1. Chapter 16
Export-Oriented Growth in East Asia

2. Chapter Objectives
Understand the causes of strong and sustained economic growth in East Asia
Analyze the factors underlying East Asia´s 1997 economic and financial crisis
Discuss the recovery of the East Asian economies
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3. Introduction: The High Performance Asian Economies
The High Performance Asian Economies (HPAE) as designated by the World Bank: Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand
The Four Tigers: the two city-states of Hong Kong and Singapore, Korea, and Taiwan
The Four Tigers are also referred to as the Four Dragons or the Little Dragons
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4. Newly Industrializing Economies (NIE)
Newly industrializing economies are a broader group of countries, not confined to East Asia
Along with economies of East Asia (Indonesia, Malaysia, and Thailand)
This also includes a number of Latin American countries (Argentina, Brazil, Chile, and Mexico)
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5. HPAE Characteristics Maintain stable macroeconomies
Strong commitment to shared economic growth through health care, education, and housing
Promote exports, remaining open to imports
Exports provide foreign exchange earnings
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6. Population, Income, and Economic Growth
In contrast to Latin America, East Asia has long enjoyed the following:
Macroeconomic stability
Income equality
Skilled workforce
Export orientation
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7. TABLE 16.1 Population and GDP for the HPAE, 2007
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8. TABLE 16.1 (continued) Population and GDP for the HPAE, 2007
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9. TABLE 16.2 Average Annual Growth in Real GDP per Capita, 1980–2007
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10. TABLE 16.2 (continued) Average Annual Growth in Real GDP per Capita, 1980–2007
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11. General Characteristics of Growth in the HPAE
Shared growth-rising economic equality
Rapid accumulation of physical and human capital
Rapid growth of manufactured exports
Stable macroeconomic environments
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12. TABLE 16.3 Measures of Income Distribution, East Asia and Latin America
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13. TABLE 16.3 (continued) Measures of Income Distribution, East Asia and Latin America
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14. Rapid Growth of Manufactured Exports
HPAEs have high rates of investment thanks to high savings rates, which stem from:
Stable macroeconomic environment of low inflation
Rapid rate of income growth
Demographic transition: shift to low death and birth rates
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15. TABLE 16.4 The Share of HPAE in World Exports, 1965–2000
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16. Stable Macroeconomic Environments
HPAEs kept budget deficits and foreign debt within the limits of the ability of the government to finance without having to print money or borrow excessively
Low inflation rates helped keep interest rates stable, enabled firms to take a long-term view on their investments
The crisis of 1997 proves the rule: significant reduction in export earnings and growth of current account deficits in some HPAE countries
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17. The Institutional Environment
In the HPAEs, large flows of savings were channelled into the financial system, which lent them to businesses that used them efficiently
Moreover, governmental rules fostered efficient economic outcomes
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18. Features of HPAEs’ Institutional Environment
Reliable property rights
Bureaucracies are competent
Contracts are enforced
Access to information is wide-spread
Regulations are clear and well-publicized
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19. Features of HPAEs’ Institutional Environment (cont.)
Fiscal Discipline
Business-Government Relations
-Deliberation councils: Quasi-legislative bodies set up by six HPEA governments that bring together representatives from the private and the public sectors to coordinate the information flow between businesses and policymakers
Avoiding rent seeking
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20. Government interventions are common in three areas in HPEAs:
The Institutional Environment: Fiscal Discipline and Business-Government Relations
Government interventions are common in three areas in HPEAs:
Targeting of specific industries
Direct credit
Export promotion
Let’s analyze industrial policies in greater detail…
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21. The Role of Industrial Policies: Targeting of Specific Industries
Targeted industrial policies: Efforts to alter a country’s industrial structure and thus change its comparative advantages through channelling resources to certain industries
Also seen as the government’s picking winners and losers
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22. Targeting of Specific Industries (cont.)
Six key tools of targeting:
Restrictions on imports: licensing, quotas, tariffs, export subsidies
Direct credit: funds to an industry
Subsidies
Market information (especially foreign markets)
Infrastructure construction
Research and development funds
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23. Targeting of Specific Industries (cont.)
Targeted industrial policies are distinct from other efforts to promote specific industries
Resources provided only as long as the companies receiving them met specific export targets
Governments placed macroeconomic stability above industrial policies
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24. Results of Targeting Disagreement about:
World Bank: Export promotion and directed credit did boost economic growth, but industrial policies in general did not
Critics: It is impossible to know what growth rates would have been without industrial policies
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25. Results of Targeting (cont.)
Agreement that successful industrial policies have:
Clear performance criteria such as export targets
Institutional means to monitor and enforce compliance
Low costs in order for nontargeted sectors not to suffer
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26. Table 16.5 Imports and Exports as a Share of GDP
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27. Table 16.5 (continued) Imports and Exports as a Share of GDP
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28. Production of exports has several advantages:
The Role of Manufactured Exports: The Connections between Growth and Exports
The promotion of manufactured exports played a significant role in the industrial strategies
Production of exports has several advantages:
Makes possible the purchase of imported inputs that can make firms more competitive
In the case of HPEAs, the need to meet export targets helped encourage FDI and the acquisition of new technologies
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29. The Connections between Growth and Exports (cont.)
However, promotion of exports results in greater GDP growth only if:
There is something in the promoted production process or its links to the rest of economy that is absent from domestic-oriented production
Exports speed up the adoption of international best practices
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30. The Role of Manufactured Exports: Is Export Promotion a Good Model for Other Regions?
Yes: Even if all developing countries stressed export promotion, they would be unlikely to saturate the industrialized country markets
No: Under the Uruguay Round rules of 1994, developing countries must eliminate any subsidies contingent on export performance
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31. Table 16.6 Free-Trade Areas in Asia and Oceania
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32. Is There an Asian Model of Economic Growth?
East Asia is remarkable for its growth in per capita income and in labor productivity
Labor productivity depends on additional amount of capital, education, and total factor productivity (TPF)—issues related to new technologies, innovation, and organizational improvements
Research conclusion: The bulk of East Asian growth is attributable to increases in capital and education, rather than TFP
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33. Table 16.7 Sources of Growth, 1960–1994 (Percent)
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