Sara Hsu

 Variables  Exogenous and endogenous  Simple Keynesian macro model  Theory uses models to explain a phenomenon

 Seeks to explain how and why countries develop  Development theory began after WWII  Series of stages (Walt Whitman Rostow) or product of factors 

 General categories of theories:  Convergent (Solow)-discredited in ‘90s  Nonconvergent theories incl: theories that emphasize multiple equilibria/ coordination failures (Big Push) theories of aspiration gaps-those surrounded by people with low aspirations aim low theories of history dependence-societies are path dependent in income distribution theories of institutions

 China, India and Japan utilized theories of marketization and trade liberalization in different ways

 Used industrialization theory as embodied in the theories of Walt Whitman Rostow and W. Arthur Lewis  Used as a prime basis for the theory of Ranis and Fei (1961)  Used as the prime exception for Moulder (1977)’s dependency theory

 First theory to attempt to explain Japanese development was the “flying geese” theory  Akamatsu’s (1962): economic development took place on a global scale, with Western Europe as a lead goose, Japan as a lead goose on a regional scale  Seven stages of economic development

 1. Asian countries traded Asian products for Western European industrial products.  2. occurred when Asian handicrafts industry was destroyed by increased amounts of Western European manufactured products entering the area  3. Western European techniques and capital flowed into Asia to support large scale production of raw materials for export to Europe, in exchange for consumer goods.  4. Western European capital flowed into Asia to support production, this time of processed raw materials.  5. Asian domestic capital was used to generate raw materials. Capital was imported from Western Europe to produce consumer goods  6. manufactured goods were produced by domestic Asian industries. Capital goods were imported from Western Europe.  7. the Asian country was able to export manufactured consumer products, and to produce some capital goods itself.

 Laid out five stages of development through which each economy must pass: the traditional society the preconditions for take-off the take-off the drive to maturity the age of high mass-consumption

 Two sectors: 1) traditional agricultural sector with disguised unemployment and 2) capitalist industrial sector that consumes surplus food produced by agricultural sector.  Surplus labor moves from agriculture to industry  First phase: labor perfectly elastic  Second phase: no disguised unemployment; commercialization of agriculture

 Japan was exception  Japan’s development was due to its ability to shield itself from colonialism  Other non-Western societies became colonized by Western powers, stunting their development

 Incorporated Marxism and Mao Zedong Thought  Marxism: basis for developing society  Mao Zedong Thought: building of Communist Party  “Keeping up appearances” of continuity

 David Ricardo’s Theory of Comparative Advantage  China’s “grand international cycle” theory: because developed countries moved away from labor-intensive production, China should focus on labor intensive production to support the upward movement of developed countries’ economies  Beijing Consensus

 Chow (2007) states that China’s economy contradicts economic theory by emphasizing public and private ownership of assets, maintaining semi- formal legal system, focusing on collective good, and supporting a one- party state.

 Prompted to reform under Neoliberal Theory by IMF  Applied selectively and gradually  Criticized by some for being focused on growth rather than well-being, as state reduced social safety nets

 Relied on domestic rather than export markets  Focused on consumption over investment  Focused on high-tech sectors rather than manufacturing  Centered on entrepreneurship rather than the state

 East Asian Developmental State: government played large role in reform process  Export promotion model: stressed import substitution industrialization followed by export promotion

 Development theory has been influenced by and has influenced development in Asia.  Development theories applicable to India include Neoliberal theory.  Those applicable to China include Deng Xiaoping theory, comparative advantage.  Those applicable to Japan include “flying geese,” stages of growth, migration theory.