Overview of Development,
Performance, Problems and Challenges
of Hong Kong
Lecture I
Prepared by Wai-hin Yan, Department of Economics, C.U.H.K.
Economic Success
Economic freedom
Laissez-faire
Market capitalist economy
Big Market and small government
Strong Structural Foundation or Fundamentals
Social, Business and Legal Environment
Communication and Transportation
Banking and Financial Services
Human Resources and Education
Rights and Privileges
Appropriate Policy Orientation
–
Minimum Distortion
Sound Ethical Behaviour and Attitude
Confucianism
Religion
Position of Hong Kong
Conducive Domestic Economic Conditions
Economic openness is a necessary condition for
growth.
Domestic stability is a sufficient condition for growth.
Improvements in domestic economic conditions are
both necessary and sufficient.
Foreign investments can come and go; to make them
stay require conducive domestic conditions.
Changing Comparative Advantage
Economic openness and conducive domestic
conditions invite foreign direct investment that are
export-oriented.
Comparative advantages in exports and trade follow
the world pattern of demand.
Foreign direct investment helps change comparative
advantage over time.
Income Equity and Poverty
Rewards are based on endowments, disparity or
inequality is inevitable.
Lorenz Curve or Gini Coefficient gives static
measurement.
Inter-personal comparison vs. Intra-personal
comparison
Deterioration in inequality is likely in a recessed
economy.
East Asian economies do not support a continuous
improvement of equality as GDP rises.
Role of Government
Hong Kong government intervened
“
positively
”
when
needed.
“
Diffusion-oriented
”
strategy adopted in
industrialization.
Total public expenditure in GDP has been low.
Larger expenditures include education and health.
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Pro-Growth Regime
Politics is linked to economic in the process of distribution.
Economics is used in political platform.
Political outcome tends to be short term. Economic growth
tends to be long term.
Economism produces an economic floor, so that growth
depends on stage of the economic cycle. Equal opportunity
allows people to engage in self-centered activities and
pursue intra-comparison in income.
Other social paradigms often produce absolute, win-or-
lose, or live-or-die outcomes.
Peace & stability can be maintained
No matter how a regime is selected/elected, a regime
should take a pro-growth approach, giving high priority to
economic activities.
Sovereignty Reversion
Hong Kong became an SAR on 1 July 1997 under the
“
one
country, two systems
”
framework.
Governed by the Basic Law that maintained Hong Kong
’
s
capitalist economy. Self-rule principle ensures local
autonomy except in areas of sovereignty, diplomacy and
military deployment.

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- Spring '14
- Inflation
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