Industrial Policy in East Asia in the 1960s and 1970s Howard Pack Professor of Business and Public Policy, Economics, Management The Wharton School The University of Pennsylvania

“Fundamental” Sources of Rapid Growth in Asian Miracle Countries High Investment Rates Responsible tax and expenditure policies – no large deficits leading to inflation. realistic exchange rate policy to ensure that it was profitable to export Improved education Policies to obtain maximum benefit from investment and education.

Encouragement of Technological Borrowing Emphasis on exporting which provided a spur to productivity enhancing efforts including: a)technology licensing - Japan, Korea, Taiwan (China) b)Direct Foreign Investment – Singapore – model for Special Economic Zones in China. c)imports of equipment and intermediates embodying new technology d)knowledge transfers from purchasers of exports

The Role of Industrial Policy 1.Choose sectors to finance with low cost loans and provide protection in domestic market 2.Pick newer sectors – cars, heavy chemicals, semiconductors. 3.Provide encouragement to export 4.Maintain favorable exchange rate 5.Effects were positive but not major as compared to investment and education. Perhaps ½ of 1 percentage point out of total growth rate of 9-10 percent. 6.Many other countries attempted such policies, for example, Argentina, Brazil, Kenya, India without any benefit.