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IS THE EAST ASIAN ECONOMIC MODEL STILL RELEVANT? Manu Bhaskaran Centennial Group Inc July 2002 KEY POINTS East Asian Model Definition / Was there such a model? New arguments Shift to domestic-driven growth? The real story: Major re-thinking of growth models THE EAST ASIAN MODEL Common features 1. 2. 3. 4. 5. High savings rate Emphasis on education Export-friendly policy regimes Pragmatic, non-ideological Egalitarian approach Agriculture in Korea,Taiwan Public housing in HK/Singapore THE EAST ASIAN MODEL (2) Were these features unique to Asia? Good economic housekeeping rules Other success stories shared these Botswana: fastest growing economy NOT UNIQUE TO EAST ASIA ALONE EAST ASIANS PURSUED DIFFERENT MODELS 1. Government role Hong Kong: laissez-faire Taiwan: focused in some sectors Korea: allocated capital,… Singapore: hyper-active govt Each had different starting points Each evolved own responses DIFFERENT MODELS 2. Foreign capital inflows Korea: xenophobic Taiwan: wary Singapore: open Hong Kong: ultra open Portfolio capital: earlier opening Direct investment: liberalised later DIFFERENT MODELS (2) 3. Capital markets Korea: heavily distorted Taiwan: some political influence Singapore: Relatively free, ex-CPF HK: Free, main allocator of capital Banks under tight govt control ex-HK DIFFERENT MODELS (3) 4. Size of companies Korea: chaebol-driven Taiwan: Mainly small companies, govt-backed ones in crucial sectors Singapore: MNCs and GLCs HK: Vibrant, early globalisers DIFFERENT MODELS (4) 5. Other degrees of openness Labour market HK/Singapore: Highly open Korea: closed Protectionism Korea/Taiwan: High HK/Singapore: Very low DIFFERENT MODELS (5) 6. Domestic competition policy HK: Some cartels, otherwise free Taiwan: Generally free Singapore: GLCs dominated Korea: SMEs/consumers squeezed RE-THINKING MODELS SHIFT TO DOMESTIC DEMAND? Slowdown in global demand More competitive export markets Means better depend on domestic DOMESTIC DEMAND AS DRIVER? Is this possible? Domestic linked to external demand Trade sector generates incomes Freer trade increases incomes Can policy discriminate? Favouring domestic demand distorts NEW THINKING 1. Economic philosophy HK: Shift away from laissez-faire S’pore: Allowing more laissez-faire Korea: Substantial opening Taiwan: Opening up as well Malaysia: Reviewing NEP Thailand: Moderating growth targets NEW THINKING (2) 2. Resource allocation Bond markets: less bank financing Banks liberalised Prices less distorted Interest rates freed Product prices closer to world prices NEW THINKING (3) 3. Savings and consumption Freer banks: easy consumer credit Trade liberalisation: prices fell Consumption/GDP rose post-crisis NEW THINKING (4) 4. Corporate sector Restructuring: more efficient More policy emphasis on Local companies vs MNCs Consumer protection, competition policy CONCLUSION No single model Pragmatism prevailed Substantial re-thinking going on BEWARE APPLYING SIMPLISTIC MODELS TO ECONOMIES