Evaluation of The Financial Difference Between India, Korea, and Guyana

Abstract

The economics of countries around the world varies significantly in growth and equality. Economic disparity will be explored in three different countries. These countries include India, Korea, and Guyana. The effects of the inequality of growth and economic performance is far reaching to even the most remote citizens of each of these countries discussed. The efficiency of the economic performance for the citizens is determined by the channels of reforms employed by the governments of each of these countries. The economic theories and findings of Elhanan Helpman will be reviewed and implications for these countries examined, utilizing the data to describe the economic findings.

Introduction

Economic inequality hurts the development of growing and established countries around the world. The economic performance of a country will impact the growth and inequality for the businesses, government and citizens of each country. These performances not only impacts the success and survival of the individual country, but its impact on the economic status of the performance in the global financial environment. When there are fewer amounts of wealth in fewer hands then inequality is inherent in turn of the country’s economic stability. The impact on the overall economy is far reaching to all people in the state or country, and even the entire world. In the situation of an under developed, or unequal economy, the financial status of a country is described by the amount of low per capita income of the citizens. The misdistribution of the income and wealth in a country will cause the problem of poverty and economic disparity to become a severe obstacle in economic balance and growth in a country. Economic inequality is closely related to the reduction of the economic growth since the increasing concentration of the population’s income is part of a smaller portion of the global population.

It is the necessary responsibility of theorists and activists in the economic and political world to review the problems related to financial success and demise in all countries. After thorough review of the economic status, institutions must create and implement theories of methods to make improvements for all levels of financial classes. And finally, the implemented theories must be reviewed and modified as needed to continue to meet the needs of the public and private sectors of the economic industries. The problem-solving methods first begin with questioning the current status of successful and failing financial planning. Institutions of each country must begin with evaluating the populace of the land and work their way to the top. This evaluative process will allow economists to formulate questions to gain understanding and create forward change and progress in the financial security of their homeland. Therefore, the questions that must be answered include;

1. What is the effect of the inequality of economic growth and performance on each country?
2. How does the economic development of each country affect the living conditions of its citizens?
3. What are the economic channels the governments employ to ensure growth and equality within the country and the world economic systems?
4. How have the theories of Helpman influenced economic growth and improvement status to create equality for countries around the world?

These research questions have been explored and continue to influence the development of the economic status around the world. The findings will show the progress and implications for the countries of India, Korea and Guyana. The economic implications will be explored by demonstrating the empirical evidence showing the correlation of successful and despairing conditions of the inequality and growth for the countries. Next, possible explanations will be explored in the examination of the evidence for each country. Finally, the theories of Helpman’s economic performance will be explored in the link for the status of the economic reforms employed in these countries. Data, descriptions and explanations will be utilized to explain and demonstrate the findings of these research questions.

Inequality in India

As the seventh-largest economic powerhouse in the world, India has enjoyed economic success from the exporting of various products and agriculture to countries around the world. However, the status of its people has been a different experience than observed from outsiders. India has the third-largest purchasing power in the world. India is classified as a newly industrialized country and one of the G-20 major economies with a growth rate of approximately 7% over the last 20 years (International Monetary Fund (IMF), 2014, 1). These growth rates are seen in many states across the country.

In the city of Mahashtra, the GDP was estimated at a rate of $250 billion. While in Tamil Nadu, the GDP stood at an average of $150 billion. Finally, the city of Uttar Pradesh had a GDP of $130 billion in 2015 (DailyNewsAnalysis, 2015, 1). These growth rates surpassed the economic growth status of the superpower country of the People’s Republic of China in 2014. According to the IMF (2014), the Indian economy has developed the potential to become one of the two largest economies in the world by the mid-21st century (2). The implications for this economic development for India can lead to improved rankings in the world trade ranking-agriculture (17%), automobile industry (29.7%) and growing e-commerce markets (45%) (CIA, 2016, p. 1). The long-term growth perspective of this economy has grown in a positive manner largely, in part, because of the young generation of this growing country. The young people have experienced low dependency ratio, healthy saving and investment rates, and increasing integration into the global economy (CIA, 2).

The economic trends and issues experienced in India does not match the growth and advancements as seen on paper across the global network. The influences of the financial reality of India’s citizens is not as positive or glamorous as it appears. The reality of the common citizen in India is filled with despair, poverty and heartache as the people in the upper-crust of society continue to prosper. The reforms that helped the economy grow and develop in India over the last 20 years has also impacted the poorest citizens of this country. The income inequality has doubled during this time period. Since 1991, the continuing liberalism of the country has moved the economy of India toward a market-based economy (Gargan, 1992, 1). The financial policies have been influenced by the combination of protectionism, import-substitution, Fabian Socialism, and social democratic government policies (Gargan, 2). Following the time-period of the installation of these economic influences, India began to experience a severe decline in the equality of their economic stability within the lower demographics of their society. Garan notes in 1992 that the economy of India was characterized by several descriptions offering a grim view of the development for the citizens failing financially. In the various communities around India, the government offered extensive regulation of their programs for the economy. In these regulations, the Indian government hindered its people. In addition, the government offered protectionism and public ownership of large monopolies of businesses throughout the land. The protectionism and public ownership kept the common man from being able to participate in financial growth or capital gain, holding them back, in the midst of poverty. India also experienced pervasive corruption throughout the various agencies of its government. The special interests of the powerful and elite people of the country bring about changing rules to support the systems that have evolved to cater to the needs of these growing interest groups. The social spending experienced in India has gotten out of control. This spending has lead to virtual stealing from the population, policy changes to hinder the growth and expansion of the lower income families, and finally reroute the path of financial success for all of the people living in India. As a result of the elitist systems, the corruption hurt the people of India, physically, socially and financially. Lastly, the economic trend of India saw a slow growth in the status of the people and government equality. With the economic management of the institutions in India, it was inevitable for the economy to decline and ultimately begin to fail. This economic failure was seen throughout the country and amongst the people.

The market-based economy now experienced a fiscal deficit increasing in percentage. In 2009, the fiscal deficit in India was situated at 5.9%. By the year 2010, the deficit rose to a high rate of 6.5%. Mirroring the fiscal deficit, the unemployment rates rose from 4.7% nationwide in 2013, an increase from 3% observed in 2012 (Gov. of India, 2013, 6). The implications of these alarming statistics hurt the people of India with the sharp and increasing regional variations in the states in poverty, infrastructure and housing and the socio-economic availability. These variations impact people’s health, death and living conditions on a daily basis, leaving the population with little hope for progress and improvement.

Inequality in South Korea

South Korea is often thought of as the ugly stepchild of North Korea’s increasing economic growth and success. According to the East Asia Forum (Koo, 2014), the president of South Korea, Park Geun-hye, promised to rebuild the middle class and increase its size to 70% of the society (1). This pledge was part of her 2012 campaign power pact to rebuild the flailing southern Asian country. South Korea continued to experience a major political discourse with an economic polarization with a declining middle class (1).

Koo (2014) notes that economic change began in the mid-1990’s, as part of the major turning point of the Asian financial crisis. This financial crisis arrived in South Korea in 1997 (p.2). The consequences of this financial crisis were devastating to the common citizens of the small country. The government sacrificed the process of economic growth for the social policy that South Korea enforced to gain the respect from the superior northern country of North Korea. The once gainfully employed middle class of Korea began to experience a sharp decline in their livelihoods of the working population. The citizens began to experience economic and social difficulties in the face of the productivist regime. Some of the consequences of the capitalist system included the South Korean workers to be laid off or forced into early retirement. These two difficult situations greatly increased the low-income and impoverished population. The next downward step in the failing economy included business failures and downward mobility. These inequalities began to undermine the social and economic stability that is often enjoyed in more organized and democratic societies (Koo, 2014, 2).

The failing economic conditions of the large middle class impacted the development of the infrastructure across the middle and lower classes of the economic status of society. These deficits destroyed the impoverished people of South Korea and led the middle class citizens to experience poverty. For some it was the first time in their lives they began to feel the pinch and sting of being poor.

However, the consequences of the financial crisis were uneven throughout the country (Koo, 2014, 2). While the working class people of South Korea suffered in all areas of their lives, the financially stable citizens took advantage of the markets with scarce credit opportunities. This helped the rich people to become even richer than they had been. The resulting implications of the devastating decline in the world trade markets and employment became increasingly noticeable during and after the economic crisis of the 90’s. The implications are observed in the following measure of inequality. According to South Korea’s average Gini coefficient, the financial coefficient produced the following statistics that demonstrates the decline in economic stability (Koo, 2014, 2). In the years of 1990-1995, South Koreans experienced a drop in the economy at a rate of 25% for the time period of five years. In 1999, the fall of the economy in the country continued at the rate of 29% since 1995. Within ten years, the economic failure rate increased to an average of 32%. The increasing percentages confirm the economic decline the citizens of South Korea experienced over a twenty-year span. Koo (2014) models the decline of economic stability and the rising inequality beginning two years after the onset of the financial crisis (3).

While the population felt the pain of the faltering economic decline, the people also felt the struggle with income distribution. This effect of the economic failure dove-tails the economic instability of the rate of pay for the population of South Korea. The same trend can be seen in income distribution of the share held by the top 10 per cent of income holders divided by that of the bottom 10 per cent has increased from 3.30% to 4.9% in 1990 through the year 2010. By the year 2012, the income disparity increased to 16.6% between the upper income structures and the poverty level population (Koo, 2014, 3). The capitalist government generates undetermined and unsustainable inequalities in the social and economic status in the country.

The huge increase in the economic disparity over the twenty-year span demonstrates how the populations became further separated by financial success and impoverished living experiences. The differences experienced for these extreme socio-economic classes is demonstrated in the country’s overall value of financial wealth. In South Korea, as in most societies, wealth inequality is much larger than earned income inequality. In 2012, the top 10 per cent of the population possessed 46 per cent of the country’s total wealth. The bottom 50 per cent of society possessed only 9.5 per cent of the country’s wealth (Koo, 2014, 5).

The major sources of the growing income inequality are experienced concurrently with the transformation of the neoliberal South Korean economy (Koo, 2014, 5). The reform of this labor market produced a sharp deficit in the regular working employees and the workers who had varied employment. The working class became divided and is reflected in the economic inequality of South Korea.

Inequality in Guyana

The economy in Guyana can be described as moderate, at best. The largest contributing factor to the growth rate of the economy in Guyana is attributed to agriculture and extractive industries. According to Forbes magazine (2015), the small, Latin American country is heavily dependent upon the export of six commodities for its economic security. These products include; sugar, gold, bauxite, shrimp, timber, and rice. The exportation of these products make up 60 per cent of the country’s GDP (1). Guyana's entrance into the Caricom Single Market and Economy (CSME) in January 2006 has broadened the country's export market, primarily in the raw materials sector (1). Unfortunately, the weather is a large influence in the success or failure of the growth, production and sale of their limited resources.

Since its entrance into the CSME, Guyana experienced positive growth each year over the past decade. This growth is observed in the amount of debt reduced significantly since the early 1990’s. Also, inflation was kept under control for the small, agricultural country. Despite the improvements and progress experienced in Guyana, they have had chronic problems that contributed to the demise of their economic status in the world economic arena.

The problems experienced in Guyana that continue to influence the demise of the economic growth include several factors (Forbes, 2015, 1). One of the factors affecting the economic development of the small, Latin country has been the sizeable external debt with other countries. The debt drained the minimal resources needed by the people. Along with the increasing debt, the country urgently needed expanded public investment. However, with the demise of the economic status, the possibility for public investment was minimal, at best. Since Guyana has an economic structure based on agriculture skilled labor became a necessity for progress and growth. In the demise of the economy, the shortage of the skilled labor produced continued economic failure in production and sales of its marketable agriculture. Along with the problems of growing debt and a shortage of skilled laborers, the deficient housing and infrastructures produces difficult conditions for the impoverished citizens (Forbes, 2015, p.1). The declining living conditions enhanced growing health problems, especially for the young and old people.

These conditions are evident in the GDP status of the country over time and their debt ratios experienced with other countries. For example, in March 2007, the Inter-American Development Bank canceled Guyana’s $470 million debt, equivalent to 21% of their GDP (Forbes, 2015, 3). This debt cancellation coupled with other Highly Indebted Poor Country debt forgiveness, brought the debt-to-GDP ratio down from 183%, in 2006 to 58% in 2014 (Forbes, 2015, 3). The heavy debt experienced in Guyana came from inward-looking, state-led development model pursued by the government in the 1970’s through the 1980’s. In 2014, the production of sugar dropped to a 24-year low, thus contributing to the demise of Guyana’s financial difficulties (Forbes, 2015, 3).

The final effect of the economic decline on the people living in Guyana has infiltrated every aspect of their lives. These concluding implications for the economic status of Guyana include affecting the basic needs of its people (Thomas, 2014, 1). The rightful place of basic needs was deprived of its people in the area of inequality and poverty of health care, housing and food. In addition, the limitations of GDP as an indicator of economic performance, welfare and trade unionism impacted the government’s ability to pay the growing debt and encourage economic growth within in its own country. There were major theoretical underpinnings or laws of motion driving production, extended reproduction, and distribution down below measures that were survivable by the poverty level population. Finally, the global impact on domestic inequality and poverty of Guyana continued to develop at an expediential rate that continued to be unmanageable.

These far-reaching implications have affected the stability of Guyana’s ongoing financial difficulties and economic inequality. These inequalities are observed in the economic performance and welfare of Guyana over the past five years. The GDP over the long run of this country has been struggling. It can be seen in the thirty year span of financial disparity. (Thomas, 2014, 2). In 1980, the GDP in Guyana was at -22 per cent. In the 1990’s, the country saw their GDP at 1.22 per cent. Finally, during the years of 2000-2013, the GDP experienced a significant drop to .87 per cent. The entire period of the five years was less than 2 per cent. The inequality and poverty had room and opportunity to grow and flourish, while leading to the financial demise of so many of its citizens.

Helpman’s Main Arguments and Influence on Economic Performance

Elhanan Helpman, an economics professor at the Tel Aviv University, offers theories pertinent to the development of economic growth that provides broad determinants of the development of financial equality in countries around the world. Government institutions must promote adoption of the services by the growing technology field of change. Innovation must come from the service industry to create opportunities of financial prosperity. Knowledge, education and advancements in technology can lead to production and grand improvements in the standard of living for the rich and poor people of every country.

Helpman contributes philosophies to understand the disparity of GDP per capita across countries, the distribution of growth rates, and economic development (Grossman, 2005, 1). He also provides the relative importance of different factors contributing to growth ¬ factor; accumulation versus productivity growth and offers implications in the development of financial stability of countries. Helpman suggests theories that explain the success or demise of the financial status of countries. These philosophies include the study of income per capita, disparity in resources, physical and human capital, and finally, large economic discrepancies (Grossman and Helpman, 2000, 1)

Helpman offers economic analysts these theories to identify, analyze and modify current economic practices to improve the current and future status of their country. First, the constraints of the country’s financial institutions need to be observed form consistency and productivity in the growth and equality of its people. Inequality is most greatly attributed to low growth of economic disbursement, shorter growth periods and widening gap between the upper and lower classes of society. Also, the government should be under scrutiny in the analysis of the financial investments. The review of the leaders should include extortion of investments and efforts of their people working the labor jobs. Also, Helpman recommends that the productive institutions of the private sectors be monitored for self-enforcing policies (Grossman and Helpman, 2000, 3). The growth observed in countries and global trade is influenced by capital, labor and ideas and technology. The role of legal regimes and education systems determine the growth of the institutions and political systems. These growth rates are often determined by the country’s trade policy. Helpman believes that inequality is accompanied by greater trade flows across the country’s borders, the more the growth increases and the equality diminishes (Grossman and Helpman, 2000, 3).

The inequality of financial stability was observed in the analysis of India, South Korea and Guyana. Each of these countries exhibited financial success over a period of time. Then, their success was followed by the ruin from their institutional leaders and the implementation of inappropriate economic policies. In the country of India, their government would benefit from developing policy that would improve employment access to the low-income groups of people. South Korea citizens could prosper from improved infrastructures opportunities for further education and job training, lowering the private costs of living. Since the economic backbone of Guyana is highly linked to the agriculture development and sale of their products, the governing officials in this country should focus on income distributions and access to more public services. These services can include more long-term investments and cash investments. The analytical models demonstrate the impacts the government, agricultural development and service have on the development and performance of each country’s economic status. These countries have an opportunity to not only make the economic status less unfair, but also richer in growth and longevity.

Summary

The review and analysis of the economic data of various countries demonstrates the need for increased monitoring and improved control over economic decisions made in all levels of institutions in countries around the world. Many economists, such as Helpman, have researched and proven with compelling evidence that there is a strong need in addressing the high and growing inequality. The need for global economic changes is critical in promoting more sustainable growth in faltering countries. The increasing focus between the links seen in rising inequality, risk in crisis, and sustainable growth with economic inequality has been intensified in poorer countries in the past decades. The inequality and lack of economic growth advances, with the leverage of the financial cycle developing into financial emergencies for groups of people and entire nations in many of the world’s countries. There seems to be a developing consensus that growing economy developed over decades will lead to a country’s financial stability. Economists go on to note that the countries that promote economic equality experience greater income balance, better social issues, and continued financial growth amongst all socio-economic classes. These improvements must be implemented early to produce growth and prosper in the economic balance within the country and around the world.

The policy utilized to reduce the income inequalities should not only be pursued in the event of improving the social outcome, but it must also provide the long-lasting growth needed by the country’s impoverished population. Policies for improved growth must include regulations for education, housing and infrastructure, improvement in labor market procedures, child support and welfare management programs, just to name a few. Policymakers must devote great effort in reviewing the factors and implications of the slow growth and rising inequality in the economic status of the citizens of their country. Unfortunately, the poorer countries of the world will continue to use outdated methods for achieving economic growth. These methods that have been surpassed by technology does not bring increased income per capita. The end result is the continuation of more economic inequality with retarded growth in this range. These leaders must remain mindful of the strategies necessary in diminishing the increasing inequalities and promoting the economic opportunities its people so desperately need.