Newly Industrialized Countries Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The term newly industrialized countries (NICs) refers to a group of once-developing economies that industrialized—or are still industrializing—with an emphasis on the production and export of manufactured goods; newly industrializing economies is often taken as a synonym. The term generally applies to those countries that industrialized after World War II. Comparability between different studies of these countries is not always straightforward, not least because there is no precise definition of an NIC. Moreover, each study regards a different range of countries as NICs depending on their level of industrialization at the moment of analysis. Through the 1980s and 1990s, the NIC category gained prominence in economic and policy analysis, especially in regard to the economies of east Asia, but popular use of the term has waned since then in favor of the broader concept of “emerging economies.” As a unique category, however, the term NIC retains some distinction in classifying some of the economies achieving industrialization during the latter part of the 20th century.

In 1979 the Organisation for Economic Co-operation and Development (OECD) published a report called The Impact of the Newly-Industrialising Countries, which along with a conference on NICs hosted by the OECD, brought the term to prominence. This initial usage was quickly reinforced by the adoption of the term by researchers at the World Bank, the Royal Institute of International Affairs, and by academia in general. Yet from the start, there was no common definition of an NIC or a universal method of quantifying NIC status.

For the OECD, an NIC exhibited the following characteristics: (1) fast growth in both the absolute level of industrial employment and its share of total employment; (2) a rising share of the world exports of manufactured products; (3) fast growth in real per capita gross national product (GNP) such that the country was successful in narrowing the gap with the advanced industrial countries. Using these criteria, 10 countries were generally considered to exhibit NIC characteristics from the early 1960s: Hong Kong, Singapore, South Korea, Taiwan, Brazil, Mexico, and from Europe, Spain, Greece, Portugal, and Yugoslavia.

With a slightly wider interpretation, a range of other countries were also mooted as NICs, which would have doubled the original list.

While the OECD criteria were somewhat vague, other definitions were more specific. Working for the World Bank, Bela Balassa thought that to qualify for NIC status countries needed per capita income greater than $1,100 and for manufacturing to account for at least 20 percent of gross domestic product (GDP). Inevitably, this resulted in a variation on the OECD listing, indicating the somewhat arbitrary nature of specifying a quantitative economic threshold in determining what constitutes an NIC.

A further limitation of this economic approach was identified by Anis Chowdhury and Iyanatul Islam. They argued that identifying NICs purely in terms of manufacturing and trade was too limiting because it failed to consider the sustainability of the industrialization or the improvement in the standard of living or quality of life. Hence, in reaching a definition of an NIC, they broadly accepted the OECD/Balassa approach and added that a savings ratio of 15 percent was required, along with a Human Development Index of 0.75 (above average performance in purchasing power, life expectancy, and literacy). In their analysis, 22 countries could be classified as NICs in 1988, with a further 10 on the cusp of reaching the thresholds, including India and China.

The underlying problems of definition and measurement serve to underline the dynamic nature of the NIC concept, and that one needs to recognize that by any quantitative measures the set of NICs is going to change over time. Equally, the underlying concept of an NIC is very much focused on industrialization through manufacturing and especially the export of manufactured products, and hence may be regarded as fixed to a period of economic development witnessed in a number of countries from the 1960s through to the 1990s. Since then, much attention in studies of economic, and specifically business, development has shifted to focus on rapid economic growth coupled with the opening of domestic markets, financial transfers, and reform of governance and market mechanisms, all embodied in the concept of the “emerging market.” Hence, the age of the NIC may have passed, or it may yet endure both as a contemporary economic reality and as a historical lens of analysis for economic development.

Irrespective of the precise definition employed, the four east Asian NICs of Hong Kong, Singapore, South Korea, and Taiwan have undoubtedly achieved remarkable economic gains since the 1960s, their performance earning them the name of Asian Tigers. By the mid-1990s, their GDP per capita was approaching that of developed economies, and they were all considered by the World Bank to be comfortably high-income countries. But it is in trade that the success of the four, along with later NICs Indonesia, Malaysia, Philippines, and Thailand, has been most stark. Absolute levels of manufacturing and especially their share of world exports of manufactured goods have soared. Taken together, these eight Asian NICs accounted for just over 1.5 percent of manufactured goods exported worldwide in 1963, and reached 14.6 percent in 2000, although their share dipped to 12.1 percent in 2006. The inclusion of China in this group would elevate the 2006 figure to 22.8 percent.

The success of the first and second waves of NICs from east Asia tends to eclipse the performance of some of the other originally identified NICs. The experience of Brazil and Mexico has been mixed, with economic growth hit by financial crises and policy turmoil. In 2006 they remained in the World Bank’s estimation to be upper-middle-income countries, but their growth rates do not appear to indicate an imminent change in this position. As trading nations, Brazil and Mexico have made significant progress since the 1960s. In the case of Mexico, its share of manufactured goods exported has changed from 0.4 percent in 1980 to 2.3 percent in 2006, making it one of the world’s major exporting nations, with much of its now £189 billion trade stemming from export processing zones. Of the European NICs identified, the industrialization of Greece, Portugal, and Spain is often overlooked. Today, they are all high-income countries, albeit with Spain’s income per capita noticeably higher than that of the others.

The goods most commonly associated with the early phase of NIC trading expansion were low-cost manufactures produced by unskilled or low-skilled labor. NIC exports to developed economies became particularly significant in textiles and garments, leather and footwear, children’s toys, and in a range of other smaller sectors. Some of the NICs, such as South Korea, did become noted for the production of more intermediate technology goods that were often considered an essential element of earlier industrialization, such as iron and steel production and shipbuilding. Overall, through the 1960s and 1970s, the exports of the first NICs moved steadily away from the lower technology levels, and the makeup of exported goods further shifted as they sought and attracted investments from multinational firms seeking lowcost manufacturing sites from which to export.

For some of the initial NICs, higher technology goods eventually became a mainstay of their manufactured exports. According to the World Bank, in 2005 approximately 34 percent of Hong Kong’s and 32 percent of South Korea’s exports of manufactures were categorized as high technology, this being where there is a high research and development intensity in the product, such as in computers, pharmaceuticals, or electrical machinery. Further generations of NICs have grown their exports on the basis of a comparative advantage in low-cost labor, although there is nothing to suggest that their exported goods will also move away from low-technology products; in 2005, the share of high-technology goods in the manufactures exports of Greece reached only 10 percent, in Portugal 9 percent, and in Spain 7 percent.

Explanations of the rise of many NICs often revolve around industrialization strategies. The popular approach until the 1950s was of import-substituting industrialization (ISI) in which industrialization was promoted using tariff barriers and other protectionist measures to enable domestic enterprise to prosper. By the 1960s, this method was increasingly recognized as too limiting, and there was a move by some developing countries to adopt a more outward-looking industrialization policy in which exports were encouraged. In parallel to this move, a set of external changes made export-based industrialization more viable: the liberalization of the world trading regime, new transport and communication technologies, and the increasing presence of multinational enterprises establishing low-cost manufacturing bases through foreign direct investment.

The experiences of the individual NICs indicate that there is no single pathway of later industrialization, but rather each country has applied different policy mixes that have involved ISI and export-led aspects. Ultimately, for many of the first wave of NICs, the gap between them and the advanced industrial economies has been reduced, and they are clearly now industrialized economies themselves, although there remains a gap in terms of per capita income between these and the advanced industrial economies such as the United States, Japan, Germany, and the United Kingdom.

Bibliography:

Oleg Badunenko, Daniel J. Henderson, and Valentin Zelenyuk, “Technological Change and Transition: Relative Contributions to Worldwide Growth During the 1990s,” Oxford Bulletin of Economics and Statistics (v.70/4, 2008);
Bela Balassa, The Newly-Industrializing Developing Countries After the Oil Crisis, World Bank Staff Working Papers, No. 437 (World Bank, 1980);
Anis Chowdhury and Iyanatul Islam, The Newly Industrialising Economies of East Asia (Routledge, 1993);
M. M. Husseini and C. O’Brien, “Strategic Implications of Manufacturing Performance Comparisons for Newly Industrialising Countries,” International Journal of Operations and Production Management (v.24/11–12, 2004);
Subhash C. Jain, Emerging Economies and the Transformation of International Business: Brazil, Russia, India and China (BRICs) (Edward Elgar, 2006);
Organisation for Economic Co-operation and Development, The Newly-Industrialising Countries: Challenges and Opportunity for OECD Countries (OECD, 1988);
Ravi Ramamurti and Jitendra V. Singh, Emerging Multinationals in Emerging Markets (Cambridge University Press, 2009);
Anjum Siddiqui, India and South Asia: Economic Developments in the Age of Globalization (M. E. Sharpe, 2007);
Louis Turner and Neil McMullen, The Newly Industrializing Countries: Trade and Adjustment (Allen & Unwin, 1982);
World Bank, World Development Report 2008 (World Bank, 2007);
World Trade Organization, International Trade Statistics 2007 (WTO, 2007).

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