Sample Article Review Paper on Economics of Asia

PART ONE

For decades, the Asian export industry has been dominated by four major powerhouses, China, Japan, South Korea and Taiwan. The four countries have been the chief agents for spearheading the Asian growth and development of the Asian continent and an economic go slow for them implies that the continent’s economic projectile is slumbered (Arnold, 2014). With the west constituting the lion’s share of their market segmentation, changes in consumer preferences and import patterns of the west could pose a devastating impact to the continent’s development as a whole. The economic slump of the west coupled with other factors has resulted in a negative growth pattern in terms of the export revenues. For instance, joint exports from the continent’s export front runners reduced by a 2% margin within the first quarter of 2014 compared to the same period of 2013. The slowdown was particularly striking china with the country’s capital conceding that its 2014 first-quarter current-account surplus had reduced to the lowest level in three years.

Two theories have been postulated for the shift in the export pattern. The most cited reason is that the current U.S. economic recovery is marked by a different pattern. Five years since the U.S embarked on economic recovery from recession, only a meager growth in all goods and services has been recorded; 1.8% which is approximately half the growth rate of previous expansions (ARNOLD, 2014). Although the economic recovery is accelerating, the process is powered by capital investments in areas such as oil and gas exploration that hardly depend on imports. This is reflected slim growth in the U.S imports from Asia; 1% in 2013 compared to 13% in 2004.  The second theory is based on the effects of the continent’s successes. It is argued that high wages and better living conditions have made the cost of production in the home countries too high to the extent that some of these powerhouses have opted to shift their facilities overseas to take advantage of cheaper wages. The option has however not lived up to expectations as some of the less developed countries do not suffice the required skilled manpower.

Two means of liberating the Asian economies are proposed. The first method is a fiscal one and involves an overhaul of the region’s chief economic activities. This involves shifting from being export based economies to ones that focus on other sectors such as agriculture, banking, insurance and infrastructure as well as allowing more foreign participation (Arnold, 2014). For instance, the South Korean government has opted to develop the services sector as part of its economic stimulus plan. The second alternative is a monetary plan that involves enacting changes in taxation, regulations and labor laws. This move is aimed at brisking local investment for companies that had shifted offshore.

PART TWO

According to Ito (2014), Japan’s inflation has been deepening over the past couple of months. Consumer prices have been sky diving in the recent couple of months and consequently logging the gains that had been reached over the years. Local Japanese companies have had to cope with high production costs due to increased fuel and raw material prices. Competition from SMEs has made it difficult for these costs to be filtered to the price conscious consumers, a situation that further complicates the ease of raising wages. The current rate of inflation appears worse than any other inflation spanning 1995 and 2012. The situation is worse than 2006, a period when Japan was experiencing a similar phase of growth.

The continued consumer price increases in Japan is as a consequence two reasons; a weakened Japanese yen and the government’s strategy to engineer for increased workers’ wages (Ito, 2014). The Japanese yen to the U.S. Dollar has hit an all-time high in the recent past causing large impacts on local companies. The weakening of the yen means that companies that rely on fuel and raw material imports have to incur extra costs of production which out to be filtered to the final consumers. The situation is even worse presently considering the fact that Japan currently imports more finished products than in the past. The second reason for the increased consumer prices stems from the government’s drive for increased labor wages. The push for increases in wages for workers to afford the already high priced products has a bearing on the prices of commodities since manufactures ought to retail at high prices to afford the increased wages.

Economist argue that sole focus on a monetary policy as a means to countering deflation cannot suffice to solve Japan’s economic crisis (Ito, 2014). Since Japan large depends on overseas imports in the current decade, a weakened currency only serves to raise the costs of production of local manufacturers. Critics of the Prime Minister’s economic rejuvenation strategy also state that focus on a monetary policy as a means of economic awakening cannot be effective in the absence of a credible growth strategy. Additionally, the proposed percentage wage increase is not deemed sufficient to offset an earlier tax hike by the government. The Japanese government’s strategy of banking on a weakened currency may therefore be sustainable since the country’s import pattern has significantly shifted and a weak yen today has striking effects than in the past.

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References

Arnold, W. (2014, April 28). Asia’s Export Engine Sputters:Economic Expansion Threatened in Four Major Countries. The Wall Street Journal, Web.

Ito, T. (2014, March 6). Now the Hard Part for Japan’s Deflation Fight: Weak Yen No Longer Enough to Lift Prices. The Wall Street Journal,  Web.