Hong Kong And Venezuela

Hong Kong and Venezuela

Hong Kong has built economic strength from an impoverished economic infrastructure, since the 1950's, at the same time as Venezuela's economic health has declined despite its relatively strong economic structure. Figure 1 shows that in 1950, Hong Kong's income per person was approximately half of Venezuela. During that period, Hong Kong came under tremendous economic and social pressure due to an arrival of immigrants from China and a lack of natural resources to support growth. In the interim, Venezuela was resource-rich and had a relatively stable population. Comparisons in the 1990s showed Venezuela's income per person was much lower than 1950 in real terms while Hong Kong's was noticeably greater http://www.hku.hk/hkcer/articles/v57/walker

While Venezuela's economic decline may be attributed to its high population growth negatively impacting economic growth, it can be proved that Hong Kong also experienced tremendous population growth over the past few decades (Figure 2). In addition, Hong Kong lacked the natural resources to support its population growth and resorted to importing all its basic needs to support the economy.

The variation in economic performance can be attributed to the differential economic freedom between the two countries. Figure 3 shows that during the 1970s and through the 1990s, Hong Kong continued to achieve higher levels of economic freedom than Venezuela. More importantly, economic freedom in Venezuela deteriorated during the same period. By 1997, Hong Kong had over 50% more economic freedom than Venezuela (Figure 4). However, such comparisons are not rare when viewing global economies as stories of economic asymmetries abound around the globe.

http://www.hku.hk/hkcer/articles/v57/walker.

Although some economists believe economic freedom cannot be measured, physicist Enrico Fermi pointed various comparisons. What Fermi emphasizes is that when we make a comparison, we make measurements. While the concept of economic freedom remains difficult to measure, continued efforts are made to accurately gauge comparisons by refining measurement methodology. http://www.federalreserve.gov/fomc/

Measuring economic freedom consists of three main elements:

* The right to engage in voluntary acts of trade and exchange, without interference by government or others via force or fraud;

* The ability to access an impartial judiciary or the enforcement of property rights;

* The right of citizens to retain a majority of the income they earn.

An Economic Freedom Index has been designed to identify various factors that make a country economically free, by using a compendium of 23 freedom factors based on objective data or independent surveys. It is a ranking of 123 countries according to the extent to which they are free. http://www.hku.hk/hkcer/articles/v57/walker

The Economic Freedom Index's components consist of:

* Government size.

* Economic structure - extent of government ownership over the means of production

* Monetary and price stability

* Freedom to use alternative currencies - the right to use foreign currencies to engage in foreign trade.

* Legal structure and property rights - enforceability of contracts and security of property rights.

* International exchange - the extent to which citizens can trade with foreigners.

* Freedom of exchange in capital markets - the right to engage in capital transactions with foreigners, the right to have access to credit facilities.

http://www.hku.hk/hkcer/articles/v57/walker

Taking into consideration all aspects of the Economic Freedom Index, Hong Kong and Singapore emerge as the "Most Free Countries" while New Zealand is ranked the third most open economy amongst the 123 countries in 1999. Hong Kong has enjoyed high levels of economic freedom since the 1970's. During the past few decades, Hong Kong has continued to be the top ranked jurisdiction in the world. Although Hong Kong's overall economic freedom rating in 1999 was up since 1990, it was still down from a peak score of 9.8 (out of a possible score of 10) in 1995. This slip can be attributed to a decline in the Legal Structure and Property Rights Index section2. However, in other areas of the index, Hong Kong consistently maintained or improved its scores since 1995. Since 1997, its rating has been tied with Singapore, due to the lagged effect of concern on contract repudiation when Hong Kong became the Special Administrative Region. Since contracts entered by the Hong Kong government did not have the complete involvement of the People's Republic of China prior to 1997, there was initial concern that after Hong Kong's handover to China, some contracts (including one for Hong Kong's airport) would not be honored. The passing of this uncertainty means future ratings should see Hong Kong achieve higher scores in the Index's Viability of Contracts rating.

http://www.federalreserve.gov/fomc/

Hong Kong has maintained a free economic market consistently as it embraced capital market principles several decades ago. However, for many other countries, economic freedom is only a recent phenomenon and there is no question that overall, the world is becoming more deregulated as countries decentralize economic power. Figures 5 and 6 show that during the 1990s, several Latin American and Eastern European countries achieved dramatic improvements in economic freedom ratings and rankings. Peru, Nicaragua, Argentina, El Salvador and Dominican Republic all improved ratings by at least 2 points. Amongst Eastern European nations, Russia, Hungary and Poland have greatly improved levels of economic freedom while countries which have experienced a decline in the level of economic freedom during the 1990s include Benin, Chad, Malaysia, Cameroon and Senegal (Figure 7). http://www.hku.hk/hkcer/articles/v57/walker

The economic freedom between Hong Kong and China provides an interesting comparison. In rating government jurisdiction and use of markets, China is rated dramatically lower than Hong Kong (Figure 8). However, ratings in monetary policy are not that different, but use of alternative currencies in Hong Kong remains far more open. In terms of international exchange and financial markets, Hong Kong also rates firmly ahead of China. http://www.hku.hk/hkcer/articles/v57/walker

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