Article by Wajeeha Ashfaq Hamdani from Economics Wing, GAEE JMI

Time and again, we judge, assess, and discuss economies and how they perform. We further speak of “strong” and “weak” economies. However, the real question is: What are the indicators we look up while judging an economy? And What differentiates better performing economies from the latter? In order to find answers to these questions, we must revisit the history of different global economies, as many lessons can be learned from the World’s worst-performing economies. 

One common way to analyze the performance of an economy is to look at popular economic indicators like unemployment, GDP, inflation, and GDP per capita. However, the real picture becomes evident only when all these indicators are assessed together. 

They are not performing poorly, just lack resources. 

According to recent data, Burundi has the lowest per capita GDP at 255.98 USD. This may be attributed to the lack of natural resources and poor geographic location. A country in Oceania- Tuvalu, is the world’s smallest economy, which is because it is a relatively small country that is sparsely populated. 

I reckon that the countries with the lowest numbers, as mentioned above, are not performing poorly — they just lack the resources to do better.  In order to boost the economy, some feasible, cost-effective, and innovative solutions can be implemented. For example, Burundi could have been economically better had it focused on its strengths, such as the mining industry it houses.

Limited resources and underdevelopment 

Countries like South Korea, Singapore, Italy, Hong Kong, and Belgium have limited resources. They must rely on imports for various goods. Still, they have improved their economies by positively exploiting their strengths, i.e., automobiles, computers, telephones, processed foods, petrochemicals, textiles, refined metals, machinery, etc. However, this is not always viable due to the size of the population of some developing countries.

Furthermore, when we think of underdeveloped economies, war-torn countries like Afghanistan and Syria often come to mind. These countries are dealing with many economic issues such as inflation, public debt, decrease in investment, and vice versa. Yet this does not rule out the possibility of these economies reviving once their misery is over, considering the numerous external factors in such unique circumstances, making it difficult to assess such economies.

Say no to rigid and anti-diversification economies

One unfortunate economy, Venezuela, was home to the world’s largest oil reserves and experienced rapid economic growth. However, by the 1980s, the government began confiscating land and spending on social programs. These actions led to a drop in oil prices, which caused the economy to go into a tailspin, giving rise to lower inflation and rising poverty.

The government further failed to diversify its economy. It overvalued its currency exchange rate for an extended time, resulting in the artificial strength of the Venezuelan bolivar and the eventual demise of its home industries.

Similarly, North Korea, which has always been poor despite having the resources and potential to grow, has gone through several periods of stagnation due to a restricted command structure and regulations that prevent significant growth. As a result, we may conclude that monetary and fiscal policies should be more flexible in response to dynamic circumstances rather than enforcing rigid rules to limit development.

Natural resources, economic policies, population, technological level, and employment, among other things, influence the structure of an economy, its development, and the standard of living of its citizens. Thus, natural resources, geography, wealth, government policies, human capital, and technology are critical issues that must be addressed to ensure a healthy economy.

In conclusion, the success or failure of an economy is determined by how resources and policies are planned, assessed, and managed by those responsible because — If you don’t have a vision for the future, you risk repeating the past.

Article Summary: This article highlights the indicators of an economy and explains the basis on which economies are distinguished. It further analyses diverse types of economics such as Hong Kong, Belgium, Italy, South Korea, Singapore, Syria, Afghanistan, North Korea, and Venezuela. Finally, the author explores several factors that influence the structure of an economy and critical issues that must be addressed to ensure a healthy economy.

(Wajeeha Ashfaq Hamdani is a B.A.(Hons.) Economics student at Jamia Millia Islamia, Delhi, and a part GAEE JMI, an autonomous branch of Global Association of Economics Education in India. The views expressed are personal and they do not purport to reflect the opinions or views of GAEE or its members.)