Risks and challenges faced by emerging economies

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Risks and challenges faced by emerging economies

The first challenge faced by the emerging economies is the over reliance on the export-led industrialization by using which countries concentrates on developing domestic export industries capable of competing in overseas markets. In the current situation, more and more emerging economies are replacing the import-substitution industrialization with the export-led industrialization. The situation in the Southeast countries is more typical but such growth mode has risks which are exposed at the beginning of the current economic crisis. For example, the Asian Tigers which are some of the world’s most dynamic economies with around 47 percent of the GDP were left with excess manufacturing capacity and high um-employment rate (Kegley & Raymond 2010, p.120). Similar cases could also be found in the major emerging economies. For example in China, news suggested that nearly half of China’s toy factories closed in 2008 as the financial crisis tightened its grip (Yueh 2011, p.185). Though the financial crisis has exposed the risk of over reliance on the export-led industrialization by the emerging economies, but export data after the crisis soon shows that the most emerging economies have returned back to the old growth mode. These suggest that risks will still exist.

Another major challenge faced by the emerging economies is the high inflation rate. According to International Monetary Fund (2008) many emerging and developing economies continue to face the challenge of ensuring that current strong growth does not build up inflation or vulnerabilities. As we know based on the economy knowledge, a mild inflation rate is actually encourage economy development, but to some emerging economies the current inflation rate is far from what could be deemed as acceptable. And to combat the inflation risk, one rule can be followed which is increasing the labor compensation in line with the average productivity growth plus a targeted rate of inflation (Engerman & Gallman 2000). The high food price led high inflation in China that causes substantial difficulties to the people is one of the case describing the risk of the high inflation issue. But it seems that implementation of the rule is more difficult for the emerging economies which amounts the risks and concerns.

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