ECON303 Tutorial 2 Reading

ECON303 Tutorial 2 Reading - Economics focus Invested...

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Economics focus Invested interests China aside, most Asian economies need to invest more, not consume more Jan 21st 2010 | From The Economist print edition ASIA’S current-account surpluses have been widely (if unfairly) blamed for causing the global financial crisis. Large inflows of foreign money helped inflate America’s housing bubble, the argument runs. Many Western economists say that Asians should squirrel away less of their income and consume much more. But a more rigorous analysis suggests that in most Asian economies it is investment, not consumption, that is too low. Even economists who believe that most of the blame for the crisis lies in Washington, DC, argue that Asian economies need to shift from exports and investment to consumption as their new engine of growth. In “The Next Asia”, a recently published book, Stephen Roach, chairman of Morgan Stanley in Asia, calculates that consumption in emerging Asian economies fell from 65% of GDP in 1980 to 47% in 2008. American consumer spending, by contrast, accounts for more than 70% of GDP. “Until export-led growth gives way to increased support from private consumption,” he argues, “the dream of an Asian century is likely to remain just that.” His prescription certainly applies to China, where private consumption fell to only 35% of GDP in 2008. But what about the rest of Asia? A country’s current-account surplus is, by definition, equal to its domestic saving minus its domestic investment. So Asian economies can reduce their surpluses by saving less (ie, consuming more) or by investing more. Which route is appropriate depends in part on why their current-account
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This note was uploaded on 05/26/2010 for the course ECON 1160 taught by Professor Byrke during the Spring '10 term at Macomb Community College.

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ECON303 Tutorial 2 Reading - Economics focus Invested...

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