of dollars for large hospitals (Brooks & Grotz, 2010). The financial cost of implementing EMRs does not end with the initial installation of the hardware and software. Some of the software required to run EMRs is licensed and requires annual renewal fees.

Over the duration that the system is being used, numerous maintenance services will have to be undertaken. Hospitals and individual physicians have to engage in consultancy with information technology professionals to ensure that their systems are running well. Considering that better programs emerge over time, the health care providers will incur constant upgrading costs.

In addition to the initial cost of installing the system, healthcare providers will have to make investments in training physicians to use the new systems. Hospitals will need to set aside time for physicians to learn the new EMR systems since training is integral to the successful implementation of EMRs.

Because doctors will have to use some of their work time in training sessions, the productivity of the healthcare provider will decrease leading to negative economic outcomes. The hospital will also have to incur the cost of paying the experts who will be running the training sessions.

Health care institutes may have to hire extra staff to assist in the entry of patient data into the newly installed EMR system. When the EMR system is installed, the health care institution will have to fill its database with records of past patients since an EMR system is of greatest benefit if its databases are populated with the relevant information from patient past records.

It is very unlikely that the physicians will have the time to engage in this labor-intensive task. The hospital will therefore have to get temporary staff who will engage in this task. Depending on the patient population of the hospital and how far back its records go, this task might be considerably expensive.

The society will also incur some economic cost as health care facilities make the transition to EMRs. Implementation of the EMR system will be costly to the taxpayer since the government has set aside money to assist in the transition from paper based medical records to EMRs. In 2009, President Obama allocated $17.2 billion of the economic stimulus package to the healthcare industry to assist in the adoption of healthcare information technologies including EMRs.

Brooks and Grotz (2010) document that in a period of five years, individual physicians would receive an excess of $40,000 each to assist in the implementation of EMRs. The government is offering these incentives since it recognizes that health care providers will incur significant costs as they switch to EMRs. However, the taxpayers are the ones who will shoulder the cost of the generous financial incentives offered by the Federal government.

Indirect Costs

As with any other new system, transitioning to the EMRs will hamper with the traditional operations of the hospital. Health organizations will have to incur the costs associated with decreased productivity as the doctors make the transition to the EMR system.

Research by Brooks and Grotz (2010) asserts that organizations will have to incur costs of decreased productivity as well as lost revenue due to reduced provider schedule during the go-live time period (p.79). The productivity will demonstrate reduced performance and their productivity will suffer as they familiarize themselves with the new system.

EMRs might decrease the positive public image of physicians since they will lead to higher costs for patients. Brooks and Grotz (2010) note that the most doctors under charge their patients due to a lack of confidence in how to carry out billing or generosity which makes them select the minimum billing code.

With EMRs, doctors will have to bill patients in accordance to the services provided. This will lead to a perception of being overcharged for most patients. They might therefore stop employing the services of the particular hospital that is using EMRs leading to a loss in revenue.

Economic Benefits

Benefits to Health Care Providers

The EMR system reduced the costs associated with management of patients clinical records. The health care industry in the US incurs costs of up to $1 billion on the management of medical records. Barlow, et al. (2004) reveals that most of these expenses are incurred during the transcription of physician voice notes into paper record.

By implementing an EMR system, these costs are drastically reduced or even eliminated all together. Research by Barlow, et al. (2004) demonstrated that the transcription expenses for physicians dropped from $1million annually before the implementation of an EMR system to less than $620,000 after implementation. This figure was expected to go even lower as more doctors gained proficiency in the use of EMRs.

Tan and Payton (2010) assert that the billing function of EMRs is typically the area where the largest financial gains can be realized. EMRs will lead to an increase in the hospitals earnings by ensuring that doctors bill the patients appropriately.

Billing is a very important function in the health care industry since it determines the amount of money that physicians get for their services. Traditionally, doctors have lacked confidence in how to carry out billing and this has led to undercharging. EMRs introduce coding levels that ensure that physicians bill their patients according to the level of care that is documented in the system.

This is an important feature since as Barlow et al. (2004) reveal, most physicians using PMRs often down-code leading to significant monetary losses. With the use of EMRs, doctors are provided with templates for recording the level of care provided and bills are structured based on this care. This results in significant revenue enhancement for the health care provider by decreasing incidents of under-coding.

EMRs enable physicians to serve more patients therefore increasing the productivity of the hospital. When using EMRs, physicians are saved from spending significant amounts of their time on routine tasks such as retrieving patient records, dictation, billing, and pharmacy.

Research by Tang, LaRosa, and Gorden (1999) revealed that most doctors spent up to 38% of their time engaging in dictation and manual patient record retrieval. This is not good use of the doctors time and the more efficient EMR system ensures that doctors are freed from these routine burdens. This translates to higher income generation by the institution as the doctor serves a higher number of patients.

EMRs contribute directly to improvements in patient safety and this has some economic implications. To begin with, the improved quality in guideline adherence by physicians leads to better health outcomes for patients, as doctors are encouraged to use best practices in the industry (Tang et al., 1999).

The status of the hospital as a high quality health care facility is fostered and high costs of medical care to patients can be justified on this basis. Improved patient safety reduces the costs that the hospital would incur from legal action against physicians in cases of medical malpractice. The hospitals expenses are therefore reduced as such cases are mitigated because of use of EMRs.

EMRs are able to eliminate medical errors due to the improved level access to relevant information by the doctors. Research by Wang (2003) indicated that use of EMRs in primary care led to a 15% increase in adverse drug events prevention. By avoiding medical errors, physicians are able to save the hospital significant amounts of money that would be used rectifying the error or engaging in lawsuits filed by patients. Patients demonstrate improved satisfaction when doctors do not make any errors while serving them.

In addition to the direct economic gains caused by EMRs, the system might bring about some intangible benefits. Tan and Payton (2010) suggest that EMRs might lead to employee and patient satisfaction. Employee dissatisfaction can lead to significant costly for a hospital since it is likely to result in high turnover rates.

When the turnover rate is high, the hospitals productivity will suffer since the most talented staff will be leaving the organization in search of health care institutions where employee satisfaction is higher. In addition to this, high turnover is associated with increased costs since the cost of hiring new staff is high.

The hospital will also incur extra costs as the new staff is oriented into the system. The employee satisfaction derived from implementation of EMR systems will therefore result in economic benefits by preventing the hospital from suffering from the costs associated with employee dissatisfaction. While these intangible benefits are difficult to quantify in economic terms, research suggests that they can be attributed to EMRs.

Benefits to Patients and Society

The former US president, George Bush, expressed his firm conviction that the universal adoption of EMRs in the health care industry would contribute to the reduction of healthcare costs in the country.

This conviction is shared by the current president, Barrack Obama who continues to support government efforts to ensure widespread adoption of EMRs. Implementation of EMRs will reduce the administrative duties that hospitals currently incur. The manual system has many time-consuming administrative tasks that have to be undertaken by employees.

EMRs will assist in the streamlining of these tasks and take care of tasks such as documentation, referral reports, and chart maintenance through automation. A study by Barlow et al. (2004) on the economic impact of an EMR on a hospital found out that implementing the EMR had the direct impact of reducing the clerical duties leading to a reduction of more than 26% of the clerical staff. This saved the hospital up to $400,000 annually.

Implementation of EMRs might lead to lower health care costs for the patient. The current high cost of health care services is caused by redundancies in the industry. In the US, duplicate tests lead to patients being charged more for their health care. EMRs ensure that healthcare providers run efficiently and this might cause a reduction in health care costs. By having records in a digital format, doctors who work in different institutions can easily access patient records.

This will assist in a better-coordinated health care provision. The high costs incurred by unnecessary duplicate tests will not be there since the current doctor will be able to use the available results to treat the patient. EMRs will also improve prescription therefore avoiding unnecessary drug charges. Wang (2003) demonstrates that EMRs lead more cost-effective prescribing practices by physicians therefore delivering a net benefit for the hospital and the society.

Certain long-term benefits in community health have been attributed to EMRs. The systems have been proposed to result in better health outcomes for the society. Specifically, implementation of these systems will result in fewer hospitalizations as the EMRs promote preventative health care (Tan & Payton, 2010).

The lower disease burden that will be experienced will benefit the patients and the society as a whole. Lima (2004) notes that features of an EMR system encourage primary care making it possible for front office staff to help patient by scheduling them for preventative and primary care. This has the potential of reducing the costs associated with treating severe illnesses and hospitalization.

Discussion

EMR systems are becoming the standard in the health care industry due to the benefits they promise to accrue. The government has also set the year 2015 as the deadline within which all practitioners should have replaced their PMRs with EMRs making it mandatory for all to adopt the new systems. This paper has revealed that these systems come at a significant economic cost for the health care providers and the society.

Deployment of the EMR systems will have an enormous initial cost for the healthcare industry. Considering the significant economic costs of implementing an EMR, health care institutes and private practitioners need to engage in planning and budgeting with focus on the financial impacts of investing in an EMR. However, this cost can be justified by the significant economic returns that EMRs promise to bring to the industry.

The analysis provided in this paper demonstrates that while EMR adoption is costly, physicians are guaranteed to have a timely return on investment as they reap the benefits of the systems. It is important to note that the positive economic impacts of EMRs are not only enjoyed by health care providers but also by the patients and the entire society. These systems are therefore beneficial for the United States since they bring value to all the stakeholders in the health care industry.

Conclusion

This paper set out to discuss the economic implication of implementing EMRs. To this end, the paper has demonstrated that implementation of an EMR results in significant expenses for the healthcare institution. Purchasing the necessary hardware and software is a huge capital investment especially for private practitioners. In addition to this cost, health care providers have to budget for recurring costs for software licensing, computer maintenance, and system upgrades.

However, EMRs also bring about significant economic gains for the hospital. EMRs lead to increased revenues by enhancing the billing system and reducing the time taken to access files. They also reduce the operational expenses of the institution since automation cuts the costs for transcription expenses and the file retrieval and maintenance expenses.

In addition to the effects that EMRs would have on the cash flow of healthcare providers, the paper has also highlighted the benefits that will be accrued from time freed up for doctors to deal with more patients and the improvements to quality and services provided.

It can therefore be declared that while initial implementation costs act as the main barrier to the widespread adoption of EMRs especially by modestly sized and small practices, the significant economic benefits highlighted in this paper serve as a justification for investing in these systems.

References

Barlow, S., Johnson, J., & Steck, J. (2004). The Economic Effect of Implementing an EMR in an Outpatient Clinical Setting. Journal of Healthcare Information Management, 18(1), 46-51.

Brooks, R., & Grotz, C. (2010). Implementation Of Electronic Medical Records: How Healthcare Providers Are Managing The Challenges Of Going Digital. Journal of Business & Economics Research, 8(6), 73-84.

Lima, S. (2004). Practical Introduction to Health Information Management. NY: Jones & Bartlett Learning.

Tan, J., & Payton, C. (2010). Adaptive Health Management Information Systems: Concepts, Cases, & Practical Applications. NY: Jones & Bartlett Publishers.

Tang, P., LaRosa, M., & Gorden, S. (1999). Use of computer-based records, completeness of documentation, and appropriateness of documented clinical decisions. J Am Med Inform Assoc, 6(3), 245251.

Wang, S.J. (2003). A cost-benefit analysis of electronic medical records in primary care. The American Journal of Medicine, 114(3), 397-403.

The economic growth and steady expansion of GDP and employment followed by a quick collapse could be best explained by the economic study of the United States (US) and Japan. In the US, before 1995 the net worth was about 3.5 times GDP. Between 1995 and 2009, the economy faced two periods of significant growth followed by quick flops. Trillions of dollars in net worth was gained and lost in each of the episodes. This was simulated by the performance of stock and real estate prices. For instance, the Dow Jones index peaked at the beginning of 2000 gradually fell and by the end of 2002, the index had lost more than 43% of its value. This was mirrored by the Case-Shiller index of real estate prices where increases by almost 60% and substantial falls were recorded around the same period. For Japan, by the late 1989, the net worth had increased from 4 times GDP to 6 times GDP.

This was followed by a rapid fall in the subsequent years. In the 80s, the Tokyo price index doubled up while the value of all the land in japan tripled up and by 1993, the boom in stock prices was undone and land prices nearly halved. These episodes are commonly referred to as bubbles. Policy makers were met out of guard with the great inflation; they based all their economic ideas on economic theories such as the Keynesian theory which were becoming obscene. There was need for innovative thinking and ideology (Martin & Jaume 18).

These examples suggest the importance of the interaction between asset-price bubbles and monetary policies for policy makers. The policy makers should be able to forestall and reduce the fallout from such collapses. In the 1990s and the early years of the 21st century, the federal reserve policy makers opted to adopt the mop-up-after strategy-policy of letting the bubbles burst and then mopping up there after. This strategy neither prevents bubble bursts nor reduces the price collapses associate with bubbles. Despite the loss of trillions of dollars, the strategy was a success in 2000 with the tech bubble. This strategy has however been subject to constant attacks based on the following points. It failed in the recent years, specifically with the subprime bubble which resulted to the destruction of the financial system. It is inherently inflationary; it allows bubbles to inflate the economy. It also forms a basis for the growth of more bubbles.

For example, the stock market bubble leading to the housing bubble. Generally, there are two types of bubbles: bank-centered bubbles and asset bubbles. The housing mortgage bubble is an example of the bank-centered bubble while the tech-stock bubble is an example of the asset bubbles. In controlling the bubbles, the Federal Reserve may fail to recognize bubbles until it is too late or get bubbles where there are none. For instance, the tech bubble was only recognized in 1999, by then it was huge. The Federal Reserve was blamed for housing boom that resulted to the housing market crash which lasted from 1998 to 2006. The belief is that the Central Banks influence on low short term interest rates, averaging between 5 and 6 percent, contributed to the housing boom (Roubini 34).

Crisis management can be defined as the manner in which an organization handles with certain threats in the organization. It involves crisis prevention, crisis response and planning. In the process of preventing crises, assessing crisis vulnerability is crucial in the strategic decision making process. Worst case scenarios should be identified, this would facilitate effective strategic decision making and also help prevent crises from occurring. This is one of the major challenges facing policy makers. In a financial long term strategy a SWOT analysis listing the strengths, threats and weakness of the economy is required as an instrument in planning. Policy makers are constantly involved in data collection; they gather important information with respect to a certain field and use such information in making strategic decisions (Lester 113).

Paul Volker an American economist was the chairman of the Federal Reserve from 1979 to 1987. He was credited with ending the stagflation crisis and high inflation rates in the US under President Jimmy Carter. As a result of high interest rates, especially on the farmers and constructors, the Volcker years were marked with the highest levels of widespread protests and political spasms. He helped calm one of the highest inflation in Americas history, in 1979 inflation was running over 13% a year, financial markets were afraid of renewed inflation and the value of the U.S dollar was falling. On his appointment by President Jimmy Carter in 1979, he controlled the exploding inflation and was popular with the financial community. Under his leadership, the Federal Reserve reigned in double digit inflation by setting money supply growth objectives.

This resulted to a substantial increase in interest rates peaking at 21.5% in 1980. This led to the worst recession in almost forty years causing unemployment to escalate to 10.7% in 1982, hiking of oil prices. This economic crisis forced the Federal Reserve to abandon the strict money supply targets. Surrounded with critics from investors and financial analysts, the congress reviewed the independence of the Federal Reserve. Nevertheless, Volcker served under three presidents, President Jimmy carter, President Ronald Reagan and President Barrack Obama. Volcker turned from a villain to a hero when in the mid-1980s he tamed inflation rates and improved the economy. Volcker Proposed the Volcker rule which restricts banks from making investments, such as hedge funds, that is not in good faith of their customers. What was learned from Volcker years is that: we should improve our economic models and prevent policy mistakes branching from bad economic advice.

The Federal Reserve should be effective, confident and should gain fortitude; it was not until Volcker that the Federal Reserve showed determination, that they could take the heat. It was also learned that until price stability is achieved, sustainable employment cannot be contained; inflation does not increase employment in the long term. The markets learned to come forward and speak up, everyone in the Federal Reserve System should be vigilant and allow the public to participate. Strong leadership is also required; Paul Volcker was a strong leader who remained resolute on matters of inflation despite attacks by protestors (Treaster 87).

Conclusion

In conclusion, the mop-up-after strategy still looks effective on bubbles not based on bank lending. On the other hand, bubbles centered on bank lending should be approached with care. If we have learned something, it is that raising interest rates to handle the bubble is not an effective strategy.

Works cited

Lester, Irving. Crucial decisions: leadership in policymaking and crisis management. Free Press, 1989. Print.

Martin, Alberto and Jaume Ventura. Economic Growth with Bubbles. Centre for Economic Policy Research, 2010. Print.

Roubini, N. Why Central Banks Should Burst Bubbles. Roubini Global Economics, 2005. Print.

Treaster, Joseph. Paul Volcker: The Making of a Financial Legend. Hoboken, New Jersey: John Wiley & Sons, 2011. Print.

Abstract

China is currently the second largest economy in the world. Sound economic policies had facilitated the Chinas rapid rise as an economic powerhouse. The growth of Township and Village Enterprises (TVEs) is synonymous with Chinas economic growth. The growth of TVEs is due to several structural changes. This paper will discuss Chinas growth and structural changes, and the role of TVEs and SOEs in economic growth.

Chinas Economic Development

The rural industry has been a critical part of the Chinese economy for centuries. In fact, China credits the rural industry with much of its current economic prosperity. The golden age of Township and Village Enterprises (TVEs), which lasted between 1978 and 1996, helped in changing Chinas economy from a command economy to a market economy. Most TVEs were under the collective ownership of the community.

During the golden age of TVEs, there was rapid establishment of TVEs in rural areas. The governments rigid control of cities restricted the establishment of TVEs in urban areas. TVEs provided stiff competition to State-Owned Enterprises (SOEs). This ultimately reduced the stranglehold that the monopolistic SOEs had on the market. Between 1995 and 1996, there was widespread privatization of most TVEs.

This enabled them to adopt a private ownership structure, which increased their efficiency and competitiveness (Naughton, 2007). Privatization of TVEs led to significant economic growth. Therefore, it is pertinent to claim that TVEs played a pivotal role in Chinas economic growth.

In 1979, the Chinese government initiated the process of liberalization of rural enterprises. The government relaxed the directive that required state monopoly to purchase agricultural produce. This enabled more agricultural produce to remain in the rural markets.

Therefore, TVEs could now process more agricultural products. In addition, relaxation of the restrictive Cultural Revolution model of rural industrialization enabled TVEs to engage in any activity for which there was a market. SOEs opposed rural industrialization, as it would reduce their market share. On the other hand, local governments defended rural industrialization, as it would help in fueling the growth of the rural economy (Naughton, 2007).

Liberalization of the rural economy facilitated the rapid development of TVEs. Rural industries had a competitive advantage over urban industries. Availability of cheap labor was one of the major factors that led to the ultimate success of TVEs. During the 1980s, the average salaries of TVE employees were 60% less than that of SOEs (Naughton, 2007). This reduced the operating costs of TVEs. In addition, less government control of TVEs enabled them to venture into various businesses that were profitable in the Chinese economy (Brandt & Rawski, 2008).

Another factor that led to the success of TVEs is that they shared in the monopoly profits of the SOEs. Early TVEs had high rates of profitability. One of the major factors that contributed to the high rates of profitability is the fact that TVEs made better and realistic use of factors of production than SOEs.

In addition, early TVEs benefited from the market protection that the SOEs had created (Naughton, 2007). Entry of TVEs exposed the inefficiencies of SOEs. This made SOEs lose a sizeable percentage of their market share. This increased the pressure for the SOEs to reform (Brandt & Rawski, 2008). However, after some time, the profitability of the TVEs declined significantly.

This was because continued entry of TVEs into the market led to a gradual increase in competition. Initially, TVEs did not notice the competition as they had a cushion of high profits that protected them (Naughton, 2007). Reduction in profitability necessitated the TVEs to undertake major changes to remain competitive.

The institutional framework that surrounded TVEs facilitated their rapid development. TVEs were under the control of the local government, which had lower tax rates. On the other hand, the government controlled the SOEs. SOEs benefited from the governments price policy.

However, the major disadvantage of government control was that the government charged very high tax rates on SOEs. In some instances, the tax rate was 100% of the profits of the SOEs. The unbalanced treatment of SOEs and TVEs resulted in increased profitability and competitiveness of TVEs (Naughton, 2007).

During their early stages of development, TVEs were in urgent need of capital. Failure to obtain capital would have restricted their growth. However, TVEs overcame this hurdle easily. The local government enabled TVEs to access capital. Local governments acted as guarantors to TVEs. This enabled the TVEs to access bank loans, which facilitated their growth. In addition, the local government controlled capital flows in rural areas.

Therefore, the local government initiated policy changes that enabled TVEs to access funds from various credit institutions. Rural credit cooperatives (RCCs) were the major sources local capital. In the 1980s, RCCs had vast sums of money due to a significant increase in household savings. Access to the huge source of capital from RCCs was one of the major factors that contributed to TVEs ultimate success (Naughton, 2007).

Continued growth of TVEs  and reduced profitability of SOEs  necessitated the central government to undertake several structural changes on SOEs. SOEs were the major sources of funds for the central government. Therefore, a decline in the financial health of SOEs led to a significant reduction in the central governments revenue. The central governments changes involved restructuring, reorganizing, and selling off SOEs.

These changes helped in increasing the efficiencies of the SOEs. In addition, the changes increased the autonomy of SOEs and growth of the TVEs paving the way for marketization of the economy (Fewsmith, 2001). The success of TVEs made the local government take several measures to prevent them from becoming as inefficient as the SOEs. Some of the changes included giving more autonomy to the managers of the TVEs and changing the property rights (Fan, Zhang & Zhang, 2002).

Dwindling of the fortunes of SEOs and increased profitability of TVEs led to a significant reduction in the revenues of the central government as a share of Gross Domestic Product (GDP). On the other hand, increased profitability of TVEs increased the financial power of local governments. Increased financial power of the local government, threatened Chinas political stability. Therefore, in 1994, the government introduced major tax reforms to limit the financial muscle of the local governments (Fewsmith, 2001).

Success of the TVEs led to changes in their ownership. During the early period of the development of TVEs, collective TVEs dominated the TVE sector. From 1980 to 1995, there was a gradual change in ownership of TVEs. However, after 1995, several structural changes led to rapid privatization of TVEs. This increased the proportion of privately owned TVEs to more than 90% (Naughton, 2007).

Therefore, TVEs have played a critical part in Chinas growth. They facilitated the development of the non-farm rural economy and provided employment to millions of people. The rapid growth of the rural industry necessitated several changes in the urban sector to cope with increased competition (Fan, Zhang & Zhang, 2002).

However, this would not have occurred if there were no structural changes in the government and management of TVEs. China credits its current economic growth to the successful implementation of several policies that facilitated the development of TVEs.

References

Brandt, L. & Rawski, T.G. (2008). Chinas great economic transformation. Cambridge, MA: Cambridge University Press.

Fan, S., Zhang, L. & Zhang, X. (2002). Growth, inequality, and poverty in rural China: The role of public investments. Washington, DC: Intl Food Policy Res Inst.

Fewsmith, J. (2001). Elite politics in contemporary China. Armonk, NY: M.E. Sharpe.

Naughton, B. (2007). The Chinese economy: Transition and growth. Cambridge, MA: MIT Press.

Introduction

In order to determine and resolve the problems that emanate from market failures as well as initiate long-term improvements in the economic, social and environment conditions, comprehension of the processes of globalisation, the roles of urban political economy and economic restructuring is critical. On the same note, it is clear that the poor living conditions and dysfunctional urban areas lead to significant extensive social and economic complications. As such, major renovation and reconstruction of urban vicinities are essential (Audirac, 2005). The success of groundwork for planning presentations, development agendas and identification of funding prospects as well as engineering designs for buildings in urban areas depends on globalisation processes, the urban political economy as well as the economic restructuring processes.

Globalisation impacts

Over the years, urban areas have continued to experience multi-dimensional and global shrinkages. Actually, the world populace is increasingly becoming urban. As such, redefinition of urban areas is critical due to globalisation (Audirac, 2005). Through globalisation, resources including the major infrastructural as well as highbrow assets have been concerted in the global cities thereby attracting population and expertise as well as capabilities in such areas (Dicken, 2003).

In principle, innovative and novel dimensions of worldwide production, manufacturing, distribution and consumption have been the outcomes of the gradual shift towards newfangled international economic structures. In addition, globalisation has created innovative urban contexts due to the insurrection of novel expertise and logistics (Bluestone & Harrison, 2000).

On the other hand, due to globalisation, towns and cities suffer from depletion of capital and human assets. Besides, diminishing rates of innovation, intellectual engagements and deficiency of free enterprises are the implications of globalisation processes on nations that concentrate economic activities on single sector or industry (Castells, 2000). Actually, globalisation has increased competition among different nations. As such, several cities have been declining as others regenerate. The shrinkage of cities characterised by populace loss, economic recession, employment degeneration and structural intricacies is an international political, economic as well as planning concern that must be addressed (Champion, 2001).

Currently, several cities across the globe experience populace variations arising from globalisation (Glaeser & Gyourko, 2005). In other words, globalisation is responsible for increased movement and flexibility of populace in diverse expanses. The freedom of movement of populace results in the attenuation of other cities population whereas other expanses realise gains in the form of capital and trade. In fact, proper comprehension of the globalisation process is significant in the deconstruction of the conventional models of urban growth and revolution (Graham & Marvin, 2001). In other words, understanding globalisation process initiates a paradigm shift that is focused on the quality and pace of urban growth.

Urban political economy

The policies of the urban political economy are significant in dictating the milieu in which cities have to react in order to conform to renaissance. For instance, in countries such as Germany, national policies are normally decentralised thereby creating a balance in the growth of urban cities (Bontje, 2004). In principle, when national policies are devolved to different regions, greater independence and political space is provided. Urban leaders are able to utilise the political space to make decisions on economic tactics that can be applied in cities.

Studies indicate that the decay and waning of cities emanate from neoliberal urbanism. For instance, considering the political and economic perspectives of the international neoliberal projects exemplified in the Washingtons principle of free trade, state devolution and market deregulation, countries come up with formulations that determine the populace moving into cities. Similarly, strategies of the state determine the populace that move out of the urban vicinities (Ward, 2003).

Additionally, considering modern capitalist societies, renewal and protection of economic and political privileges of members of the upper economic echelons have been the major aims of neoliberal policies. Essentially, neoliberal policies support political opportunities of the higher economic echelons via privatisation of entire structures of economic order (Harvey, 2005). Further, financial risks and debt, handling of economic crunches as well as state reorganisation strategies are some of the ways employed by the urban political classes to support economic entities of higher status. Consequently, the decline and degeneration of urban cities are often imminent as few members of the society amass capital through increased deprivation of the masses. Actually, the urban political economy must understand that it is obliged to pledge emancipation of individual entrepreneurial liberties institutionally strengthened in property rights, liberal markets and free trade (Lang, 2000). The maintenance of such freedoms is critical in the renewal and regeneration of urban areas.

Economic restructuring

Extensive economic restructuring is invaluable in enhancing the competitiveness of urban areas through diverse mechanisms. For example, fair dissemination and circulation of the gains obtained from economic competitiveness and creation of balanced urban frameworks encourage effective urban-regional linkages that lead to renaissance of shrinking cities.

Additionally, massive offshoring of manufacturing jobs to Less Developed Countries (LCDs) as well as worldwide division of labour has been a major concern (Leo & Anderson, 2006). Furthermore, economic restructuring has been responsible for the commercial rearrangement of worldwide production chains in different industries including banking, automobiles and electronic sectors. Such economic reorganisations and adjustments if not clearly understood could cause decline of urban areas. Most importantly, economic multilateral institutions including the World Trade Organisation (WTO), the World Bank and the International Monetary Fund (IMF) have been critical in reorganizing international trade and finance thereby contributing to augmented levels of urban growth (White, 2005). Therefore, it is significant to understand the frameworks under which such institutions function to ensure consistent regeneration and renewal of urban areas (Moore, 2008).

In the degenerating cities, housing stock characterised by housing vacancies and abandonment is always a major problem (Punch, 2009). As such, the urban political economy often undertakes renewal of the housing market through the utilisation of numerous measures (Barber & Hall, 2008). For instance, destruction of dilapidated housing stock and the provision of open spaces and recreational areas in such places are some of the measures utilised to draw populace (Wiechmann & Pallagst, 2012). Through the reorganisation and renewal of the urban housing stock problems, the disadvantageous consequences on the value of life such as augmented crime levels and other social perils are countered. As such, there is increased venture in the urban neighbourhoods leading to regeneration of cities (Soja, 2000).

Essentially, it is evident that globalisation, economic restructuring and institutional revolution by urban political economy have had several impacts on the regeneration of urban cities including initiating factors that magnetise investment and populace in urban areas (Smith, 2002). Actually, renovation of urban areas is significant in providing captivating commercial, cultural and retail assets thereby enhancing restitution of cities. Further, the urban political economy is invaluable in providing areas of communication, decision-making as well as exchanges, which augment the growth of cities (Scott, 2006). Generally, lack of understanding on the processes of globalisation, the roles of the urban political economy as well as the economic reorganisation programmes are to blame for complexities often realised in the rebirth of urban areas.

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China is a nation located in East Asia. It is one of the most populated nations in the world with a population of about 1.5 billion. Despite this, China is known for its ancient civilization. In fact, China was recently rated the worlds fastest growing economy with regard to the high percentage of the worlds total exports. The fast growth in Chinas economy is attributable to the expedient policy implementation by the Chinese government.

In addition to this, China has an effective leadership that spearheads all sectors within its economy. A market-oriented economy is one of the recent adoptions of Chinas economic strategies, which has indeed quickened economic growth. As such, China adopted measures with the aim of coming up with policies aimed at reforming the previously closed economy. This paper is therefore an in-depth analysis of the reforms made by China that have made it outdo the United States of America in terms of economic growth.

Chinas economic growth came as a surprise to many. A macroeconomic analysis of China in the last century indicated a low income per capita. However, the pace at which Chinas economy has grown in the recent past is something to question. Some analysts have even argued that Chinas economic growth has been overrated.

The World Bank statistics have indicated a ten percent annual growth rate in Chinas GDP. The statistics further indicate that the growth is sustainable given the increase of Chinas fixed investments in overseas markets. Unlike most of the other nations, China has made huge investments in physical capital. Thus, China boasts of a high flow of net income from foreign nations.

This is evident because of the good investment environment that China has created with its trading partners. The investment environment was among the reforms that were initiated by the Chinese government. In the reforms, China implemented policies that provided efficient policies for trading with foreign nations. This is one of the methods used by China to capture most of the trading partners of the United States.

Despite having low production from its agricultural sector, China has developed bilateral relations with other nations that have raw materials for its industries. This has significantly enhanced industrial growth in China.

China also boasts of a high growth in human capital, which caters for the high demand for human capital in the industries. Thus, unlike other nations, China does not have to import human resource. China has also been keen to make reforms in its public sector as one way of making sure that national resources are effectively governed.

This is because the public sector plays key roles in the economic, political, and social sectors of a nation. Reforms of the public sector in China began long ago after the Second World War. The reforms initiated good governance thus improving service provision in Chinas society. Through accountability, China has been able to improve its service provision to the public. This has had a positive impact on the economy because the people are motivated to work harder.

Finally yet importantly, China has made Japan one of its important trading partners given the fact that is developed in terms of technology. This relationship is bound to be of benefit to China by helping it improve the quality of itsr electronics, which have been disregarded on grounds of poor quality and imitation.

Introduction

Alcohol abuse has two responses to unemployment. Those who have been laid off, have a tendency of abusing alcohol while those who remain employed reduce their alcohol consumption because they are aware that alcohol abusers are more likely to be laid off when the workforce is to be reduced (Booth, 2004). However, unemployment cannot be used to control alcohol abuse. According to VanBaren (2012), the four elements of Economics include scarcity, opportunity cost, inflation, supply and demand. Scarcity describes the situation where peoples wants typically exceed their means (VanBaren, 2012 para. 1).

Opportunity cost refers to other options people forego by making a choice. Inflation affects the choices by reducing the number of goods that people can purchase. This occurs when the inflation rate is higher than the rate at which an income increases. The four elements of an economic way of thinking are the use of assumptions, isolating variables, thinking at the margin, and the response of rational people to incentives (OSullivan, Sheffrin, & Perez, 2007).

Possible solutions

Alcohol abuse can be reduced by increasing its price. Chaloupka, Grossman & Saffer (n.d) agree on a research which concluded that increase in the prices of alcoholic beverages lead to reductions in drinking and heavy drinking as well as in the consequences of alcohol use and abuse (p. 22). The price of alcoholic drinks can be raised by imposing higher taxes per unit of production. The problem with alcoholic beverages is that it has been a long period since the taxes were increased. Due to inflation the real value of the increased taxes on alcoholic products has been lost. According to Chaloupka, Grossman & Saffer (n.d), the real price of distilled spirits fell by 32%, and that of beer by 20% between 1875 and 1990.

However, those in authority are not quick to add taxes that reduce consumption because it would hinder consumption of the abuser as well as the moderate drinker. Beer is considered the alcohol of choice by the American youth. Different states excise various taxes on beer to reduce its consumption. The price elasticity of alcohol in the U.S. is -0.5. This means that a 10% increase in price would reduce consumption by 5% (Chaloupka, Grossman & Saffer, n.d. p. 23). Beer consumption in the U.S. is considered inelastic compared to wine, and distilled spirits. The elasticities are -0.3, -1.0, and -1.5 for beer, wine, and spirits respectively. An economist would reduce the demand of alcohol by increasing its price.

Another method that can be used to reduce alcohol abuse is reducing supply. This can be done by reducing entry into the alcoholic beverage production industry. This can include the amount required to obtain license for production. Limiting supply would make the demand exceed supply in the short-run. Prices would increase because the licensing fee was high, and because demand exceeds supply. The market mechanism would set a price higher to most alcoholic abusers.

According to White, White & Korgen (2011), the assumption giving out information thatalcohol consumption has increased tends to increase consumption is untrue. They also think the assumption that alcohol advertisements increase alcohol consumption could be misleading to remedial policies (White, White & Korgen, 2011 p. 96). In this case, the most effective way of dealing with alcohol abuse is making people aware of its opportunity cost. Alcohol abuse reduces productivity of an individual, and creates social problems.

Effects of prescription drugs demand on the demand of other products

Prescription of drugs are essential and for this reason they are considered inelastic to price changes. According to Hatten (2012), when it comes to prescription drugs a change in price will have little effect on the quantity you demand (p. 342). However, the household income is the same value that is used to demand other products. When households demand better health care because of an increase in their income, an increase in the demand for prescription drugs would not reduce the demand of other products. When there is an increase in prescription drugs with the same purchasing power, then those commodities that are not necessities will be less preferred. Prescription drugs may be a necessity but as studied by Rosenthal, et al. (2003), increase in consumer-directed promotion results in an increase in the demand for prescription drugs.

Elasticity of demand

Elasticity of demand refers to situations when demand responds to changes in price. When the supply is low, people are willing to pay more for a demand-elastic product. However, they cannot consume the same level as when prices are low. According to Hatten (2012), for a product with elastic demand such as computer software a decrease in price will cause an increase in demand (p. 341). When demand is elastic, the increase in price will go back to the equilibrium price through the market mechanism.

Elasticity of supply applies when supply can be shifted to meet changes in consumer demand. Price elasticity of demand measures how responsive producers are to a price change ( McEachern, 2011p. 109). The supply of some products is only elastic in the long-term. They are considered to be inelastic to demand. These products will have a higher price if consumer preferences create a higher demand. Such a product is milk. The production of milk will not be altered by a large margin until there is an increase in dairy cattle. The production of soft drinks could take the option of increasing the number of hours that the machines run. When this reaches 24 hours a day, then expansion of the facility is necessary. To perfectly inelastic supply industry such as diamond mining, there will be no change in supply despite changes in price (McEachern, 2011).

Increasing costs industry

An increasing cost industry is one which has its marginal costs and average total costs increasing when they increase the level of output. According to McEachern (2011), it is necessary for such firms to bid up the prices of some resources or otherwise increase per unit cost, and each higher costs shift up each firms cost curves (p. 190). An example of a firm with increasing costs as a result of expansion is oil drilling companies. The increase is through the cost of drilling rigs, and the workforce.

Perfectly competitive markets

A perfectly competitive market is preferred because it creates a situation where it is free to enter business and to take an exit. According to Carbaugh (2011), firms that operate under perfectly competitive markets operate at the lowest price possible, charge the lowest cost, that they can without going out of business, and earn no economic profit (p. 103). The firms in this case use the most efficient methods to lower cost. Those that have inefficient procedures run out of business.

References

Booth, E.D. (2004). Hooked on Growth: Economic Addictions and the Environment. Maryland, USA: Rowman & Littlefield Publishers.

Carbaugh, J. R. (2011). Contemporary Economics: An Applications Approach. New York, U.S.A.: M.E. Sharpe.

Chaloupka, J. F., Grossman, M. & Saffer, H. (n.d). The Effects of Price on Alcohol Consumption and Alcohol-Related Problems. Rockville, U.S.A.: National Institute on Alcohol and Alcoholism Publications. 2012. Web.

McEachern, A. W. (2011). Economics: A Contemporary Introduction. Mason, U.S.A.: Cengage Learning.

Hatten, S. T. (2012) Small Business Management: Enterpreneurship and Beyond. Mason, U.S.A.: Cengage Learning.

OSullivan, Sheffrin, & Perez. (2007). Survey of Economics: Principles, Application, and Tools. Pearson/ Prentice Hall. Web.

Rosenthal, B. M., et al. (2003). Demand Effects of Recent Changes in Prescription Drug Promotion. National Bureau of Economic Research. Web.

VanBaren, J. (2012). Four Elements of Economics. Web.

White, K. S., White, M. J. & Korgen, O. K. (2011). Sociologists in Action: Sociology, Social Change, and Social Justice. California, U.S.A: Pine Forge Press.