Macau is best characterized as a small enclave economy with a (very) strong specialization. That has been the case for generations, we might say. The embodiment of such specialization may have changed over time, but the latter was essentially built upon contrasting regulatory frameworks.
As a result, some types of economic and business operations – legal or tolerated – could be carried out here and not elsewhere – namely, not across the border or, to some extent, in Hong Kong.
Nowadays, that “regulatory wall” allows for gambling, certainly, but also commercial and financial operations (a trait shared with Hong Kong, we may note). Macau prosperity is built upon such ‘idiosyncrasies (to use a word that was quite popular some years ago) and has been living rather well with them, it is fair to say.
Those same characteristics also mean that Macau is a singular place for economic analysis (and social, for that matter). First, it is in many respects an ‘incomplete’ economy, with a very polarized structure, full of empty spaces and missing linkages.
That is, many economic activities we would expect in bigger and more ‘normal’ economies are not present or are negligible. As a result, almost everything needed for the daily life of its residents, not to mention businesses, must be imported.
Further, its strong specialization in gambling and tourism means that it relies critically on visitors and transborder money flows. Thus, if we consider gambling and related activities, both directly and indirectly, and leaving government services aside, we are talking about “The” economy. And government revenues hinge critically also on those flows, as the public revenue from gambling alone was, before the epidemic, typically about four-fifths of all public income.
These features bring forth some important considerations we should always keep in mind when discussing the status and future of the economy and its resident’s welfare.
First, the singular constitution of this economy should spell a note of caution on the usage of standard economic models as analytic frameworks. Macau is, in many ways, a standard of its own.
Second, most of the drivers of our prosperity lie beyond their borders. Our ability to influence them is, therefore, limited – but is not nonexistent.
Finally, it becomes clear that openness and trade are critical for the survival of this economy. Its absence will kill the patient.
All this shows how critically important it is that we measure and carefully balance all we do.