Table of Contents
The current paper deals with the analysis of the economic development of the Asian Tigers. The closest attention will be paid to the economy of Hong Kong. These countries were able to achieve significant rates of economic development due to successfully implemented free-market reforms. At the present moment, their development is not so rapid for a number of reasons. First of all, the developing countries typically demonstrate higher growth than the developed ones as their initial economic positions are weak. Moreover, the current period of macroeconomic development is characterized by substantial cyclical fluctuations that create additional difficulties for rapid economic growth. Finally, not all countries continue to implement the necessary free-market reforms; it leads to structural misbalance in the economy. The economic development and policies of Hong Kong will be compared to those of Brazil, Russia, and China.
All four Asian tigers were able to demonstrate high rates of economic growth in the 1960s. The rapid industrialization also occurred at the same period. All countries implemented neo-liberal policies that included low taxes and the minimal level of government intervention in the economy. Hong Kong is a typical example of laissez-faire policy implemented by Asian countries. In particular, the regime of free trade was adopted, which contributed to the higher amount of foreign direct investments.
Thus, it may be observed that the rates of economic growth during the 1960s-1970s were particularly high. Their average level was equal to 8-12%; however, in the 1980s-1990s, the rates of growth were much more moderate. At the same time, during the 2000s, the positive tendencies became dominant again. The main causes of economic progress in the country include the regime of free trade, adequate specification of property rights as well as sound financial system. Hong Kong is generally recognized as the freest economy in the world (The Heritage Foundation, “Hong Kong”).
The Asian Tigers do not demonstrate such rapid development nowadays because their current standard of living is very high, and even substantial improvements in this context do not lead to high growth in percentage points. Moreover, the unstable macroeconomic environment creates significant difficulties for the long-term sustainable development. However, the Asian Tigers demonstrated positive rates of economic growth even during global recessions; it shows that their economic systems are highly flexible and responsive to any external challenges.
It is necessary to compare the economic policies of Hong Kong with those of China, Russia, and Brazil. First of all, the rule of law in all these countries should be compared. The level of corruption in Hong Kong is very low, and the property rights of all individuals and institutions are well-protected. Corruption is present in China, and the national judicial system is not independent. The influence of the Communist Party is very high. In Russia, corruption is present in all public and business spheres, and the rule of law is not adequately realized in practice. The judiciary system in Brazil is inefficient and dependent on the external influence.
In relation to the role of the government in the economy, Hong Kong is characterized by a very limited governmental influence. The individual income tax is about 15% (The Heritage Foundation, “Hong Kong”). The general tax burden is less than 14%; it creates positive incentives for entrepreneurs and investors. In China, the individual income tax may reach 45%, and the corporate tax rate is about 25%. The taxation in Russia is comparatively moderate; the individual income tax is 13%, and the corporate tax rate is about 20% (The Heritage Foundation, “Russia”). The Brazilian public debt is almost 70% of GDP, which creates problems for the long-term economic development of the country. The individual tax rate is more than 27%, and the corporate tax is about 34%; therefore, Brazil is not highly interesting for potential investors.
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Another important aspect of economic development is regulatory efficiency. In Hong Kong, no minimum capital is required to organize a business. Monetary stability is maintained through the currency rate that is strictly fixed in relation to the US dollar. All interest rates in Hong Kong are determined on the basis of interaction of the market supply and demand. In China, 13 procedures are needed in order to organize a business (The Heritage Foundation, “China”). Licensing requirements are broad and difficult for implementation. Numerous bureaucratic procedures in Russia contribute to higher market uncertainty and additional risks for entrepreneurs. More than 100 days are needed to launch a company in Brazil (The Heritage Foundation, “Russia”).
The state of markets in these countries should be compared as well. Hong Kong is open to all forms of international trade. As the country’s business environment is liberal and is characterized by low taxes, it attracts a large number of investors from all over the world. The average tariff rate in China is more than 4%. Moreover, a large part of companies are owned and controlled by the government; it creates significant distortions and misallocation in the economy. The average tariff in Russia equals 5.2%, and significant non-tariff barriers exist as well. The tariff in Brazil is even higher; it equals 7.9%; foreign investments in some sectors of the economy are regulated and limited by the government (The Heritage Foundation, “Russia”).
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Thus, the current economic policy that is implemented in Hong Kong is very different from those that are adopted in China, Russia, and Brazil. The economic perspectives of these countries are not promising as they have not created attractive business environment for potential investors from different countries of the world. In order to experience higher rates of economic growth, these countries should adopt a more liberal economic policy. In particular, the existing tax burden should be reduced, and private property rights should be better specified and protected. Although the economies of China, Brazil, and Russia have some local differences, all of them need radical free-market reforms, and Hong Kong may serve as an adequate example in this regard.