Why
are countries
with almost similar
level of per capita
income found located
near each other
in the globe?
Is there any connection
between geographical
proximity of nations
and their economic
growth?
There is also
something to be
said about how
economic development
spreads within
a region.
After World War
II, the Japanese
economy began
to grow in leaps
and bounds. Then
the growth fever
began to spread
in many Far Eastern
and South Eastern
economies-namely,
South Korea, Taiwan,
Hong Kong, Singapore,
Malaysia, Indonesia
and Thailand.
The phenomenal
growth in these
countries pulled
them out of poverty
and in fact many
of them have already
caught up with
western economies.
Although a late
starter, China,
another country
in the region,
has grown at a
remarkable pace
and today it has
become another
economic powerhouse
in the Far East.
Perhaps one can
argue that countries
that are close
to centers with
vibrant economic
activities can
benefit from investments
from and trading
with those centers.
These countries
can also enjoy
other less obvious
benefits-spillover
effects such as
technology transfer-
which are difficult
to trace and therefore
hard to put a
dollar value on.
But not all countries
are party to regional
growth euphoria.
Take for example
Mexico and US.
The difference
in per capita
incomes of the
two economies
was negligible
at the dawn of
1700-Mexico had
a per capita income
of US$ 450 and
USA US$ 490 (in
1985 US$). But
by 1989, the per
capita income
of US had grown
about six times
greater than that
of Mexico. Why
then has there
been a significant
difference in
income levels
between the two
countries when
they border each
other?
Needless to say,
geographic proximity
is not a sufficient
condition for
a country to reap
the benefits of
economic growth
in the region.
Other factors
seem to be in
play-political
relations, economic
policies and interconnectivity
infrastructure
between the nations,
to name a few.
Incidentally,
Mexico has done
well after the
establishment
of NAFTA. Total
two-way trade
between Mexico
and the US grew
from $81 billion
in 1993 to $231
billion in 2002.
In the meantime,
Mexico turned
a modest trade
deficit into a
$37 billion trade
surplus. NAFTA
stands out as
an example of
a regional bloc
that can provide
a platform for
breaking the barriers
to realize benefits
from increased
trade, investment
and spillover
effects in the
region.
The regional bloc
SAARC, comprising
eight nations,
is the largest
by population.
South Asia is
also one of the
poorest regions
in the world.
But most of the
countries in SAARC
are enjoying impressive
economic growth.
In fact, one nation,
India is on the
track of becoming
a global economic
powerhouse.
All this means
the entire regional
market is huge;
it is growing
and what is more
it has further
promises of growth.
Although it appears
now that most
countries of the
region have similar
production capabilities,
as their economies
grow, it is unlikely
that each country
will be able to
build comparative
advantages in
every product
that their populations
will have a demand
for.
As a result, the
countries will
have opportunities
to specialize
in different products.
Here is a hypothetical
example: India's
exports are driven
by a few sectors,
such as IT, gems
and jewelry and
textile. Now,
imagine somehow
Bangladesh builds
capacity to produce
toys, in which
none of the regional
economies enjoys
comparative advantage.
If Bangladeshi
toys have easy
access to Indian
and other regional
countries, then
Bangladeshi toy
industry will
enjoy remarkable
growth. The toy
industry will
be a driving force
in increasing
income level in
Bangladesh. There
will be more demand
for products in
Bangladesh that
are produced in
other countries
in the region.
One of the products
could be gems
and jewelry. As
a result, economies
can grow in parallel.
To make all that
happen there has
to be frictionless
movement of goods
and services in
the region. This
means, tariffs
and non-tariff
barriers have
to be removed.
Customs and quality
standards across
the borders have
to be harmonized.
Transportation
facilities have
to be improved.
|
