Countries strive to realize a higher economic growth that makes governments struggle to realize an attractive economic growth. There are different perspectives of evaluating economic growth. However the growth of gross domestic product (GDP) is assumed to be the most reliable approach to evaluating economic growth (Henderson, Storeygard & Weil 2011, 194). A government that can maintain a favorable growth in the GDP is assumed to be effective (Minniti & Vesque 2010, p.306). A reduction in economic growth rate is considered undesirable thus forcing governments to implement measures aimed at sustaining a favorable economic growth rate. The implications of slow economic growth differ from one country to another (Shin 2012, p.2051). Some countries suffer from slow economic growth more than others. It is ideal to use China to evaluate the view that effects of lower economic growth are always negative. China is the world’s second-largest economy regarding GDP (Holz 2014, p.309). Its economy is highly interlinked with other economies in the world making changes in China’s economic growth have far-reaching impacts on the global economy. China is the world’s leading exporter ranked above the European Union and the United States. China also imports different items ranging from raw materials, input components, and finished goods. China is the world’s most populous country (Deng et al. 2008, p.96) and sustaining the needs of the over one billion Chinese necessitates importation. The country is a home to some of the largest companies in the world that conduct operations across the globe. Multinational enterprises from other nations have establishments in China implying that economic changes in China have direct impacts on the profitability of multinational linked to China in one way or the other (Lin 2013, p.260). Globalization has led to the creation of long supply chains that transverse the globe. The creation of such supply chains exposes businesses to economic changes affecting foreign countries.
Examining the view that the effects of lower economic growth are always negative necessitates identifying all the possible ramifications of a slow economic growth rate. During the third quarter of the year 2015, the economic growth in China decreased to 6.9% which was against the government’s projection of 7% (BBC 2015). This slowdown had diverse implications not only in China but also in other countries that are interlinked with China in one way or the other.
A slowdown in economic growth has impacts on unemployment. Countries differ regarding the nature of production activities. Some countries are labor intensive where production activities are characterized by more machines than people (Knack & Barro 2006,p.37-39). Other countries embrace process automation where an emphasis is put on using machines in production processes to replace human involvement. The use of robots has become popular in countries experiencing labor shortages. Robot density varies from one country to the other depending on the characteristics of the labor market in the respective countries. A country like Germany has a higher robot density than China. The high density emanates from the labor shortage facing the German economy. The shortage forces enterprises to exploit different avenues of reducing reliance on the human resources. Slow economic growth increases unemployment as production level in businesses decreases. Economic growth rate’s impact on unemployment is influenced by the level of productivity. Economic growth does not always lead to a reduction in the unemployment rate. The growth in productivity implies that firms can produce more without increasing the staffing level. Technology provides firms with avenues of increasing productivity. Technological environment is dynamic, and new technologies continue to be introduced in production operations. As a result, productivity in firms continues to increase persistently. Manufacturers are automating production processes that are reducing the human resource demand. Process automation leads to idle capacity in human resources that needs to be eliminated. It has become a common practice for firms to terminate unwanted workers. A slow economic growth has severe impacts on a country that is characterized by increasing productivity. China’s productivity is increasing immensely due to the application of new technology in production activities (Vogel 2008, 511-513). An economic growth rate that is below 7% will increase unemployment in China. It is clear the impact of lower economic growth rate is negative concerning impacts on unemployment.
Reducing Other Countries’ Exports
A slow economic growth adversely affects the economic development of other countries. China plays a significant role in the global economy, and it has links with both small and large economies. The Chinese manufacturing sector has registered massive growth in the past twenty-five years (Das 2012, p.10-12). The sector relies on inputs from other countries. China is a major player in consumer electronics and ICT hardware market (Naughton 2006, p.7). Chinese electronics have gained acceptance in both developed and third world countries. The country’s electronics are priced relatively lower that increases their demand (Shenkar 2004, p.34). In the electronic industry, China is among leading producers. Therefore, it is a major importer of electronic components such as microchips and processors. Some countries such as Korea are known for their specialization in mass production of such electronic components. A decrease in economic growth translates to a reduction in the output of electronics manufacturers. As a result, China’s electronic component’s imports reduce substantially thus affecting Korea’s economy adversely.
The lower economic growth has led to a decrease in the output of the construction and heavy industries that has reduced the importation of some specific industrial components. The two industries are gross consumers of iron ore and oil. China’s demand for the two inputs is high, and the main suppliers of these resources are Brazil and Australia. The lower economic growth rate has reduced exports of the two countries that have affected their economic growth negatively. Lower economic growth reduces energy consumption that emanates from a lower output in firms. China imports large amounts of crude oil and other forms of energy (Cui 2012, p.665-670). A reduction in energy demand in China implies that oil exporting countries suffer due to reduced oil exports.
A low economic growth rate poses a threat to the government income. Tax is the primary source of government revenue not only in China but also in other countries. Government income is directly related to the level of economic development. A high rate of economic development implies that businesses pay more taxes. The Chinese government charges different types of taxes that include income, consumption, and excise tax (Imai et al. 2010, p.400). These taxes are influenced by the level of economic development in a country. Income tax is charged on profits meaning that an increase in profits translates to an increase in government revenue. Businesses register lower profits when the economy is experiencing growth. The economic growth at the national level is as a result of increasing outputs of individual firms. A decrease in economic growth results from a reduction in profits at the firm level. In other words, the Chinese companies registered a decline in profits during a period of lower growth rate. The declining profits, therefore, lead to a reduction in the revenue acquired from the corporate tax. Excise tax also reduces when the economic growth becomes slow.
A reduction of government revenue translates into a compromised ability of the government to offer services to its citizens. It is the responsibility of a government to offers services to its citizens. The public sector incurs huge costs when offering services to its citizens. Sometimes the government faces resources constraints that necessitate cutting on spending. Some services cannot be compromised that forces the government to borrow to maintain an acceptable level of service delivery (Szirmai 2011, p.33-50). It means that a lower economic growth leads an increase in public debt.
The above factors support the view that the effects of lower economic growth are always negative. However, there are impacts of lower economic growth that are positive. A slower economic growth conserves the environment. An increase in output that is associated with high level of economic development translates to an increase in pollution (National Research Council 2000, p.30). Low economic development slows down the depletion of resources.
In conclusion, lower economic growth has many negative impacts that support the view that the effects of lower economic growth are always negative. The main negative impacts are on unemployment, reducing the exports of other countries, and reduction of government income. These negative impacts have far-reaching implications making it necessary for governments to promote economic growth by all means. However, there are some positive impacts of low economic growth such as pollution reduction and slowing down the depletion of scarce resources.
List of References
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