Growth Of The BRICS

Brazil
Russia
India
China
South Africa?

Goldman Sachs economist Jim O'Neill predicted in 2003 the BRIC economies would, by 2050, be wealthier that most of the current major economic powerhouses. In 2012 South Africa joined therefore making the BRIC the BRICS. It is predicted that China and India will become the dominant forces in manufactured gods and services while Russia and Brazil will become the dominant suppliers of raw materials.

These 4 countries are the fastest growing and largest emerging market economies and account for just under half of the world's population. It is believed that China will become the biggest economy in the world sometime between 2030 and 2050 because as discussed in another post they have averaged 10% growth for the last 3 decades.

However they have experienced problems and are likely to run into problems in the future that include:

• Russia face political problems which in turn will cause economic problems for example exports to Russia have fallen sharply, they also rely too heavily upon oil (we have seen lately the huge decline in oil prices that will have an effect on Russian economy)
• India suffer from corruption and also an increasing current account deficit
• Brazil's economic growth has plunged from 7.5% to 0.9% in 2010 to 2012. 
• All growth figures and prospects will have been affected by the financial crisis

Goldman Sachs projected growth

The Globalization Of Services

Many refer to the globalization of services as the second wave of globalization.
Services include things like call centres, advertising companies, financial services etc.
Originally the offshore outsourced work were basic goods manufacturing tasks that were repetitive and uncomplicated, now with the globalization of services it is off-shoring more specialized tasks, not only call centres but examples include legal firms off shoring litigation and patent research.
In recent years the most popular destination for outsourcing services has been India, in particular the state of Karnataka where Bangalore is situated, it is referred to as India's 'silicon valley'. Behind India in the GSLI are other emerging countries such as china and malaysia. The GSLI ranks countries that are the best destinations for outsourcing goods to based on factors such as people skills and costs.

Case Study: INDIA - Karnataka

India is top of the GSLI, although the capital is New Delhi, it is Bangalore located in Karnataka that is the most important IT centre. There is a population of 8.4 million in Bangalore and is referred to as the 'silicon valley' of India. The service sectors contribution to GDP has increased from 15% in 1950 to over 50% now. India is a very attractive place to outsource services due to many factors:

• 2nd largest English speaking population in the world
• low cost but high quality and adaptable workforce
• investment-friendly and supportive government policies
• 3rd largest brain bank in the world - around 2.5 million technical professionals
• well developed infrastructure and communications

Karnataka has historically been a place for technology and R&D based institutions. It was the first state to set up engineering colleges and a university of technology. Other things giving Bangalore a competitive advantage include:

• Best telecoms infrastructure in country due to existing technlogy parks such as Myosore and Hubli. 
• A specialized industrial park, Electronic City, has been built and spreads over 1.3 KM^2. 
• technology universities

Bangalore has experienced growth of around 10% per annum and now has India's third highest GDP per capita. This is due to domestic investment such as the opening of an airport in 2008 but also the influx of FDI from countries such as HSBC, Google and Yahoo. 

However, despite its attractiveness India faces many future problems in maintaining its position. These include:

• Competitions from cheaper places such as Vietnam and Phillipines
• Wages are rising and so are other costs like rent, there is inflation
• Many firms are moving call centres back to the UK due to customer complaints.

Income Elasticity Of Demand

YED = Income Elasticity Of Demand

Income elasticity of demand is the responsiveness in demand for a good when there is a change in income levels

Inferior good

YED = % change in quantity / % change in income

If 0-1 then it is inelastic. If it is 1+ then it is elastic.

If the answer is negative (-) then the good is an inferior good. An inferior god is one that as income decreases then demand increases. An example of this could be Tesco value goods.

If the answer is positive (+) then the good is a normal good. A normal good is one when when income rises so does the demand for the product. For example trainers.

Normal good

Cross Elasticity Of Demand

XED - Cross Elasticity Of Demand

XED is the responsiveness of demand for one product following the change in price for another

XED = % change in quantity demand for good B / % change in price of good A

If 0-1 then it is inelastic. If 1+ then it is elastic.

If the number is negative (-) then the two goods are complements. Complements are two goods that go with each other, for example, If the price of a cinema ticket increases then the demand for popcorn will decrease. 

If the number is positive (+) then the goods are substitutes. This means you have one or the other. For example chicken or lamb, if the price of lamb goes up then the demand for chicken will increase. You can have weak and strong substitutes, a strong substitute would be dairy milk or galaxy therefore they will have a high XED.

Ways of lowering XED include branding and differentiating your product therefore there will be less substitutes and you can charge a higher price.

Price Elasticity Of Supply

PES = Price Elasticity of supply

Price elasticity of supply is the responsiveness of supply to a change in price.

PES = % change in quantity supplied / % change in price

If it is between 0-1 then it is inelastic and if its 1+ then it is elastic.

The graph on the right is inelastic supply and the one on the left is elastic.
If it is elastic then the producers are able to increase supply without a rise in cost or time delay.
If inelastic then producers find it hard to change level of supply in a given time period.

What determines whether it is inelastic or elastic?

• Level of spare capacity - if there is lots of spare capacity then the supply curve is elastic as they are able to supply more easily
• State of economy - if economy is in good state then it will be elastic
• Perishability - If a good is hard to store ie. flowers then the supply curve will be inelastic, if it is easy to store then it will be elastic
• Time period - if it is a short time period PES will be inelastic as it is hard to increase output with short notice.

Price Elasticity Of Demand - Economics Unit 1

PED - Price Elasticity of Demand

The responsiveness in quantity demanded for a good following a change in price of the good.

PED = % change in quantity demanded/ % change in price.

If the answer is between +/- 0-1 then the good is said to be inelastic. Examples of inelastic goods include cigarettes, petrol etc. (will go into detail why)

If the answer if +/- 1+ then the good is said to be elastic. Examples of elastic goods include sports cars.

If the PED = 1 then it is said to have unitary elasticity of demand, this means that a 10% change in price will cause a 10% change in demand.

If PED = 0 the good is perfectly inelastic, the demand curve would be horizontal.

If PED = infinity the good is perfectly elastic and the demand curve is vertical.
Factors that affect Price Elasticity Of Demand:

• Whether the good is a necessity or a luxury. If it is a necessary good then PED will be inelastic as a consumer is willing to pay whatever price for it. If it is a luxury then its PED will be elastic because they don't need it
• Availability of substitutes - If there are no substitutes, there is no competition therefore it is inelastic. If there are substitutes then its is elastic
• Addictiveness makes a good inelastic as thy will pay whatever for it. ie. Cigarettes
• Brand Loyalty
• Time frame - if you need a good today then you are more to pay whatever for it so it is inelastic
• % of income spent on good - if its a small percent of your income then it will be inelastic.

If PED is inelastic and and the price increases then total revenue (PxQ) will increase as you are selling at a higher price

If PED is elastic and the price decreases then total revenue (PxQ) increases as selling more at a lower price

Growth Of The Asian Tigers - Geography and Economics A-Level

The term Asian Tigers, refers to Taiwan, South Korea, Singapore an Hong Kong.

The term was becoming widely used in the 70s and 80s following the emergence of these four countries who all followed a similar pattern of development to becoming developed countries. These countries For example Singapore is now one of the world leading financial centres.

None of these countries had a rich supply of ntural resources. They followed a very export driven model of industrialization by focusing on selling to rich western countries such as the UK and USA. They decided that to boost the manufacturing industry they would have to tap in to economies of scale and therefore rely on international trade. In trading to a larger market they could improve efficiency through E.O.S. This model is different to conventional models of the time which involved imposing raised tariffs and quota on imports which reduced the number of imports and thus allowing the domestic industries to flourish and develop. Although the Asian Tigers did use this model at first before switching heavily to an export driven model.

These countries all had similar characteristics which included:

• GDP growth rate from 1960 to 2000 averaged 6% per year 
• abundance of cheap labour due to being poor in 1960
• all invested heavily in education, this can increase LRAS and increase productivity
• all had strong Chinese influences
• non democratic political systems meaning plans were driven through easily

But is this a good model to follow?

There are many criticisms of this export led model which include:

• dependency on other countries economic health can be very risky
• fast expansion of these countries caused problems such as a in 1990 many stock markets crashed and sparked a worldwide financial crisis
• Rapid industrialization has caused many environmental problems
• Lost competitive edge to India and China who can now create at cheaper unit costs. 

The new era of  Asian Tigers (Tiger Cubs)

It is said that Indonesia, Malaysia, Philippines and Thailand are also following the export led growth model.

It is predicted that these 4 countries will be in the top 50 economies in the world by 2050.

Due to a high number of Chinese entrepreneurs and residents, the transformation of China has led to increased investment.