1. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 16 Export- Oriented Growth in East Asia

2. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-2 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

3. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-3 Introduction In contrast to Latin America, East Asia has long enjoyed –Macroeconomic stability –Income equality –Skilled workforce –Export orientation

4. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-4 Key Terms The High Performance Asian Economies (HPAE): Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand The Four Tigers: Hong Kong, Singapore, Korea, Taiwan The Newly Industrialized Economies (NIEs): a number of Asian and Latin American economies

5. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-5 TABLE 16.1 Population and GDP for the High Growth Asian Economies, 2005

6. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-6 TABLE 16.2 Average Annual Growth in Real GDP per Person, 1980–2005

7. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-7 General Characteristics of Growth in the HPAEs Falling inequality Accumulation of physical and human capital Sound macroeconomic fundamentals Promotion of exports

8. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-8 TABLE 16.3 Measures of Income Distribution, East Asia and Latin America

9. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-9 Accumulation of Physical and Human Capital HPAEs have high rates of investment thanks to high savings rates, which stem from –Rapid accumulation of physical capital –Stable financial institutions –Absence of high inflation –Demographic transitionshift to low death and birth rates –Rapid rate of income growth

10. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-10 TABLE 16.4 The Share of HPAEs in World Exports, 1965–2000

11. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-11 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

12. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-12 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

13. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-13 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 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

14. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-14 The Role of Industrial Policies Government interventions are common in three areas in HPEAs –Targeting of specific industries –Direct credit –Export promotion Lets analyze industrial policies in greater detail…

15. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-15 Targeting of Specific Industries Targeted industrial policies: efforts to alter a countrys industrial structure and thus change its comparative advantages through channelling resources to certain industries –Also seen as the governments picking winners and losers

16. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-16 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

17. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-17 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

18. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-18 Results of Targeting Disagreement –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

19. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-19 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

20. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-20 Promotion of Manufactured Exports Production of exports has several advantages –Make 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

21. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-21 Promotion of Manufactured 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

22. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-22 Is Export Promotion a Good Model? 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 in eight years

23. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-23 Is There an Asian Model of Economic Growth? East Asian growth 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

24. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 16 Additional Chapter Art

25. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-25 TABLE 16.5 Imports and Exports as a Share of GDP

26. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-26 TABLE 16.6 Free Trade Areas in Asia and Oceania

27. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-27 TABLE 16.7 Sources of Growth, 1960–1994 (Percent)

28. Copyright © 2008 Pearson Addison-Wesley. All rights reserved. 16-28 High-Performance Asian Economies (HPAEs)