Newly Industrialized Country (NIC)
A country whose economy shifted its focus from agriculture to goods-producing sectors in the late 20th and early 21st centuries.
What Is a Newly Industrialized Country? (NIC)
A newly industrialized country (NIC) is one whose economy shifted its focus from agriculture to goods-producing sectors, including manufacturing, construction, and mining, in the late 20th and early 21st centuries.
Both international commerce and the overall quality of life in a NIC are often more significant than in developing nations. But its economic development lags behind that of more advanced nations and areas like the:
- United States
- Japan
- Western Europe
In the second part of the twentieth century, when economies like Hong Kong, South Korea, Singapore, and Taiwan saw fast industrial expansion, these nations became known as NICs.
The late 20th and early 21st centuries saw the industrialization of many nations, including Turkey, Thailand, Malaysia, Mexico, Brazil, Argentina, South Africa, Russia, China, and India.
Each saw an increase in its average per capita income, yet financial success isn't always indicative of growth.
Countries like India and China, which both have huge populations but low per capita incomes despite rapid economic expansion and strong industrial sectors, provide a good illustration.
NICs have used various strategies to achieve industrialization and growth, such as import substitution (producing goods domestically to replace those imported) in India.
Export-oriented growth in Taiwan and South Korea, investment in fossil-fuel extraction in Russia, and attraction of inward foreign investment in China. However, most NICs have a few similar characteristics.
Policies that liberalize trade encourage cross-border investment and alter political institutions to expand civil liberties; market freedom is an example of such reforms.
Increased industrialization has resulted in positive outcomes for almost all NICs, including expanded trade, higher GDP growth, membership in regional trading blocs, and attracting foreign investment, particularly from industrialized nations.
Key Takeaways
- A newly industrialized nation (NIC) is one whose economy has shifted its focus from agriculture to goods-producing sectors.
- It includes manufacturing, construction, and mining in the late 20th and early 21st centuries.
- Both international commerce and the overall quality of life in a NIC are often more significant than in developing nations.
- Increased industrialization has resulted in positive outcomes for almost all NICs, including expanded trade, higher GDP growth, and the attraction of foreign investment.
- A high per capita GDP, export-oriented economic policies, and open political procedures distinguish the "Asian Tigers" from the nations that are today designated NICs.
- The move from a developing nation to a NIC is often characterized by an improvement in the average income and the level of life. In addition, government structures tend to be more stable, with less corruption and peaceful handovers of power.
- As per the present situation, it can be said that potential economic and political instability in certain developing economies might enhance the risks associated with this portfolio.
Understanding Newly Industrialized Country
No one has ever agreed on a single, succinct definition of economics' scope.
Although sociologists, psychologists, and anthropologists study the same phenomena, many people today agree with Alfred Marshall, a prominent 19th-century English economist.
He stated that economics is:
"A study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment, and with the use of the material requisites of wellbeing."
According to English economist Lionel Robbins of the 20th century, economic science is "the study of human behavior as a link between (given) aims and limited means that have alternative applications." He essentially defined economics as the study of thrift.
His formulation captures a notable aspect of the economist's thought process. Yet, it is too broad (since it would include chess in economics) and too limited (because it would exclude the study of the national income or the price level).
A definition given to Canadian-born economist Jacob Viner may be the only one that holds water:
"Economics is what economists do"
Characteristics of NICs
In the 1970s, the idea of NICs gained widespread acceptance. "Singapore," "Hong Kong," "South Korea," and Taiwan, sometimes referred to as the "Four Asian Tigers," were the economic and technical leaders of Asia at this time.
Since the 1960s, all four nations' industrial sectors have flourished, propelling them to modern industrial powers with developed, wealthy economies.
A high per capita GDP, export-oriented economic policies, and open political procedures distinguish the "Asian Tigers" from the nations that are today designated NICs.
Foreign developed nations are the usual source of investment money for NICs. This is because the cheaper cost of labor, land or even other inputs in the nation draws the investment money there.
The money goes mostly toward setting up factories to facilitate rapid productivity increases and industrialization.
Financial and investment success is expected for NICs. Financed mainly by a propensity to ship out manufactured goods, consumer goods, personal savings, rapid productivity gains, and industrialization are characteristic of NICs.
The governments of NICs often intervene in developing their manufacturing sectors and push for the export of finished goods.
It is common practice to reinvest export earnings back into the home economy. Great economic and social advantages result from the practice.
This includes the expansion of enterprises and higher earnings and salaries. In addition, workers are better positioned to show their support for local companies by purchasing products and services thanks to the salary increase.
This phenomenon is referred to as a multiplier effect.
History of NICs
Hong Kong, South Korea, Singapore, and Taiwan were all instances of newly industrialized nations in the 1970s and 1980s.
In the late '90s, among the countries that did this were South Africa, Mexico, Brazil, China, India, Malaysia, the Philippines, Thailand, and Turkey.
Economists and political scientists can't agree on categorizing these nations. However, rapid economic development, significantly if it lags behind that of more developed countries, is a hallmark of a nation's evolution into a NIC.
The move from a developing nation to a NIC is often characterized by an improvement in the average income and the level of life. Government structures tend to be more stable, with less corruption and peaceful handovers of power.
Despite being far faster than the developments in comparable underdeveloped nations, they often fail to meet the criteria established by most industrialized countries.
Opportunities may present themselves to developed nations when a newly industrialized country becomes more stable. Then, given a chance, more businesses may outsource their operations to NIC's facilities.
Outsourcing businesses may benefit from these changes since they provide less risk than outsourcing to fewer stable countries regarding labor costs.
While this might boost the NIC's workforce, it could also generate problems if the government hasn't yet implemented enough rules and regulations for the corresponding industry.
As a group, the BRIC nations contributed 11 percent of the world's GDP in 1990. (GDP). The percentage increased to around 30% by 2014.
Following a steep decline due to the financial crisis of 2008, these numbers hit an all-time high in 2010.
South Africa was asked to join BRIC in 2010, after which the group changed its name to BRICS.
Jim O'Neill, an economist at Goldman Sachs, came up with the name BRIC in 2001 and predicted that the economies of the BRIC nations would develop at the quickest rate of any market economy in the world.
The heads of state from the BRICS nations often meet for summits and typically work together to further mutual goals. As a result, by 2050, these economies may have more wealth than the majority of today's leading economic powers.
The BRIC nations' cheaper labor and manufacturing costs will drive their economies forward. It is widely acknowledged that the emerging markets of the BRICS countries have excellent prospects for international trade and investment.
When a company expands internationally, it looks for nations with strong economies and opportunities for growth.
O'Neill predicted that the BRIC countries would develop more swiftly than the G-7 in 2002, even though world GDP was expected to climb by 1.7% that year.
The Group of Seven (G-7) consists of the nations with the most developed economies in the world (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States).
GDP (purchasing power parity) projections and measurements were presented in four different scenarios by O'Neill (PPP).
Using these projections, we find that the nominal GDP for BRIC increased from 8% (2001) to 14.2% in USD and 23.3% to 27.0% using PPP.
According to research published by Goldman Sachs in 2003 titled "Dreaming with BRICs: The Path to 2050," the BRIC group might become more extensive than the G7 as measured in USD by 2050.
Thus, in forty years, the most important economies in the world would appear quite different. The countries with the highest GDP per capita may no longer be the world's economic superpowers.
Current scenario
As per the current situation, it can be said that potential economic and political instability in certain developing economies might enhance the risks associated with this portfolio.
There is also the possibility that the currency of a foreign market would decline in value relative to the U.S. dollar. Investing in more stable developed, and industrialized overseas markets may help mitigate these dangers.
If you're willing to take on more risk, you may hedge your bets by buying shares in U.S. firms thriving in international markets.
Investing in an exchange-traded fund (ETF) specializes in foreign equities, like the Vanguard FTSE Developed Markets Exchange-Traded Fund (VEA) or the Schwab International Equity Exchange-Traded Fund (SCHF).
These are the most cost-effective way for investors to hold a diversified international portfolio (SCHF).
China and India's economy have recently grown faster than the United States, prompting a rush to buy their equities.
Both are still expanding rapidly, but an investor in the stock markets of either country would need to do some digging to locate companies that haven't peaked. Nevertheless, some winners and losers have emerged from the quest for new fast-growing nations.
Before, the CIVETS countries (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) were the focus of investors seeking rapid expansion. However, a potential investor may not consider all those nations to have a promising economic future.
Problems to face & future of NICs
Not long after it had become cliche to declare that the twenty-first century belonged to the Pacific, news of the Gang of Four, sometimes known as the four small dragons or tigers, slowed down due to export restrictions.
Not only did this group of countries have to endure an unexpected slowdown in growth, but so-called second-generation newly industrializing countries (NICs) in Asia, the ASEAN group, were hit particularly hard.
It was because of the fall in commodity prices, and China's new openness to foreign trade faltered due to sudden trade deficits.
Seiji Naya points out that the NICs are at a juncture where they must choose between maintaining an emphasis on exports or shifting the focus of their policies.
Strangely, this happened as other emerging nations tried to emulate Asia's NICs' rapid development.
The topic of China can only be discussed briefly here. It's natural to wonder whether this latecomer and outsider are really a NIC or if it's simply a nation that just began exporting goods (NEC).
China's "open door" strategy and its repercussions on Pacific Island nations meet the criteria for defining it as a NIC because of the definition's focus on the strong relationship between exports of industrial products and industrialization.
That perception is bolstered by the differences between China's export processing zones (EPZs) and the 14 coastal cities with special status and the country's vast interior.
In addition, the vast size of the home market makes it possible to pursue an import substitution strategy and realize essential economies of scale. Nonetheless, growth now driven by exports to global markets may shift to being driven by imports.
Economists from the Austrian, English and French schools all came up with their takes on the marginal revolution in the latter three decades of the nineteenth century.
In contrast to classical economics, the Austrian school of economics placed a premium on utility as the primary determinant of value.
The capital theory advanced significantly when Austrian economist Eugen von Bomber used the new theories to calculate interest rates.
Before continuing, it's essential to reflect on the growth and collapse of the German historical school and the American institutionalist school, which both launched relentless assaults against the mainstream establishment.
There was a wide range of opinions among Germany's historical economists. Still, they all agreed that a universal, abstract economics theory was untenable and that examining specific cases within specific countries was necessary.
Their work sparked renewed interest in economic history, but they could not convince their peers that their approach was always the best.
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