Substitutes, complements and economic integration: policy implications of development strategies for Hong Kong SAR

Abstract

There are two perspectives to account for the economic downturn of Hong Kong. First, with the cross-section perspective, economic depression of the SAR was due to the outbreak of Asian Financial Crisis in 1997, which gave rise to the broken bubble economy in which the stocks and property markets had been dominant. Secondly, from a historical perspective, it was as a result of the lack of a long-term preparation for adjustment of changes of industrial structure. In spite of the ex post explanations to the economic consequences of the SAR, the reality Hong Kong people have been facing is there is no clear path of development in response to the development and growth of its peripheral economies. Consequently, two practical issues arise. First, Hong Kong has encountered certain difficulties in developing a new sector with which Hong Kong people can steadily earn their livelihood. Secondly, the burden of public expenditure of the SAR government such as housing and health services has been very heavy due to the huge population. In order to tackle these two issues, the SAR has to do two things. The first is to develop a multi-sector that has relatively cost advantages and is compatible with Hong Kong's endowment structure so that the unemployed can resume the role of breadwinner.