Discuss the impact of Newly Industrialised Countries (NICs) on the global economy. (10)

Newly industrialised countries are countries whose level of economic development ranks somewhere between the developing and first-world classifications. These countries have moved away from an agriculture-based economy and into a more industrialised, urban economy. They have experienced rapid growth over the last 40 years because they often have very low labour costs, attracting TNC’s and encouraging foreign direct investment. TNC’s get enticed by low labour costs, large English-speaking workforce and reduced trade tariffs.

NIC’s are characterised by the fact that they are gaining an increasing share of the world manufacturing sector. The first generation of NICs were known as the ‘Asian Tigers’ – Hong Kong, Taiwan, South Korea and Singapore. They attracted many TNCs because of low cost of land, cheap labour, reduced trade tariffs, and expanding domestic markets (increasing demand). The Tigers achieved massive economic growth with Hong Kong's GNI per capita grew from $1800 in 1973 to $32,950 in 2008. However, the growth model of the Asian Tigers can be criticised. They have not followed the typical model of import substitution with an aim of becoming self-sufficient, instead they have focused on exports, arguably preying on the on the healthy economic state of MEDC’s. But this activity isn’t sustainable within the global economy, from the 1960s to the 1980s the Tigers pursed this method of development, but by the 1990s their economies had expanded too fast and prices of property, stocks and shares had become overvalued and they saw mass inflation, harming their global reputation. Also their environmental degradation was huge, air pollution and deforestation have largely increased, meaning we cannot globally move forward with trying to implicate pollution laws if some countries are still failing to cooperate.

China is a rapidly growing NIC, since the 1970s, gross national income has risen from $180 to over$3000, with a growth rate of around 10% per year. The key to its growth was a change in government policy and economic reforms. For example, encouragement of the growth of private businesses e.g. agriculture was partly privatised, allowing famers to sell their own produce rather than giving it to the state to sell. This encouraged productivity because competition was increased, meaning farmers provided more output, increasing growth of the sector. Also, special economic zones were set up. Foreign companies would receive tax breaks if they invested in manufacturing. This encouraged investment in China and gave them the ‘boost’ they needed to increase development. China has been an example of a country that has followed Rostow’s model; they were fairly undeveloped and stuck in this position, but from a foreign surge of investment, it provided the initial help they needed to build their own economy.

However, newly industrialised countries do bring some disadvantages to the global economy. As economies and countries increasingly link, they are more vulnerable to supply shocks and trade conflicts. Countries become dependant on imports from certain countries and if there is an economic crash in one economy, it can affect multiple economies. For example, Chinas economy is currently fairly weak, their exports are decreasing and their productivity is worsening. This has had an impact on the global economy because countries such as the UK import raw materials from China, and these materials are going up in price, meaning costs of production are increasing and output is decreasing, which is harmful to economic growth. As NIC’s get richer, it becomes more expensive to produce things there, because wages rise. This means TNC’s move their production to less developed countries so the economic development of NICs takes a large step back as FDI decreases over time. This shows how NIC’s shouldn’t rely on TNC’s for economic growth and how they should invest in their own large manufacturing industry instead of trying to attract from abroad.

Overall, NIC’s bring some positive impacts on the global economy as they increase global competition and allow consumers to benefit from vastly cheaper products and services. However, over time they have to stop relying on the global economy for help and they need to build their own goods and services to gain power and efficient economic growth.