Economic growth in Japan took off in 1950’s. Shortly after growth in: 4 tigers-Hong Kong, Singapore, South Korea and Taiwan. Indonesia, Malaysia, and Thailand-classified as newly industrialized countries. Asian Miracle: World Bank designated them high performance, as Econ (HPAE) newly industrializing haven’t quite caught up. Asia has variations in size, range in growth rates, and different urbanization percentages. HPAE Income convergence explains this growth to a certain extent, but we still haven’t figured out why countries are growing.

4 reasons=common to all 8 economies

  1. Shared Growth-entire country benefited “share the wealth”
  2. Rapid Accumulation of Physical and Human Capital
  3. Rapid Growth of manufactured exports
  4. Stable macroeconomic environments
  5. Open Economies

Latin American contrast: Far less impressive results.  High levels of inequality.  Periods of macroeconomic instability.  Inward orientation: closed economy

  1. Shared Growth.  Inequality of income and growth already low at the start of a period of high growth.  Kuznet’s curve=growth in developing countries=result first in falling and then if world grows.  Didn’t happen in HPAE.  Wealth sharing mechanism. Land Reform.  Free public education.  Free basic health care.  Significant investments in rural infrastructures (clean water, transportation, communication).  Could spread the wealth to outlying areas.  Rural areas could start their own businesses and have better lives.
  2. Rapid Accumulation of Physical/Human Capital: High levels of investment=high savings rates
  3. The level of savings in HPAE Birth rates/death rates decrease:
  • Fewer children
  • Higher % of population: working
  • High savings=Higher savings rate
  • Rapid rate of income growth
  • Low inflation
  • Public investment in education: primary and secondary levels
  • Social impact=much greater at this level than at university level
  • Literacy rates rose dramatically: skilled labor force
  • High skilled workforce capable of sophisticated forms of production
  1. Rapid Growth of Manufactured Exports
  • HPAE began development push with import substitution policies (domestic instead)
  • These policies quickly replaced with emphasis on export promotion
  • Between 1985 and 2000 the HPAE more than doubled their share of total world exports

8 countries=1/5 of world exports

  1. Stable Macroenvironment environment

A persistent problem of Latin America has been a frequent reoccurrence of macroeconomic crises.  The HPAE are not completely crises free, but policy responses were usually given quick and appropriate.  Kept deficits and debts manageable.  High exports generated foreign assets.  Governments created rules that foster efficient outcome to ensure that individuals and business use their resources in most productive manner.

What makes Government policies credible?

-Property rights: It’s mine until I sell it.

-Competent bureaucracies: It’s easy to do business.  US when she worked in Russia.

-Freedom to make contracts that will be enforced: Enter into a wage agreement that won’t break and widespread access to information.

Regulations everyone knows and understands

Clear and well-publicized regulations

Several of HPAE do no support political/civil liberties.  However, authoritarian HPAE did foster growth.

Fiscal Discipline

  • Maintenance of stable macroeconomic environment requires:

-Fiscal discipline, stable exchange rates

-Governments provided stable environments for good business platforms

Were the East Asian Economies Open?  HPAE placed the high reliance on their export sectors through active promotion.  Were their trade policies open?: Considering tariff rates/quotas=not enough. The Role of Industrial Policies. Targeting at specific industries. Directed credit-low international loans are common in HPAE. Export Promotion in specific Industries

  • An attempt to change comparative advantage by channeling resources to favored industries

They were strongest in Japan (steel, Airbus, textiles, shipbuilding) SATS, Korea (heavy and chemical industries), and Taiwan (research institutes, science parts, import subs).  Import restrictions, licensing, quotas, tariffs, export subsidies.  Many firms earned high profits domestically, compensating for losses in international markets.

Directed Credit: Signaled the private sector of a favored government industry.  It encouraged private lending to new and risky industries (Not handling over money).  The government placed macroeconomic stability above industrial policies-programs scaled back if fiscal problems arose.  Really had to perform-take government $, use it, become an efficient producer, get stuff out the door and out the country.  If the government starts running out of money, programs are cut off so countries don’t go into huge amount of debt.

Did the policies Work?  There was no consensus.  The World Bank says general industrial policies did not foster growth  They do agree that if industrial policies are going to be successful, countries must have:

  1. Clear performance criteria (live targets)
  2. Mechanism to monitor and enforce compliance
  3. Low costs so that non-targeted sectors do not suffer

Source for HPAE Growth can be seen in East Asia.  East Asia is remarkable for its growth in per capita income and labor productivity.  Growth comes from more capital, education, productive use of available resources.Growth Accounting:  Increase Real GDP/Capita Increase Aggregate Production Increase labor productivity Increase Capital Increase Human Capital Increase Technology.  Most of their growth coming from capital accumulation.

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