7/28/2019 A Tale of Four Economies

1/3

Anis Najwa binti NazariAinaa Mazelin binti MustafaAina Zamirah binti ZamailiNazira Adlin binti Md Razi

Applied Economics: A tale of four economics

The article tells us about the rise and fall of four countries who contributed the largest

economic result of all time. The country in analysis are USA, Germany, Japan and the United

Kingdom. The economic growth for these countries are measured by unemployment rate,

balance of payment, economic growth and inflation. These four play the most important

factors in determining an economic performance of a country.

Germany and Japan showed a successful economic performance with low inflation,

low unemployment, high economic growth and a persistent current account surplus. They

maintained this for most of the post-war period but started to decline in the 1990s for several

reasons.

Japan fluctuated from a series of recessions to short periods of positive economic

growth. The 4-10 percent range of economic growth per annum plunged down to 1.3 per cent

per annum over the period of 1991-2006. Depressed demands caused inflations whereby

prices fell and increase for almost 8 years starting 1995. The low economic growth from the

inflation affected the unemployment rate and by 2006, it doubled in amount.

Germany suffered the same situation as Japan with 1991-2006 being a difficult period.

The reunification of West Germany and East Germany played a huge role in their fall. East

Germany is a command economy which means that the supply and price are not regulated by

the market , but instead the government and they had low outputs per head compared to their

western neighbour. The reunification resulted in transfer of resources from West Germany to

East Germany but it still had a slow growth of economy. Sharing results with low growth

countries ( France and Italy ) , their social economic model was criticised for being inefficient

7/28/2019 A Tale of Four Economies

2/3

as it practices high taxes for labour, and the difficulties in firing workers and other constraints

scared the firms out of the market. Unemployment rate increased and was 41 per cent higher

compared to 1991. Inflation fell by 2 per cent.

USA and UK is the total opposite of Japan and Germany. They started out low with

USA being lower than Japan and continental Europe and UK having disappointing economic

performance with slow growth, persistent inflation and balance of payment problems. US

garnered 2.5 per cent per yer between 1960 and 1990 and 3 per cent average in 1992

complimented with subdued inflation and strong economic growth. As for UK, after a deep

recession in the early 90s, it got back on its track with 2.9 per cent between 1993 and 2006

compared to their previous 2.3 per cent whilst inflation still falling and unemployment halved.

The performance of their current account of the balance of the payments can be

interpreted in two ways. First, the unchanged current account deficits of the UK and US will

affect the growth these economies as they borrow money to cover the deficits, they will have

to repay with interests, which means they have to take out more money than the value

borrowed in order to pay back. Japan who has run a persistent surplus will soar in the future.

This changes for US and UK if their current account deficits are caused by inflows of

investment capitals where foreigners invest their country for which they will benefit in the

future. If Japan spends its current account surplus to invest in UK and US businesses, they

will have a win-win situation in which we can see that they have to cooperate with each other

to ensure better economic growth of the world.

7/28/2019 A Tale of Four Economies

3/3

The UK and USA economies barely changed since 1970s and 1980s with an increase

growth rate of around half a percent. However, Japan and Germany who were rising up to

twice the rate of UK and US fell dramatically. Their growth rates have been half of UK and

Usa since 1991. This sudden turn of events has been used to criticise the Anglo-Saxon

economic model which associates with free markets and globalisation being superior than

social economic model practiced by Germany that associates with more controlled market

and protectionism. UK and US did a great job rather than their rivals, Germany and Japan but

what worries economists is the fact that they have persistent current account deficits that will

surely drag down thie success now if not careful.