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Chapter 16
ExportOriented
Growth in
East Asia
Learning Objectives
• List five general characteristics of success in
the High Performance Asian Economies.
• Describe how the institutional environment
supported economic growth.
• Analyze the degree of openness in the
HPAE.
• Explain the pros and cons of the idea that
industrial policies mattered to East Asian
success.
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Learning Objectives
(cont.)
• Evaluate the impact of export promotion
policies and the debate over their
applicability to other world regions.
• Define total factor productivity and explain
why economists use it to understand
whether growth in the HPAE is similar to
growth elsewhere.
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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, South Korea, and Taiwan
• The Four Tigers are also referred to as the Four
Dragons or the Little Dragons
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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)
• China may also be considered a NIE, but it is
usually placed in its own category due to its
size and the legacy of communism
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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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Population, Income, and
Economic Growth
• High GDP per person in Singapore, Japan,
Hong Kong, Taiwan, and South Korea
• Thailand, Malaysia, and Indonesia, began
their period of rapid growth later
• Asian economies were among the fastest
growing economies in the world between
1980 and the late 1990s
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TABLE 16.1 Population and GDP for
the HPAE, 2011
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TABLE 16.2 Average Annual Growth in Real
GDP per Capita, 1980–2010
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A Note on Hong Kong
•
On July 1, 1997, Great Britain officially returned
the colony of Hong Kong to China after more than
150 years of British rule
•
China
– will allow Hong Kong to keep its own currency
– will limit migration between Hong Kong and the
mainland
– will generally try to preserve Hong Kong’s
current system
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General Characteristics of
Growth in the HPAE
• Shared growth-rising economic equality
• Rapid accumulation of physical and human capital
– high savings partly result of the rapid demographic
transition experienced after World War II
• Rapid growth of manufactured exports
– Import substitution industrialization (ISI) policies were
quickly replaced with an emphasis on export promotion
• Stable macroeconomic environments
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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
– Rapid rate of income growth
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TABLE 16.3 The Share of HPAE in
World Exports, 1965–2010
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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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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
• To ensure resources are used in the most
productive manner, governments must
create rules that foster efficient outcomes.
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The Institutional Environment
(cont.)
•
•
•
•
•
Reliable property rights
Bureaucracies are competent
Contracts are enforced
Access to information is wide-spread
Regulations are clear and wellpublicized
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TABLE 16.4 Rankings on the Ease of
Doing Business Index, 2011
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Fiscal Discipline and BusinessGovernment Relations
Deliberation councils
– Quasi-legislative bodies set up by six HPEA
governments that bring together
representatives from the private and the
public sectors
– Coordinate the information flow between
businesses and policymakers
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Avoiding Rent Seeking
• Government interventions are common in
three areas in HPAEs:
– Targeting of specific industries or to
channel resources in a particular direction
–credit subsidies
–import protection
–business licenses
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TABLE 16.5 Imports and Exports
as a Share of GDP
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The Role of Industrial Policies
World Bank’s research concluded government
interventions have three common areas:
1. targeting of specific industries, that is,
industrial policies narrowly defined
2. directed credit
3. export promotion
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Targeting Specific Industries in
the HPAE
• The narrow definition of industrial policies is the
targeted development of specific industries
• 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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Targeting Specific Industries in
the HPAE (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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Did Industrial Policies Work?
• A successful policy: increases the overall
rate of GDP growth or the rate of
productivity growth
• Disagreement on success
– 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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Did Industrial Policies Work?
(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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The Connections between
Growth and Exports
• Export growth may not add to GDP growth if
it crowds out growth in the output of goods
for domestic consumption
• Export growth causes faster GDP growth
• Export growth causes the overall capacity of
the economy to grow faster
– if production was focused on goods for the
domestic market
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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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The Connections between
Growth and Exports (cont.)
• Other connections between export growth
and GDP growth are possible as well
• Exports may speed up the adoption and
mastery of international best practices
• Exports make possible the purchase of
imports
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The Connections between
Growth and Exports (cont.)
• The ability to import capital and modern
technology is seen as the most critical
ingredient in policies that successfully close
the gap between developing and developed
countries.
• Export promotion can encourage the
acquisition of new technologies
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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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TABLE 16.6 Free-Trade Areas in Asia
and Oceania
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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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TABLE 16.7 Sources of Growth,
1960–1994 (Percent)
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