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This PDF is a selection from an out-of-print volume from the National

Bureau of Economic Research


Volume Title: NBER Macroeconomics Annual 1994, Volume 9
Volume Author/Editor: Stanley Fischer and Julio J. Rotemberg, eds.
Volume Publisher: MIT Press
Volume ISBN: 0-262-05172-4
Volume URL: http://www.nber.org/books/fisc94-1
Conference Date: March 11-12, 1994
Publication Date: January 1994
Chapter Title: The East Asian Miracle: Four Lessons for Development
Policy
Chapter Author: John Page
Chapter URL: http://www.nber.org/chapters/c11011
Chapter pages in book: (p. 219 - 282)
John
Page
THE WORLD BANK
The Eas t As i an M i r ac l e:
F ou r Les s ons
f or Devel opment Pol i c y
Si nc e t he
s t u dy
of ec onomi c
devel opment began
i n ear nes t at t he c l os e
of t he Sec ond Wor l d
War ,
ac ademi c s and
pol i c y maker s
have debat ed
t he
appr opr i at e
r ol e of
pu bl i c pol i c y
i n
devel opi ng
ec onomi es . Eas t As i a
has a r emar kabl e r ec or d of
hi gh
and s u s t ai ned ec onomi c
gr owt h.
F r om
1965 t o 1990 i t s 23 ec onomi es
gr ew
f as t er t han t hos e of al l ot her
r egi ons .
M os t of t hi s ac hi evement i s at t r i bu t abl e t o
s eemi ngl y
mi r ac u l ou s
gr owt h
i n
ju s t ei ght hi gh per f or mi ng
As i an ec onomi es
(HPAEs )-Japan;
t he
"f ou r
t i ger s ": Hong Kong,
t he
Repu bl i c
of
Kor ea,
Si ngapor e,
and
Tai wan;
and t he t hr ee
newl y i ndu s t r i al i zi ng
ec onomi es
(NIEs )
of Sou t h-
eas t
As i a, Indones i a,
M al ay s i a,
and Thai l and.1 The Eas t As i an ec onomi es
pr ovi de
a
r ange
of
pol i c y f r amewor ks -ext endi ng
f r om
Hong Kong's
near l y c ompl et e
l ai s s ez f ai r e t o t he
hi ghl y
s el ec t i ve
pol i c y r egi mes
of
Japan
and Kor ea. The c oexi s t enc e of ac t i vi s t
pu bl i c pol i c i es
and
r api d
Pr es ent ed at t he Nat i onal Bu r eau of Ec onomi c
Res ear c h,
Ni nt h Conf er enc e on M ac r oec o-
nomi c s . The
f i ndi ngs , i nt er pr et at i ons ,
and c onc l u s i ons
expr es s ed
i n t hi s
paper
ar e
ent i r el y
t hos e of t he au t hor .
They
do not
r epr es ent
t he vi ews of t he Wor l d
Bank,
i t s Exec u t i ve
Di r ec t or s ,
or t he c ou nt r i es
t hey r epr es ent .
1. Thes e
ei ght
HPAEs ar e t he
s u bjec t
of t he Wor l d Bank's
r ec ent l y c ompl et ed s t u dy ,
The
Eas t As i an M i r ac l e: Ec onomi c Gr owt h and Pu bl i c
Pol i c y ,
on whi c h t hi s
es s ay
dr aws
ext ens i vel y .
The Eas t As i an M i r ac l e
r epor t
i s t he
pr odu c t
of a Wor l d Bank r es ear c h t eam
l ed
by John Page
and
c ompr i s i ng Nanc y
Bi r ds al l ,
Ed
Campos ,
W. M ax
Cor den,
Chang-Shi k
Ki m,
Howar d
Pac k,
Ri c har d
Sabot ,
Jos eph
E.
St i gl i t z,
and M ar i l ou
Uy .
Wi l l i am
Eas t er l y ,
Rober t Z.
Lawr enc e,
Pet er
Pet r i ,
and Lant Pr i t c het t made
major
c ont r i bu t i ons . Lawr enc e M ac Donal d was t he
pr i nc i pal
edi t or .
Bac kgr ou nd paper s
ar e
avai l abl e f r om t he
Pol i c y
Res ear c h
Depar t ment ,
The Wor l d Bank. The
f i ndi ngs ,
i nt er -
pr et at i ons
and c onc l u s i ons
expr es s ed
i n t hi s
paper
ar e
ent i r el y
t hos e of t he au t hor .
They
do not
r epr es ent
t he vi ews of t he Wor l d
Bank,
i t s Exec u t i ve
Di r ec t or s ,
or t he
c ou nt r i es
t hey r epr es ent .
220. PAGE
gr owt h
i n s ome of t he Eas t As i an
ec onomi es -es pec i al l y Japan,
Kor ea,
Si ngapor e,
and Tai wan-has r ai s ed
c ompl ex
and c ont r over s i al
qu es -
t i ons
c onc er ni ng
t he
r el at i ons hi p
bet ween
gover nment ,
t he
pr i vat e
s ec t or ,
and t he mar ket .
Thi s
es s ay
l ooks at f ou r
pu bl i c pol i c y
l es s ons of t he Eas t As i an
mi r ac l e. Sec t i on 1
ar gu es
t hat t he
ei ght
HPAEs c an be
gr ou ped t oget her
and
di s t i ngu i s hed
f r om ot her l ow- and mi ddl e-i nc ome c ou nt r i es on t he
bas i s of t hei r
r api d,
s u s t ai ned,
and s har ed
gr owt h.
Sec t i on 2 exami nes
t he
c ont r over s y
over t he s ou r c es of
gr owt h
i n t he HPAEs and
pr es ent s
evi denc e on t he r el at i ve r ol es of ac c u mu l at i on and t ot al f ac t or
pr odu c -
t i vi t y
(TF P)
c hange.
Sec t i on 3 di s c u s s es t wo
as pec t s
of
pu bl i c pol i c y
i n
Eas t As i a t hat c onf or m t o t he c onvent i onal wi s dom
c onc er ni ng good
devel opment pol i c y -mac r oec onomi c management
and br oad-bas ed
edu c at i onal
pol i c i es .
Sec t i on 4 exami nes t wo mor e c ont r over s i al i s s u es
-t he
s i gni f i c anc e
of t he HPAEs '
expor t pu s h s t r at egi es
and i ndu s t r i al
pol i c i es
f or TF P
c hange.
It c onc l u des t hat
expor t
or i ent at i on r at her t han
s el ec t i ve i nt er vent i on
pl ay ed
t he domi nant r ol e i n
i nc r eas i ng ec onomy -
wi de TF P
gr owt h
r at es .
1. The Nat u r e
of
t he
M i r ac l e-Rapi d
Gr owt h
wi t h
Equ i t y
The HPAEs ar e a
hi ghl y
di ver s e
gr ou p
of
ec onomi es ,
di f f er i ng
i n
nat u r al
r es ou r c es ,
popu l at i on,
c u l t u r e,
and ec onomi c
pol i c y .
What ar e
t he c har ac t er i s t i c s t hat t hes e
ei ght
ec onomi es s har ed t hat c au s e t hem t o
be
gr ou ped t oget her
and s et
apar t
f r om ot her
devel opi ng
ec onomi es ?
F i r s t ,
t hey
had
r api d,
s u s t ai ned
gr owt h
bet ween 1960 and 1990. Thi s i n
i t s el f i s u nu s u al
among devel opi ng
ec onomi es .
F i gu r e
1 s hows t he
r el at i ons hi p
bet ween r el at i ve i nc ome l evel i n 1960 and
per c api t a
i nc ome
gr owt h
f or a
s ampl e
of 119 c ou nt r i es
du r i ng
t he
per i od
1960-1985. Thi s i s t he s t andar d
"c onver genc e pi c t u r e"
f i r s t
pr es ent ed
i n
Romer
(1987).
The
f i gu r e
al s o
pl ot s
an es t i mat ed nonl i near
r el at i ons hi p
bet ween i ni t i al i nc ome and
gr owt h.2
Per
c api t a
i nc ome
gr owt h
i s
es s ent i al y i ndependent
of t he l evel of r el at i ve i nc ome i n 1960. The f i t of
t he
r egr es s i on
i s
poor
and t he
s i gni f i c anc e
of i ndi vi du al c oef f i c i ent s
l ow.3
2. The
r egr es s i on
l i ne i s t he r es u l t of a
r egr es s i on
of
per c api t a
i nc ome
gr owt h
(i n
c ons t ant 1980 i nt er nat i onal
pr i c es )
on 1960 i nc ome
per c api t a, i nc l u di ng
nonl i near
t er ms
u p
t o t he s ec ond
power .
3. Dol l ar (1991)
f i nds a s i mi l ar
pat t er n u s i ng
a
s ampl e
of 114 c ou nt r i es and t he abs ol u t e
l evel of
per c api t a
i nc ome i n 1960. He f i nds a c l ear er
pat t er n
i n whi c h t he l owes t
dec i l es have t he l owes t
per c api t a
i nc ome
gr owt h
r at es ,
t he mi ddl e-i nc ome dec i l es
have t he
hi ghes t ,
and t he
hi gh-i nc ome
c ou nt r i es ar e bet ween. He al s o
r epor t s
l ow
s i gni f i c anc e
of hi s
r egr es s i on
r es u l t s ,
however .
The Eas t As i an M i r ac l e 221
F i gu r e
1 GDP GROWTH
RATE, 1960-1985,
AND GDP PER
CAPITA,
1960
GDP
gr owt h
r at e
(aver age, 1960-85)
0.08
*an
HQng Kong
0.06 -Kor ea*
S
Si ngapor e | 0.0
* r - *Japan
0.04
Thai l an
0.04
IndonI- l y s i a
0Indon*
[3 ?
0.022-,
--
*
.
n
o
0
i
-0.02
Cl D
Hi gh-i nc omc e
ec onomi es
Ot her devekJpi ng
ec onomnu es
-0.04
1
0 0.2 0.4 0.6 0.8 1 1.2
Rel at i ve
per c api t a
GDP,
1960
(per c ent age
of U.S. GDP
per c api t a, 1960)
Not e: Thi s
f i gu r e pl ot s
t hi s
r egr es s i on equ at i on:
GDPG
=
0.013 + 0.062RGDP60
-
0.061RGDP602. N -
119;
R2
=
0.036.
(0.004) (0.027) (0.033)
Sou r c e: Su mmer s and Hes t on
(1991);
Bar r o
(1989);
Wor l d Bank dat a.
The
ei ght
HPAEs ar e al l
pos i t i ve
ou t l i er s i n t he
i nc ome-gr owt h
di s t r i bu t i on. Whi l e
M al ay s i a,
Indones i a,
and Thai l and ar e c l os er t o t hei r
pr edi c t ed
val u es ,
t he
r emai ni ng
f i ve
ec onomi es , Tai wan, Kor ea,
Japan,
Si ngapor e,
and
Hong Kong,
ar e al l
s i gni f i c ant l y
above t hei r
pr edi c t ed
gr os s
domes t i c
pr odu c t
(GDP)
per c api t al gr owt h
r at es on t he bas i s of
r el at i ve i nc ome l evel .4 Al l of t he HPAEs wer e
c at c hi ng u p
t o t he mor e
devel oped
c ou nt r i es .
Rec ent wor k on
gr owt h
r at e
per s i s t enc e s u gges t s
t hat
gr owt h
r at es
f or i ndi vi du al ec onomi es ar e
hi ghl y
u ns t abl e over t i me
(Eas t er l y
et
al .,
1993).
The
HPAEs , however ,
appear
t o be an
exc ept i on. Dependi ng
on
t he t i me
per i od
s el ec t ed and t he def i ni t i on of
per s i s t ent
s u c c es s (i n
t er ms of t he f r ac t i on of t he di s t r i bu t i on u s ed t o def i ne
hi gh gr owt h),
t he
f ou r
t i ger s pl u s Japan c ons i s t ent l y
r ank wi t h t he handf u l of
per s i s t ent l y
r api dl y gr owi ng
ec onomi es .
Indeed,
Eas t er l y
et al . c onc l u de t hat "t he
wi des pr ead per c ept i on
of
s t r ong c ou nt r y
ef f ec t s i n
gr owt h
i s
s t r ongl y
i nf l u enc ed
by
t he
Gang
of F ou r ."
4. Addi t i on of a
du mmy
var i abl e
(HPAE
=
1)
t o t he es t i mat ed
equ at i on appear i ng
bel ow
F i gu r e
1 i nc r eas es t he R2 t o .242 and
gr eat l y i mpr oves
t he
pr ec i s i on
of t he
par amet er
es t i mat es . The t val u e on t he
du mmy
var i abl e
(whi c h
i s
pos i t i ve)
i s 4.00.
222 PAGE
F i gu r e
2 INCOM E
INEQUALITY
AND GROWTH OF
GDP,
1965-1989
GDP Gr owt h
per Capi t a (1965-89)
An Io
0.06
0.04
0.02V
0
Kor ea*
Ti wan*
ongKor
**
Si ngapor e
* Bo s wana
* Gabon
Japan
*
Indones i a
* M au r i t i u s
i Tni s i a +
**
Egy pt *M al ay s i a
Thai l and
*It al y
Is r *l Au s t r i a -
Is r ae1
-
Bei m^pa
a *M or oc c o
. ..
ni ,i ndom -r t LaSr i l a* Ir an
?C
bi
Pakl s t an' i bi ppi aes
*
Kei ny a
M al awi *Indi a *Venezu el a
angl ades ho
N
A
*Pei
^^p Boi vi
c ot edIv
pc ot edIvoke
r azi l
I
Su an
?
Ghana
*Za*bi a
-0.02
-0.04
0 10 20 30
Inc ome
Inequ al i t y
40
Not e: Inc ome
i nequ al i t y
i s meas u r ed
by
t he r at i o of t he i nc ome s har es of t he r i c hes t 20% and
t he
poor es t
20% of t he
popu l at i on.
Sou r c e: Wor l d Bank dat a.
Wher e t he HPAEs ar e
u ni qu e
i n
c ombi ni ng r api d,
s u s t ai ned
gr owt h
wi t h
hi ghl y equ al
i nc ome di s t r i bu t i ons . The
pos i t i ve
as s oc i at i on be-
t ween
gr owt h
and l ow
i nequ al i t y
i n t he
HPAEs ,
and t he c ont r as t wi t h
ot her
ec onomi es ,
i s i l l u s t r at ed i n
F i gu r e
2.
F or t y
ec onomi es ar e r anked
by
t he r at i o of t he i nc ome s har e of t he r i c hes t f i f t h of t he
popu l at i on
t o
t he i nc ome s har e of t he
poor es t
f i f t h and
per c api t al
r eal GDP
gr owt h
du r i ng
1965-1989.5
The nor t hwes t c or ner of
F i gu r e
2 i dent i f i es ec onomi es wi t h
hi gh
gr owt h
(GDP
per c api t a gr eat er
t han
4.0%)
and l ow r el at i ve
i nequ al i t y
(r at i o
of t he i nc ome s har e of t he
t op qu i nt i l e
t o t hat of t he bot t om
5. Bec au s e t he
t i mi ng
and
f r equ enc y
of obs er vat i ons on i nc ome di s t r i bu t i on
var y among
c ou nt r i es i n t he
s ampl e,
t he r at i o of t he
t op
t o bot t om
qu i nt i l e
i s t aken at t he dat e
c l os es t t o t he
mi dpoi nt .
l l
t i XI -r
M
-..
. ......
. I I
I I
I
4 1 1 1 I I I I I I |
I
I
r
I
I
The Eas t As i an M i r ac l e ? 223
qu i nt i l e
l es s t han
10).
Al l of t he
hi gh-gr owt h, l ow-i nequ al i t y
ec onomi es
ar e i n Eas t As i a. Seven ar e
HPAEs ;
onl y M al ay s i a,
whi c h has an i ndex of
i nequ al i t y
above
15,
i s exc l u ded. Wi t hi n Eas t As i a
c ompar i s ons
of
gr owt h
r at es and Gi ni c oef f i c i ent s
by
dec ade i ndi c at e t hat t he di s t r i bu -
t i on of i nc ome was
s u bs t ant i al l y
mor e
equ al
i n t he
f as t es t -gr owi ng
HPAEs .
M or eover ,
i mpr ovement s
i n i nc ome di s t r i bu t i on
gener al l y
c oi n-
c i ded wi t h
per i ods
of
r api d gr owt h
(Bi r ds al l
and
Sabot , 1993).6
2.
F u ndament al i s t s ,
M y s t i c s ,
and t he M i r ac l e
To obs er ve a mi r ac l e i s not
nec es s ar i l y
t o u nder s t and i t . As wi t h t hos e
at t empt i ng
t o
expl ai n r el i gi ou s phenomena,
ec onomi s t s
anal y zi ng
t he
"mi r ac l e" of Eas t As i a's
gr owt h
t end t o f al l i nt o t wo
c amps -f u nda-
ment al i s t s and
my s t i c s .7
Gr owt h f u ndament al i s t s s t r es s t he domi nant
r ol e of f ac t or ac c u mu l at i on i n
expl ai ni ng
t he HPAEs '
hi gh-i nc ome
gr owt h
r at es .
They f r equ ent l y qu al i f y
t hei r
expl anat i ons by not i ng
t hat
ef f i c i ent al l oc at i on of
r es ou r c es ,
onc e
ac c u mu l at ed,
mu s t al s o have been
a
par t
of t he Eas t As i an s u c c es s
s t or y -s i nc e
s u c h ec onomi c
l aggar ds
as
t he c ou nt r i es of t he f or mer Sovi et Uni on and Eas t er n
Eu r ope
have
ac c u mu l at ed r es ou r c es at
equ al l y i mpr es s i ve
r at es wi t h
r adi c al l y
di f f er -
ent r es u l t s .8
M y s t i c s ,
on t he ot her
hand,
whi l e
ac knowl edgi ng
t he
i mpor t anc e
of
ac c u mu l at i on,
t end t o
pl ac e gr eat er
s t r es s on t he r ol e of t he
ac qu i s i t i on
and
mas t er y
of
t ec hnol ogy .
The domi nant vi ew-i f t her e i s one-i s
t hat t he Eas t As i an
ec onomi es ,
par t i c u l ar l y Japan,
Kor ea,
and
Tai wan,
6. Two
qu al i f i c at i ons
s hou l d be not ed her e.
F i r s t ,
s ome s t u di es of Kor ea have not ed
i nc r eas i ng i nequ al i t y
i n r ec ent
y ear s ;
however ,
mos t of t hi s i s du e t o
r i s i ng
val u e of
as s et s ,
par t i c u l ar l y
l and,
r at her t han i nc r eas ed var i at i on i n i nc omes .
Sec ond,
r edu c t i ons
i n
i nequ al i t y
i n Thai l and have been
r el at i vel y
mi nor
c ompar ed
t o t hos e i n t he ot her
HPAEs ,
al t hou gh
Thai l and's
per f or manc e
i s s t i l l bet t er t han t hat of mos t
devel opi ng
ec onomi es .
7.
Rec ent l y
a t hi r d
gr ou p-pr edes t i nar i ans -has begu n
t o
emer ge, pl ac i ng gr eat
s t r es s on
t he r ol e of i ni t i al c ondi t i ons i n
1960,
es pec i al l y
edu c at i on and i nc ome
equ al i t y ,
i n
expl ai ni ng
Eas t As i a's
per s i s t ent l y s u per i or gr owt h per f or manc e
i n
c r os s -c ou nt r y
r e-
gr es s i ons .
Rodr i k
(1993)
pr ovi des
a
s u r vey
of t he r el evant l i t er at u r e and s ome c r os s -
c ou nt r y r egr es s i ons .
We do not c ons i der t hei r
ar gu ment s
f u r t her her e
s i nc e,
i f
pr edes t i -
nar i an
expl anat i ons
ar e
r el evant ,
t her e ar e f ew l es s ons f or
devel opment pol i c y .
Thi s i s
per haps why
mos t
pr edes t i nar i an
au t hor s
u l t i mat el y
r eveal t hems el ves t o be f u nda-
ment al i s t s or
my s t i c s
i n t hei r
pol i c y i nt er pr et at i ons
of t he mi r ac l e
(s ee,
e.g.,
Rodr i k,
1993).
8. One of t he mos t
pr omi nent
f u ndament al i s t
t r ac t ar i ans ,
Al wy n You ng
(1993),
has
r ec ent l y pr ovi ded
a s u c c i nc t s t at ement of t hei r
pos i t i on. Al t hou gh
he s u bt i t l es hi s
es s ay
a "c ont r ar i an
vi ew," i t i s
pr obabl y
t he domi nant vi ew
among
t he
Angl o-Amer i c an
ec onomi c s es t abl i s hment .
224 PAGE
have been
u nu s u al l y
s u c c es s f u l at
c at c hi ng u p
t ec hnol ogi c al l y
t o t he
advanc ed ec onomi es .9
Empi r i c al s u ppor t
f or t he
my s t i c al pos i t i on
i s
addu c ed f r om t he
hi gh
r at es of t ot al f ac t or
pr odu c t i vi t y gr owt h
es t i -
mat ed f or
i ndu s t r y
i n s ever al of t he
HPAEs ,
not abl e
Japan,
Kor ea,
and
Tai wan.
The
f u ndament al i s t -my s t i c
di s t i nc t i on i s at t he hear t t he debat e on
t he
pu bl i c pol i c y or i gi ns
of Eas t As i a's s u c c es s . F u ndament al i s t s have
s t r es s ed Eas t As i a's s u c c es s i n
get t i ng
t he bas i c s
r i ght . They
t end t o
at t r i bu t e s u c c es s t o
pol i c i es
t hat i nc r eas ed
phy s i c al
and hu man
c api t al
per
wor ker and t hat
pr ovi ded
f or ef f i c i ent al l oc at i on.
They ar gu e
t hat
t he s u c c es s f u l As i an ec onomi es have been bet t er t han ot her s at
pr ovi d-
i ng
a s t abl e mac r oec onomi c envi r onment and a r el i abl e
l egal
f r amewor k
t o
pr omot e
domes t i c and i nt er nat i onal
c ompet i t i on. They
al s o s t r es s
t hat t he or i ent at i on of t he HPAEs t owar d i nt er nat i onal t r ade and t he
abs enc e of
pr i c e
c ont r ol s and ot her
di s t or t i onar y pol i c i es
have l ed t o
l ow r el at i ve
pr i c e
di s t or t i ons . Inves t ment s i n
peopl e-edu c at i on
and
heal t h-ar e
i mpor t ant
r ol es f or
gover nment
i n t he f u ndament al i s t
s t or y
(Wor l d Bank, 1991).
In c ont r as t t o t he f u ndament al i s t
vi ew,
whi c h
ac knowl edges
r el a-
t i vel y
f ew c as es of mar ket
f ai l u r e,
my s t i c s
c ont end t hat mar ket s c ons i s -
t ent l y
f ai l t o
gu i de
i nves t ment t o i ndu s t r i es t hat
gener at e
t he
hi ghes t
gr owt h.
In Eas t
As i a,
t he
my s t i c s ar gu e, gover nment s
r emedi ed t hi s
by
del i ber at el y "get t i ng
t he
pr i c es wr ong"
t o
pr omot e
i ndu s t r i es t hat
wou l d not ot her wi s e have t hr i ved
(Ams den, 1989).
The
my s t i c s l ay
s t r es s on t he
dy nami c gai ns
of ac t i vi s t
gover nment pol i c i es
t o al t er
i ndu s t r i al s t r u c t u r e and
pr omot e
t ec hnol ogi c al
l ear ni ng,
s omet i mes at
t he
expens e
of s t at i c al l oc at i ve
ef f i c i enc y .
M or eover ,
whi l e f u ndament al -
i s t s wou l d
expl ai n gr owt h
wi t h a s t andar d s et of
r el at i vel y
c ons t ant
pol i c i es , my s t i c s
not e t hat t he
pol i c y
mi xes u s ed
by
Eas t As i an ec onomi es
wer e di ver s e and f l exi bl e.
They ar gu e
t hat Eas t As i an
gover nment s
"gover ned
t he mar ket " i n c r i t i c al
way s
(Wade, 1990).
Bu t t he c r u c i al
qu es t i on
r emai ns : Have
i nt er vent i ons ,
per
s e,
ac c el er at ed
gr owt h?
The
my s t i c s
have
pr ovi ded
val u abl e
i ns i ght s
i nt o t he
hi s t or y ,
r ol e,
and ext ent of Eas t As i an
i nt er vent i ons ,
demons t r at i ng c onvi nc i ngl y
t he
s c ope
of
gover nment
ac t i ons t o
pr omot e
i ndu s t r i al
devel opment
i n
Japan,
Kor ea,
and Tai wan.
They
have
s u c c es s f u l l y
s hown t hat Eas t As i a
does not
whol l y
c onf or m t o t he f u ndament al i s t model . Indu s t r i al
pol i c y
and i nt er vent i ons i n f i nanc i al mar ket s ar e not
eas i l y
r ec onc i l ed wi t h
9. Ams den
(1989, 1993)
and Wade (1990)
pu t
f or war d t hi s vi ew.
Int er es t i ngl y ,
as
You ng
(1993)
poi nt s
ou t ,
s o do Bal as s a (1988)
and
Kr u eger
(1990).
They
di f f er ,
of
c ou r s e,
on t he
pol i c y or i gi ns
of Eas t As i a's
pr es u med
s u c c es s at
t ec hnol ogi c al c at c hi ng u p.
The Eas t As i an M i r ac l e ? 225
s t at i c al l oc at i ve
ef f i c i enc y .
Pol i c i es i n s ome ec onomi es ar e mu c h mor e i n
ac c or d wi t h model s of s t at e-l ed
devel opment .
2.1 SOURCES OF THE M IRACLE-ACCUM ULATION
AND PRODUCTIVITY CHANGE
Empi r i c al l y ,
t he
f u ndament al i s t -my s t i c
debat e c an be vi ewed i n t er ms
of t he r el at i ve r ol es of f ac t or ac c u mu l at i on and
pr odu c t i vi t y gr owt h
i n
expl ai ni ng
t he HPAEs
ou t pu t gr owt h.?0
How u nu s u al ar e t he HPAEs i n
t er ms of t hei r r at es of f ac t or ac c u mu l at i on? Ar e t he Eas t As i an ec onomi es
at y pi c al
i n t er ms of t hei r r at es of
pr odu c t i vi t y c hange?
2.1.1 Eas t As i a's Rec or d
of
Ac c u mu l at i on The f u ndament al i s t vi ew of t he
s u c c es s of t he HPAEs i s t hat t hei r i nves t ment l evel s i n
phy s i c al
and
hu man
c api t al s u bs t ant i al l y
exc eed t hos e f or ot her c ou nt r i es at s i mi l ar
l evel s of
devel opment , r es u l t i ng
i n mor e
r api d gr owt h
of
per c api t a
i nc ome.
F i gu r e
3 s hows t he
r el at i ons hi p
bet ween i nc ome l evel i n 1960
and t he
aver age
i nves t ment r at e f or 1960-1985. The es t i mat ed nonl i n-
ear
r egr es s i on r el at i ng
i ni t i al i nc ome l evel t o i nves t ment i s al s o s hown.
Ther e i s
s u bs t ant i al l y
mor e
r egu l ar i t y
i n t he
r el at i ons hi p
bet ween i n-
ves t ment s har e and r el at i ve
i nc ome,
t han i n t he
r el at i ons hi p
bet ween
gr owt h
and r el at i ve i nc ome." The i nves t ment r at e f or al l c ou nt r i es
i nc r eas es wi t h i nc ome
u p
t o abou t
70%
of U.S. GDP i n 1960 and t hen
dec l i nes .
The HPAEs c onf or m mu c h mor e
s t r ongl y
t o t he
c r os s -c ou nt r y pat t er n
of i nves t ment r at es t han t o t he
pat t er n
of
gr owt h
r at es . Thai l and and
Hong Kong
l i e c l os e t o t hei r
pr edi c t ed
val u es on t he bas i s of t he
c r os s -c ou nt r y r egr es s i on. Japan,
Kor ea,
and
M al ay s i a
ar e t he ext r eme
ou t l i er s
among
HPAEs ,
bu t
t hey
ar e not ext r eme ou t l i er s i n t he di s t r i bu -
t i on.'2
Hi gh
i nves t ment r at es ar e
par t
of t he As i an s u c c es s
s t or y ,
bu t
t hey
c annot
f u l l y expl ai n
t he ext ent t o whi c h
per c api t a
i nc ome
gr owt h
i n t he HPAEs
di ver ges
f r om t he
t y pi c al pat t er n.
F i gu r e
4(ab) s u mmar i zes t he
pat t er n
of var i at i on of t wo meas u r es of
hu man
c api t al
wi t h i ni t i al i nc ome.
F i gu r e
4(a)
pl ot s
t he
pr i mar y
s c hool
enr ol l ment r at e i n 1960
agai ns t
r el at i ve
per c api t a
i nc ome,
whi l e
10. Whi l e i t i s
br oadl y
c or r ec t t o as s oc i at e f u ndament al i s m wi t h
pol i c i es
t o
pr omot e
ac c u mu l at i on and
ef f i c i ent ,
s t at i c
al l oc at i on,
s ome
my s t i c s
of t he i ndu s t r i al
pol i c y
s c hool wou l d
poi nt
t o s u c h
gover nment
i ni t i at i ves as s oc i al i zat i on and
bou ndi ng
of
pr i vat e
r i s ks i n Kor ea and
Japan
as
i mpor t ant pol i c y
t ool s t hat r ai s ed ac c u mu l at i on.
11. The f i t of t he
r egr es s i on
i s
mar kedl y
bet t er ,
as i s t he var i anc e of t he es t i mat ed
c oef f i c i ent s .
12. Addi t i on of a
du mmy
var i abl e
(HPAE
=
1) t o t he
es t i mat i ng equ at i on appear i ng
bel ow
F i gu r e
4 does not i nc r eas e t he
expl anat or y power
of t he
r egr es s i on.
The t
s t at i s t i c on t he
du mmy
var i abl e i s 1.00.
226- PAGE
F i gu r e
4(b)
pr es ent s
t he s c at t er of Bar r o and Lee's (1993)
aver age
meas u r e of edu c at i onal at t ai nment over t he
per i od
1960-1985
agai ns t
i ni t i al i nc ome. Bot h s c at t er s c onf i r m t hat t he HPAEs wer e
r el at i vel y
wel l
endowed wi t h hu man
c api t al
bu t
agai n
c onf or m mor e
c l os el y
t o t he
c r os s -c ou nt r y pat t er n
bas ed on r el at i ve i nc ome t han i s t he c as e f or
i nc ome
gr owt h.
2.1.2
Pr odu c t i vi t y Change
TF P i s es t i mat ed i n a
s i mpl e
neoc l as s i c al
f r amewor k
by s u bt r ac t i ng
f r om
ou t pu t gr owt h
t he
por t i on
of
gr owt h
du e t o
c api t al
ac c u mu l at i on,
t o hu man
c api t al
ac c u mu l at i on,
and t o
l abor f or c e
gr owt h.
As s u me t hat
ever y ec onomy
has ac c es s t o an
i nt er nat i onal
c r os s -ec onomy pr odu c t i on
f u nc t i on of t he f or m:
Q
=
AF (K,
E,
L), (1)
wher e A i s t ot al f ac t or
pr odu c t i vi t y ,
K i s a meas u r e of
c api t al
s er vi c es ,
E i s a meas u r e of hu man
c api t al
endowment s ,
and L i s a meas u r e of
l abor s er vi c es i n nat u r al u ni t s .
TF P
c hange
c an be t hen f ou nd as t he r es i du al of
gr owt h
of
ou t pu t
per
wor ker af t er
dedu c t i ng
t he c ont r i bu t i ons of hu man and
phy s i c al
F i gu r e
3 AVERAGE INVESTM ENT RATE AS A PERCENTAGE OF
GDP,
1960-1985,
AND GDP PER CAPITAL
LEVEL,
1960
Aver age
i nves t ment r at e
(per c ent age
of
GDP,
1960-85)
40
*
.
*ay s i a *Japan
30
-
r .ay s g-i a- l --*.
t ; E
*
Si ngapor e
D
a[0
9
Kor ea
^e
* *
?
E
*
*' * .
Tai wan*
*
? ?
0
20
- *
.*
.o_ g Kong 20......
...........
-
Oe
e
- *e
0
10
*.: :
'.
^
* *D HPA-s
10 * Hi gh-i nc on e ec onomi es
0* *
Ot her
devei opi ng
ec onomi es
0 i
0 0.2 0.4 0.6 0.8 1 1.2
Rel at i ve
per c api t a
GDP
(per c ent age
of U.S. GDP
per c api t a, 1960)
Not e:
Regr es s i on equ at i on:
16085
=
10.125 + 59.120RGDP60
-
51.881RGDP602. N
=
119;
R2 = 0.295.
(1.383) (10.344) (12.593)
Sou r c es : Su mmer s and Hes t on
(1991);
Bar r o
(1989);
Wor l d Bank dat a.
The Eas t As i an M i r ac l e 227
F i gu r e
4a INITIAL INCOM E LEVEL AND PRIM ARY ENROLLM ENT RATE
PRIM 6O
1.6
1.4-
t l
1.2
-
t
Si n
l ve
. r
-
Kor ea
0.8 Thai i l and*~ ""
,y
Hong
Kong
Inc ons i s a / * .
0.6-
SI
I
0.2 -
mt ?
* *
0
t t t
! i
I I
!
I
i
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1
PER CAPITA GDP 1960
(%
USA
GDP/CAP 1960)
F i gu r e
4b INITIAL INCOM E LEVEL AND AVERAGE EDUCATION STOCK
AV. EDUCATION
(60-85)
12
0
0
0
00
10-
0
1*Japan
0
0. .0
8
-
a
/
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
PER CAPITA GDP 1960
(%
USA
GDP/CAP 1960)
1 1.1
228 PAGE
c api t al
ac c u mu l at i on:
a =
(q
-
1)
-
s K(k
-
)
-
s E(e- 1). (2)
Under
as s u mpt i ons
of
c ompet i t i ve
f ac t or mar ket s and c ons t ant r et u r ns
t o
s c al e,
SK and SE ar e
equ al
t o t he i nc ome s har es of f ac t or s .
Thu s ,
mos t
empi r i c al appl i c at i ons
of
Equ at i on
(2)
es t i mat e t he
ou t pu t el as t i c i t y
c oef f i c i ent s wi t h i nc ome s har es .13
Bec au s e i nc ome s har e dat a ar e not avai l abl e f or mos t c ou nt r i es i n ou r
s ampl e,
we i ns t ead es t i mat e t he
ou t pu t
el as t i c i t i es
di r ec t l y u s i ng
a
s i mpl e, c r os s -ec onomy pr odu c t i on
f u nc t i on. We
r egr es s
annu al
l og
ou t pu t gr owt h
on
l og c api t al gr owt h, l og
hu man
c api t al gr owt h,
and
l og
l abor
gr owt h
bet ween 1960 and
1990,
c ons t r ai ni ng
t hei r c oef f i c i ent s
t o s u m t o
u ni t y
(i .e.,
s pec i f y i ng
t he
pr odu c t i on
f u nc t i on t o be
Cobb-Dou gl as ).
We al s o i nc l u de
ec onomy -s pec i f i c du mmy
var i abl es t o
es t i mat e i ndi vi du al r at es of TF P
c hange
f or eac h of t he
s ampl e's
ec onomi es .
We es t i mat e TF P
c hange
f or 87
hi gh-
t o l ow-i nc ome ec onomi es . The
dat a s et i nc l u des new c ons t ant
pr i c e c api t al
s t oc k dat a
(Nehr u
and
Dhar es hwar , 1993).
M eas u r es of hu man
c api t al
ar e
i nc or por at ed
i n t he
s pec i f i c at i on u s i ng
Bar r o and Lee's
(1993)
meas u r e of edu c at i onal at t ai n-
ment . Tabl e 1
r epor t s
t he
pr odu c t i on
f u nc t i on
par amet er s
and t he
es t i mat ed TF P
gr owt h
r at es .
The l ow
el as t i c i t y
of
ou t pu t
wi t h
r es pec t
t o
c api t al
f r om t he c r os s -
c ou nt r y s ampl e
i s
s t r i ki ng
bu t not
al t oget her s u r pr i s i ng.
Ther e i s a
s u bs et of
devel opi ng
ec onomi es i n ou r dat a (13
i n nu mber )
t hat have
pos i t i ve
net i nves t ment and hu man
c api t al gr owt h per
wor ker ,
bu t
negat i ve ou t pu t per
wor ker
gr owt h
r at es . In
ef f ec t ,
t he
mar gi nal pr od-
u c t of bot h
phy s i c al
and hu man
c api t al
was
negat i ve
i n t hes e
ec onomi es ,
an i ndi c at i on of s ever e al l oc at i on
i nef f i c i enc y . Empi r i c al l y ,
t hi s i s r e-
f l ec t ed i n a l ower
el as t i c i t y
of
ou t pu t
of bot h
phy s i c al
and hu man
c api t al
i n t he
pr odu c t i on
f u nc t i on bas ed on t he whol e
s ampl e
t han
when
onl y
ec onomi es wi t h
nonnegat i ve gr owt h
of
ou t pu t per
wor ker
ar e i nc l u ded.
We have r ees t i mat ed t he
pr odu c t i on
f u nc t i on bas ed
onl y
on
hi gh-
i nc ome
ec onomy i npu t -ou t pu t r el at i ons hi ps .
Thi s i s
pr edi c at ed
on t he
as s u mpt i on
t hat al l oc at i on
ef f i c i enc y
i n t he
hi gh-i nc ome
ec onomi es i s
gr eat er
t han i n t he whol e
s ampl e
and, henc e,
t hat TF P
gr owt h
r at es
es t i mat ed on t he bas i s of t he
pr odu c t i on
f u nc t i on
par amet er s
wi l l
c ont ai n l os s "noi s e" du e t o al l oc at i on mi s t akes . Thes e r es u l t s and t he
es t i mat ed TF P
gr owt h
r at es der i ved f r om s t andar d
gr owt h ac c ou nt i ng
13. Thi s l i t er at u r e i s
br i ef l y s u r vey ed
i n Ni s hi mi zu and
Page
(1987).
The Eas t As i an M i r ac l e ? 229
met hods ar e
di s pl ay ed
i n Tabl e 1. The
el as t i c i t y
of
ou t pu t
wi t h
r es pec t
t o
c api t al
i n t he
hi gh-i nc ome ec onomy pr odu c t i on
f u nc t i on r i s es t o
mor e c onvent i onal l evel s . TF P
es t i mat es ,
par t i c u l ar l y
f or t hos e
ec onomi es wi t hi n
r api dl y gr owi ng c api t al
s t oc ks ,
ar e
c or r es pondi ngl y
r edu c ed.
F i gu r e
5
c ompar es
t he TF P
gr owt h
es t i mat es f r om t he t wo
pr odu c t i on
f u nc t i ons . Thr ee i nf er enc es ar e
s u ppor t ed by
bot h s et s of es t i mat es :
1. The
r ange
of TF P
gr owt h
r at es f or
hi gh-i nc ome
c ou nt r i es i s
qu i t e
c ompac t , es pec i al l y
i n
c ompar i s on
wi t h t he l ow- and mi ddl e-i nc ome
c ou nt r i es .
2.
Near l y
one t hi r d
(32%)
of t he l ow- and mi ddl e-i nc ome c ou nt r i es i n
t he
s ampl e
had
negat i ve
r at es of TF P
gr owt h
f or t he
per i od
1960-1989,
r egar dl es s
of t he
par amet er
es t i mat es u s ed.
3. Ther e i s
ver y
l i t t l e
pr odu c t i vi t y
bas ed
"c at c h-u p"
exhi bi t ed
by
t he
l ow- and mi ddl e-i nc ome c ou nt r i es .
Tabl e 1 ELASTICITY OF OUTPUT WITH RESPECT TO CAPITAL
(SK),
LABOR
(SL),
AND HUM AN CAPITAL
(SH):
F ULL SAM PLE
AND HIGH-INCOM E ECONOM IES
Obs er vat i ons SK (t -s t at ) SL (t -s t at ) SH (t -s t at )
F u l l
s ampl e
2,093
0.178 10.895 0.669 6.411 0.154 1.49
Hi gh-i nc ome
460 0.399 10.237 0.332 1.679 0.269 1.476
ec onomi es
RESULTING TOTAL F ACTOR PRODUCTIVITY GROWTH ESTIM ATES
F OR THE HPAES
(1960-1989)
TF P
gr owt h
(f u l l -s ampl e
TF P
gr owt h (hi gh-
par amet er
i nc ome
onl y ,
Ec onomy
es t i mat es par amet er es t i mat es )
Hong Kong
3.6470 2.4113
Indones i a 1.2543 - 0.7953
Japan
3.4776 1.4274
Kor ea,
Rep.
of 3.1021 0.2355
M al ay s i a
1.0755 -1.3369
Si ngapor e
1.1911 -3.0112
Tai wan 3.7604 1.2829
Thai l and 2.4960 0.5466
Lat i n Amer i c a 0.1274 -0.9819
Af r i c a -0.9978 -3.0140
Sou r c e: Wor l d Bank dat a.
230- PAGE
F i gu r e
5 COM PARISON OF TOTAL F ACTOR PRODUCTIVITY ESTIM ATES
4
TF P
gr owt h (hi gh-i nc ome s ampl e par amet er s ),
1960-89, per c ent
2
0
-2
-4
-6
-4 -3 -2 -1 0 1 2 3 4
TF P
gr owt h (f u l l s ampl e par amet er s ), 1980-89, per c ent
Thes e ar e not
pr omi s i ng
r es u l t s f or t he
devel opi ng
wor l d.
Des pi t e
a
s u bs t ant i al l i t er at u r e on t he
pot ent i al
f or
devel opi ng
c ou nt r i es t o ac hi eve
r api d gr owt h t hr ou gh
t he
adopt i on
of
known,
"bes t
pr ac t i c e"
t ec hnol o-
gi es , ver y
f ew c ou nt r i es
appear
t o have r eal i zed t hes e
pot ent i al gai ns .14
Cat c h-u p,
wher e i t i s
t aki ng pl ac e,
i s du e
pr i mar i l y
t o
hi gher
r at es of
f ac t or ac c u mu l at i on.
Thr ee of t he HPAEs ar e i n t he
u pper
dec i l e of t he TF P di s t r i bu t i on i n
bot h s et s of
es t i mat es -Hong Kong,
Tai wan,
and
Japan.
Two ot her s -
Thai l and and Kor ea-ar e i n t he
u pper
dec i l e of t he di s t r i bu t i on bas ed
on t he f u l l
s ampl e pr odu c t i on
f u nc t i on
par amet er s ,
bu t
t hey
ar e u nr e-
mar kabl e on t he bas i s of t he
hi gh-i nc ome c ou nt r y pr odu c t i on
f u nc t i on
par amet er s .l 5
Thr ee-Indones i a,
M al ay s i a,
and
Si ngapor e-s hi f t
f r om
14. F or a c onc i s e r evi ew of t he
ar gu ment s
f or
t ec hnol ogi c al l y
bas ed
c at c h-u p,
s ee Pac k
(1993).
15. When we
c ompar e
ou r es t i mat es of TF P
gr owt h
wi t h t wo ot her
i ndependent l y
der i ved es t i mat es f or a
l ar ge s ampl e
of c ou nt r i es
(El i as , 1991; F i s c her , 1993),
t he
pat t er n
of
pr odu c t i vi t y gr owt h
r at es i n
F i gu r e
5 i s
r emar kabl y
r obu s t t o t he
s pec i f i c a-
t i on of t he
gr owt h ac c ou nt i ng equ at i on
and t o t he
c api t al
s t oc k s er i es u s ed. The IM F
The Eas t As i an M i r ac l e
*
231
modes t ,
bu t
pos i t i ve,
TF P
gr owt h
t o
negat i ve
TF P
gr owt h
when t he
pr odu c t i on
f u nc t i on
par amet er s
ar e
c hanged
f r om t hos e es t i mat ed f r om
t he whol e
s ampl e
t o t hos e der i ved f r om t he
hi gh-i nc ome s ampl e.
Pr es u mabl y
i n t he
hi gh-i nc ome
c ou nt r i es ,
mos t of t he es t i mat ed TF P
gr owt h
i s du e t o t ec hni c al
pr ogr es s -advanc es
i n bes t
pr ac t i c e-whi c h
expl ai ns
t he
r el at i vel y c ompac t
di s t r i bu t i on of TF P
gr owt h
r at es be-
t ween 0.5% and
1.5%
per y ear ,
and t he
t endenc y among
t he
hi gh-
i nc ome c ou nt r i es f or TF P
gr owt h
t o dec l i ne wi t h
r i s i ng
i nc ome
(Wor l d
Bank, 1993).
In l ow- and mi ddl e-i nc ome
c ou nt r i es , however ,
c hanges
i n
TF P mu s t r ef l ec t mor e t han t ec hni c al
pr ogr es s ,
ot her wi s e we wou l d
never f i nd
negat i ve
TF P
gr owt h
r at es .
We have
al r eady ar gu ed
t hat TF P
gr owt h
f or l ow- and mi ddl e-
i nc ome ec onomi es c ont ai ns an el ement of
c at c hi ng u p
t o
(or
f al l i ng
behi nd)
bes t
pr ac t i c e t ec hnol ogi es .
Bu t TF P
gr owt h
r at es i n a one-s ec -
t or ,
c r os s -c ou nt r y
es t i mat e wi l l al s o c ont ai n an el ement of al l oc at i ve
ef f i c i enc y ;
ec onomi es t hat al l oc at e
phy s i c al
and hu man
c api t al
t o l ow
y i el di ng
i nves t ment s wi l l have l ow or
negat i ve
es t i mat ed TF P
gr owt h
r at es . The c l ear es t demons t r at i ons of t hi s ar e t he 13 ec onomi es wi t h
negat i ve ou t pu t gr owt h
and
pos i t i ve
ac c u mu l at i on.
In an
at t empt
t o l ook at
pat t er ns
of
t ec hnol ogi c al l y
bas ed
c at c h-u p,
we as s u me t hat t he el as t i c i t i es of
ou t pu t
t hat s hou l d be u s ed t o
c al c u l at e TF P
c hange
ar e t hos e t hat
appl y
t o t he
hi gh-i nc ome
ec onomi es
onl y .
We s u bt r ac t t he
aver age
r at e of TF P
c hange
f or t he
hi gh-i nc ome
ec onomi es ,
whi c h we as s oc i at e wi t h movement s i n i nt er nat i onal bes t
pr ac t i c e,
f r om TF P
c hange
t o
get
an es t i mat e of t ec hni c al
ef f i c i enc y
c hange. Us i ng
t hi s met hod
Hong Kong
(2.0%),
Japan
(1.0%),
Tai wan
(0.8%),
and Thai l and
(0.1%)
ar e t he
onl y
HPAEs
c at c hi ng u p
t o i nt er na-
t i onal bes t
pr ac t i c e.
Kor ea
(-0.2%)
was
es s ent i al l y ju s t keepi ng pac e
wi t h
t ec hnol ogi c al pr ogr es s
i n t he
hi gh-i nc ome
ec onomi es ,
whi l e t he
i nves t ment dr i ven ec onomi es of
Indones i a,
M al ay s i a,
and
Si ngapor e
wer e
f al l i ng
behi nd i nt er nat i onal bes t
pr ac t i c e
at r at es of 1.2% (In-
dones i a)
t o 3.5%
(Si ngapor e) per y ear
(Tabl e 2).16
(1993)
Wor l d Ec onomi c
Ou t l ook,
c ont r as t i ng
As i a wi t h ot her
devel opi ng
ec onomi es ,
r eac hes s i mi l ar
c onc l u s i ons ,
bot h wi t h
r es pec t
t o t he es t i mat ed
magni t u des
of TF P
c hange
and t he r el at i ve c ont r i bu t i on of TF P
c hange
t o
ou t pu t gr owt h.
Thomas and
Wang
(1993) and Edwar ds
(1992) al s o r eac h
br oadl y
s i mi l ar r es u l t s
c onc er ni ng
t he
pat t er n
of
pr odu c t i vi t y c hange
i n t he HPAEs
c ompar ed
wi t h ot her ec onomi es .
16.
F r i edber g,
Khami s ,
and
Page
(1993),
u s i ng
a
c r os s -c ou nt r y
s t oc has t i c f r ont i er
pr odu c -
t i on f u nc t i on t o es t i mat e movement s i n i nt er nat i onal bes t
pr ac t i c e,
r eac h s i mi l ar
c onc l u s i ons wi t h
r es pec t
t o t he
pat t er n
of t ec hni c al
ef f i c i enc y c hange among
t he
HPAEs .
232 PAGE
Tabl e 2 TECHNICAL EF F ICIENCY CHANGE
ESTIM ATES F OR THE HPAES
Tec hni c al
ef f i c i enc y c hange,
Ec onomy / Regi on
1960-1989
Hong Kong
1.9714
Indones i a -1.2352
Japan
0.9876
Kor ea,
Rep.
of - 0.2044
M al ay s i a
-1.7767
Si ngapor e
- 3.4510
Tai wan 0.8431
Thai l and 0.1067
Lat i n Amer i c a -1.4217
Af r i c a - 3.4539
Sou r c e: Wor l d Bank dat a.
When t he HPAEs ar e c ont r as t ed wi t h ot her
devel opi ng r egi ons ,
however ,
t hei r
abi l i t y
t o
keep pac e
wi t h i nt er nat i onal bes t
pr ac t i c e
s eems s omewhat mor e r emar kabl e.
Us i ng
t he s ame
met hod,
we have
es t i mat ed t he
aver age
r at e of t ec hni c al
ef f i c i enc y c hange
f or Lat i n
Amer i c a
(-1.4%)
and Af r i c a
(-3.5%).
Agai ns t
t hes e
benc hmar ks ,
al l of
t he HPAEs
exc ept Si ngapor e
s t and
u p
wel l i n t er ms of t hei r
abi l i t y
t o
keep pac e
wi t h t he wor l d's
s hi f t i ng t ec hnol ogi c al
f r ont i er .17
What , t hen,
ar e we t o make of t he
f u ndament al i s t -my s t i c
debat e?
F i gu r e
6
s u gges t s
t hat eac h
c amp
c an c l ai m
par t i al vi c t or y .
The
di agr am
s hows t he r el at i ve c ont r i bu t i on t o
ou t pu t gr owt h
of f ac t or ac c u mu l at i on
(s har e-wei ght ed
t ot al
i npu t gr owt h)
and TF P
gr owt h.
When t he TF P es t i mat es bas ed on t he
hi gh-i nc ome c ou nt r y s ampl e
ar e
u s ed,
t he
di c hot omy
bet ween i nves t ment dr i ven and
pr odu c t i vi t y
dr i ven ec onomi es i s dr amat i c .18
Rapi d gr owt h
i n
Indones i a,
M al ay s i a,
17.
Al wy n You ng
(1992)
i n a wel l -known
paper
f i nds
s i mi l ar l y di s appoi nt i ng
r es u l t s wi t h
r es pec t
t o
Si ngapor e's
TF P
per f or manc e.
Some c au t i on i s needed i n
i nt er pr et i ng
t hes e
r es u l t s ,
however . M u c h of
Si ngapor e's
i nves t ment bet ween 1960 and 1990 was i n
hou s i ng
and s oc i al
i nf r as t r u c t u r e,
ou t pu t
of whi c h ar e
not or i ou s l y
di f f i c u l t t o mea-
s u r e. It i s
pos s i bl e
t hat we have u nder val u ed t he r at e of
gr owt h
of
ou t pu t
and, henc e,
t he r at e of TF P
c hange.
Si mi l ar det ai l ed c r i t i c i s ms c ou l d be made f or ot her
ec onomi es ,
bot h HPAE and
non-HPAE,
and ou r TF P r es u l t s ar e bes t
r egar ded
as i ndi c at i ve of
br oad i nt er nat i onal t r ends .
18.
Des pi t e
t he l ow el as t i c i t i es of
ou t pu t
wi t h
r es pec t
t o
c api t al
i n t he f u l l
s ampl e
pr odu c t i on
f u nc t i on,
onl y
10 of t he 60 non-HPAE l ow- and mi ddl e-i nc ome ec onomi es
have c ont r i bu t i ons of TF P
gr owt h exc eedi ng
30%.
Among
t he
HPAEs ,
t he
i nves t ment -dr i ven ec onomi es -Indones i a,
M al ay s i a,
and
Si ngapor e-c onf or m
t o a
t y pi c al devel opi ng ec onomy pat t er n
wi t h a l ow (bu t
pos i t i ve)
TF P c ont r i bu t i on t o
ou t pu t gr owt h.
The
pr odu c t i vi t y -dr i ven ec onomi es -Japan,
Kor ea, Tai wan, Chi na,
Hong Kong,
and Thai l and-on t he ot her hand ar e mor e u nu s u al and l ook mor e l i ke
advanc ed ec onomi es wi t h a
r el at i vel y hi gh
c ont r i bu t i on of TF P t o
ou t pu t gr owt h
of
above 30%.
The Eas t As i an M i r ac l e ? 233
and
Si ngapor e
i s
whol l y
du e t o
hi gh
r at es of f ac t or ac c u mu l at i on.
Indeed,
t hei r
pr odu c t i vi t y per f or manc e,
l i ke t hat of t he vas t
major i t y
of
devel opi ng
ec onomi es ,
det r ac t ed f r om t he
pot ent i al ou t pu t gr owt h
t hat
c ou l d have been
ac hi eved,
bas ed on t hei r r at es of f ac t or ac c u mu l at i on.
Hong Kong,
Tai wan,
and
Japan
i n c ont r as t had
r el at i vel y hi gh
TF P
gr owt h
r at es and der i ved f r om
15%
t o
30%
of t hei r
ou t pu t gr owt h
f r om
TF P
gr owt h,
a c har ac t er i s t i c s har ed
by onl y
f ou r ot her
devel opi ng
ec onomi es . Thai l and and Kor ea had r at es and r el at i ve c ont r i bu t i ons of
TF P
gr owt h
t hat wer e
at y pi c al
f or
devel opi ng ec onomi es -t hey
wer e
pos i t i ve-bu t
l es s t han t he r el at i ve s har e f or advanc ed ec onomi es . The
c ont r as t i ng
s ou r c es of
gr owt h
of
Hong Kong,
Kor ea,
and
Si ngapor e,
al l
of whi c h s har ed
es s ent i al l y
t he s ame r at e of
gr owt h,
ar e a
good
i l l u s t r at i on of t he
var y i ng
r oads t o
r api d gr owt h among
t he HPAEs .
The Eas t As i an s u c c es s
s t or y
i s , t hen,
pr i mar i l y
a f u ndament al i s t one.
Dependi ng
on t he es t i mat es
u s ed,
bet ween 60%
and
120%
of t hei r
ou t pu t gr owt h
der i ves f r om ac c u mu l at i on of
phy s i c al
and hu man
c api t al
and l abor f or c e
gr owt h.
The r es u l t s al s o
s u gges t
t hat t he HPAEs
wer e
u nu s u al l y
s u c c es s f u l i n
al l oc at i ng
t hes e f ac t or s of
pr odu c t i on.
The
es t i mat es of TF P
gr owt h
bas ed on t he f u l l
s ampl e
addr es s t he
f ol l owi ng
qu es t i on:
Bas ed on t he
aver age ef f i c i enc y
wi t h whi c h
phy s i c al
and
F i gu r e
6 TOTAL F ACTOR PRODUCTIVITY GROWTH AND PART OF
GROWTH DUE TO GROWTH OF F ACTOR
INPUTS,
1960-1989
(HIGH-INCOM E SAM PLE PARAM ETERS)
TF P GROWTH
(per c ent p.a.) 30%
4
20%,
2 2*
Tai
wan
*1 ~
C Japa
-4 -2 0 2 4 6
Tot al F ac t or
Inpu t
Gr owt h
(per c ent p.a.)
8 10 12
234 PAGE
hu man
c api t al
ar e u s ed i n t he wor l d
ec onomy ,
does ac c u mu l at i on over -
or
u nder pr edi c t
i nc ome
gr owt h?
The ans wer i s t hat f or mos t l ow- and
mi ddl e-i nc ome
ec onomi es ,
i t
over pr edi c t s gr owt h,
whi l e f or t he HPAEs
i t
u nder pr edi c t s .
Even when t he
pr odu c t i on
f u nc t i on i s es t i mat ed f r om
t he
hi gh-i nc ome s ampl e onl y ,
ac c u mu l at i on
u nder pr edi c t s gr owt h
f or
f i ve of t he
ei ght .
Never t hel es s ,
my s t i c s
c an c l ai m s ome vi c t or i es . The s u bs et of
pr odu c -
t i vi t y -dr i ven
HPAEs ar e u nu s u al
among devel opi ng
ec onomi es bec au s e
of t he
r el at i vel y i mpor t ant
r ol e of TF P i n t hei r
gr owt h,
even when
at t empt s
ar e
made,
as
her e,
t o c or r ec t f or t he
gai ns
f r om
s u per i or
ac c u mu l at i on.9
They
ar e al s o
among
t he
ver y
f ew
devel opi ng
c ou nt r i es
keepi ng pac e
wi t h or
c at c hi ng u p
t o t he
movi ng t ar get
of i nt er nat i onal
bes t
pr ac t i c e.
Two of t he
pr odu c t i vi t y -dr i ven
ec onomi es -Tai wan and
Japan-ar e among
t he Eas t As i an ec onomi es mos t i dent i f i ed wi t h
ac t i vi s t
pol i c i es
t o
pr omot e t ec hnol ogi c al l ear ni ng. Hong Kong-t he
mos t
pr odu c t i vi t y
dr i ven of al l of t he HPAEs -i n c ont r as t i s t he l eas t
i nt er vent i oni s t of t he
gr ou p.
Tai wan, Kor ea,
and
Japan
ar e ec onomi es i n
whi c h ac t i vi s t
pol i c i es
t o al l oc at e r es ou r c es wer e
u nder t aken,
y et appar -
ent l y
wi t hou t t he del et er i ou s ef f ec t s t hat c har ac t er i zed t he
per f or manc e
of ot her ec onomi es wi t h s i mi l ar
pol i c i es .
2.2 THE POLICY ORIGINS OF SUCCESS
The HPAEs have ac hi eved
r api d gr owt h t hr ou gh
s u c c es s f u l at t ai nment
of bot h f u ndament al i s t and
my s t i c objec t i ves . They
have
per f or med
bet t er t han mos t l ow- and mi ddl e-i nc ome c ou nt r i es t hr ee c r i t i c al f u nc -
t i ons -ac c u mu l at i on, al l oc at i on,
and
t ec hnol ogi c al c at c h-u p. They
di d
t hi s wi t h c ombi nat i ons of
pol i c i es r angi ng
f r om mar ket -or i ent ed t o s t at e
l ed t hat var i ed bot h ac r os s ec onomi es and over t i me.
Des pi t e
t he
di ver s i t y
t her e ar e a nu mber of c ommon
pol i c y
t hr eads
t hat bi nd t he HPAEs . M ac r oec onomi c
management
was
u nu s u al l y good
and mac r oec onomi c
per f or manc e u nu s u al l y
s t abl e,
pr ovi di ng
t he es s en-
t i al f r amewor k f or
pr i vat e
i nves t ment . Pol i c i es t o i nc r eas e t he
i nt egr i t y
of t he
banki ng s y s t em,
and t o make i t mor e ac c es s i bl e t o nont r adi t i onal
s aver s ,
i nc r eas ed t he l evel s of f i nanc i al
s avi ngs .
Edu c at i on
pol i c i es
t hat
f oc u s ed on
pr i mar y
and
s ec ondar y
edu c at i on
gener at ed r api d
i nc r eas es
i n l abor f or c e s ki l l s .
Agr i c u l t u r al pol i c i es
s t r es s ed
pr odu c t i vi t y c hange
19. Tec hni c al
ef f i c i enc y c hange-movement
t owar d bes t
pr ac t i c e-s hou l d
be f r ee of t he
al l oc at i ve
gai ns
c har ac t er i s t i c of TF P es t i mat es
by gr owt h ac c ou nt i ng
met hods (s ee
Ni s hi mi zu and
Page,
1982).
F r i edber g,
Khami s ,
and
Page
(1993),
u s i ng
a s t oc has t i c
f r ont i er
pr odu c t i on
f u nc t i on,
f i nd t hat t he HPAEs ar e t he
onl y r egi onal gr ou pi ng
of
devel opi ng
c ou nt r i es t hat have
c ons i s t ent l y
c l os ed t he
gap
wi t h i nt er nat i onal
bes t
pr ac t i c e.
The Eas t As i an M i r ac l e
*
235
and di d not t ax t he r u r al
ec onomy exc es s i vel y .
Al l of t he HPAEs
kept
pr i c e
di s t or t i ons wi t hi n r eas onabl e bou nds and wer e
open
t o f or ei gn
i deas and
t ec hnol ogy .
Bu t t hes e f u ndament al
pol i c i es
do not t el l t he ent i r e
s t or y .
In mos t of
t hes e
ec onomi es ,
i n one f or m or
anot her ,
t he
gover nment
i nt er vened
-s y s t emat i c al l y
and
t hr ou gh mu l t i pl e
c hannel s -t o f os t er
devel op-
ment ,
and i n s ome c as es t he
devel opment
of
s pec i f i c
i ndu s t r i es .
Pol i c y
i nt er vent i ons t ook
many f or ms -t ar get ed
and s u bs i di zed c r edi t t o s e-
l ec t ed
i ndu s t r i es ,
l ow
depos i t
r at es and
c ei l i ngs
on
bor r owi ng
r at es t o
i nc r eas e
pr of i t s
and r et ai ned
ear ni ngs , pr ot ec t i on
of domes t i c
i mpor t
s u bs t i t u t es ,
s u bs i di es t o
dec l i ni ng
i ndu s t r i es ,
t he es t abl i s hment and
f i nanc i al
s u ppor t
of
gover nment
banks ,
pu bl i c
i nves t ment s i n
appl i ed
r es ear c h,
f i r m- and
i ndu s t r y -s pec i f i c expor t t ar get s , devel opment
of
expor t mar ket i ng
i ns t i t u t i ons ,
and wi de
s har i ng
of i nf or mat i on bet ween
pu bl i c
and
pr i vat e
s ec t or s . Some i ndu s t r i es wer e
pr omot ed,
whi l e
ot her s wer e not . Thes e
s t r at egi es
of s el ec t i ve
pr omot i on
wer e
c l os el y
as s oc i at ed wi t h
hi gh
r at es of
pr i vat e
i nves t ment
and,
i n s ome of t he
HPAEs ,
hi gh
r at es of
pr odu c t i vi t y gr owt h.
The r el at i ve
i mpor t anc e
of
pol i c y
f u ndament al s and s el ec t i ve i nt er -
vent i ons has been and wi l l c ont i nu e t o be at t he c ent er of t he debat e
over t he
pol i c y or i gi ns
of Eas t As i a's s u c c es s . To c ons i der i n
any dept h
t he
c at al ogu e
of
pol i c i es
ou t l i ned ear l i er exc eeds t he
s c ope
of t hi s
es s ay .
Rat her ,
we exami ne f ou r
pos s i bl e
l es s ons f or
pu bl i c pol i c y ar i s i ng
f r om
t he HPAEs s u c c es s .
3. Convent i onal Wi s dom-M ac r oec onomi c
M anagement
and Edu c at i onal
St r at egy
Among
f u ndament al ec onomi c
pol i c i es
t hat have c ont r i bu t ed t o Eas t
As i a's
s u per i or
r ec or d of ac c u mu l at i on and al l oc at i on of
r es ou r c es ,
t wo
s t and
ou t -good
mac r oec onomi c
management
and
emphas i s
on
br oadl y
bas ed edu c at i on.20 The nat u r e of t he
pol i c i es pu r s u ed
and t hei r
i mpac t
on
gr owt h
i n t he HPAEs ar e des c r i bed
br i ef l y
i n t he
f ol l owi ng.
3.1 M AINTAINING M ACROECONOM IC STABILITY
In c ont r as t wi t h
many
ot her
devel opi ng
ec onomi es ,
t he HPAEs have
been
r emar kabl y
s u c c es s f u l i n
c r eat i ng
and
s u s t ai ni ng
mac r oec onomi c
20. Wor l d Bank
(1993) enu mer at es a nu mber of ot her
"pol i c y
f u ndament al s " t hat have
ac t ed
pr i mar i l y
t o i nc r eas e ac c u mu l at i on and
i mpr ove
al l oc at i on. Thes e ar e omi t t ed
her e t o al l ow f or a f u l l er di s c u s s i on of t he t wo des c r i bed. Of t he omi t t ed f u ndamen-
t al s ,
per haps
t he mos t
s i gni f i c ant
i s t he f oc u s on
bu i l di ng
s ec u r e,
bank-bas ed f i nanc i al
s y s t ems .
236 PAGE
Tabl e 3 CONSOLIDATED PUBLIC SECTOR
DEF ICITS,
SELECTED
EAST ASIAN AND OTHER ECONOM IES
Aver age pu bl i c def i c i t ,
Rank
among
40
per c ent age of
GDP,
devel opi ng
c ou nt r i es
Ec onomy / Regi on
1980-1988 (1 =
hi ghes t def i c i t )
HPAEs
Kor ea,
Rep.
of 1.89 34
M al ay s i a
10.80 6
Thai l and 5.80 23
Aver age,
40
devel opi ng
ec onomi es 6.39
Aver age,
OECD ec onomi es 2.82
Ot her ec onomi es
Ar gent i na
9.62
Br azi l 4.02
M exi c o 6.73
Phi l i ppi nes
4.40
Sou r c e:
Eas t er l y , Rodr i gu ez,
and Sc hmi dt -Hebbel
(f or t hc omi ng).
s t abi l i t y .
Her e we c ons i der t he HPAEs ' s u c c es s f u l
management
of t hr ee
mac r oec onomi c var i abl es :
bu dget
def i c i t s ,
ext er nal
debt ,
and
exc hange
r at es .
3.1.1
Bu dget Def i c i t s
and
Inf l at i on
Int er nat i onal
exper i enc e s u gges t s
t hat
t he mac r oec onomi c
c ons equ enc es
of
pu bl i c
s ec t or def i c i t s
depends
on
how
t hey
ar e f i nanc ed.
Al t hou gh
t he HPAEs '
bu dget
def i c i t s ar e not
dr amat i c al l y
s mal l er as a
gr ou p
t han t hos e of ot her
devel opi ng
ec onomi es ,
t hey
wer e bet t er at
keepi ng
def i c i t s wi t hi n t he l i mi t s i m-
pos ed by
t hei r
abi l i t y
t o f i nanc e t hem wi t hou t
des t abi l i zi ng
t he mac r oe-
c onomy .21
The
f i nanc i ng
l i mi t s t hems el ves wer e al s o
hi gher
du e t o t he
mor e
r api d gr owt h
of t he HPAEs .
Tabl e 3 s hows c ons ol i dat ed
pu bl i c
s ec t or def i c i t s f or t he 1980s f or
t hr ee
devel opi ng c ou nt r y
HPAEs t hat have
good
dat a
c ompar ed
wi t h a
s ampl e
of OECD and ot her
devel opi ng
ec onomi es . As a
per c ent age
of
21. The
anal y s i s
i n t hi s s ec t i on dr aws on W.
Eas t er l y
and K.
Sc hmi dt -Hebbel ,
"The
M ac r oec onomi c s of Pu bl i c Sec t or Def i c i t s : a
Sy nt hes i s "
i n W.
Eas t er l y ,
C.
Rodr i gu ez,
and K.
Sc hmi dt -Hebbel , eds ., Pu bl i c Sec t or
Def i c i t s
and M ac r oec onomi c
Per f or manc e,
Oxf or d
Uni ver s i t y
Pr es s
(f or t hc omi ng).
The dat a on c ons ol i dat ed
pu bl i c
def i c i t s ,
as
wel l as t he r es t of t he dat a i n t hi s s ec t i on
exc ept
wher e ot her wi s e
i ndi c at ed,
ar e f r om
t he s ame s ou r c e. Cons ol i dat ed
pu bl i c
def i c i t s ,
t hou gh
l es s
wi del y
avai l abl e t han
c ent r al
gover nment
def i c i t s ,
ar e a mu c h mor e r el i abl e i ndi c at or of f i s c al
management ,
bec au s e
t hey
i nc l u de
oper at i ng
def i c i t s of
pu bl i c ent er pr i s es
t hat have
pl ay ed
a c r i t i c al
r ol e i n s ome mac r oec onomi c c r i s es .
The Eas t As i an M i r ac l e ? 237
GDP,
Kor ea's
bu dget
def i c i t s wer e bel ow even t he OECD
aver age.
M al ay s i a
and Thai l and ar e mor e
c ompl i c at ed.
Thai l and's
bu dget
def i c i t s
wer e abou t
aver age
f or
devel opi ng
ec onomi es i n t he
1980s ,
whi l e
def i c i t s i n
M al ay s i a
wer e
s u bs t ant i al l y bi gger
t han
aver age.
Bot h r an
l ar ger bu dget
def i c i t s t han s u c h t r ou bl ed ec onomi es as t he
Phi l i ppi nes ,
Br azi l ,
Ar gent i na,
and M exi c o.
Unl i ke t hes e and ot her ec onomi es t hat enc ou nt er ed
di f f i c u l t i es ,
how-
ever ,
M al ay s i a
and Thai l and
s u c c es s f u l l y
f i nanc ed t hei r def i c i t s . Thi s
was
pos s i bl e
f or t he
f ol l owi ng
r eas ons :
*
F i r s t ,
t her e was
f eedbac k f r om hi gh gr owt h.
Bec au s e
r api d gr owt h
i nc r eas ed t he demand f or f i nanc i al
as s et s ,
M al ay s i a
and Thai l and
wer e abl e t o abs or b
hi gher
l evel s of
monet ar y f i nanc i ng
wi t hou t a
r api d
r i s e i n i nf l at i on.
M or eover ,
r api d gr owt h
i n GDP r ai s ed t he l evel
of s u s t ai nabl e domes t i c and ext er nal
bor r owi ng.
*
Sec ond,
t her e was
f eedbac k f r om hi gh f i nanc i al s avi ngs . Savi ngs
r at es
wer e
hi gh
i n
M al ay s i a
and
Thai l and,
and mu c h of t hi s
s avi ng
went
i nt o t he domes t i c f i nanc i al
s y s t em
(as
oppos ed
t o r eal as s et s or
c api t al
f l i ght
as i n Lat i n
Amer i c a).
Thi s f u r t her i nc r eas ed t he demand f or
money
and ot her domes t i c f i nanc i al
as s et s ,
maki ng
i nc r eas ed domes -
t i c
f i nanc i ng
of t he def i c i t
pos s i bl e
wi t hou t r es or t t o
i nf l at i onar y
f i nanc i ng.
In
M al ay s i a,
t he
gover nment
Pr ovi dent F u nd mobi l i zed
domes t i c
s avi ng
f or t he
gover nment 's
u s e i n
noni nf l at i onar y
f i nanc -
i ng
of t he def i c i t .
*
Thi r d,
t her e wer e l ow i ni t i al debt r at i os . In
Thai l and,
t he i ni t i al l evel of
ext er nal debt t o GDP was
ver y
l ow,
whi c h meant t hat ext er nal
f i nanc i ng
was avai l abl e when needed.
By hol di ng pu bl i c
def i c i t s wi t hi n t he bou nds of
pr u dent f i nanc i ng,
t he HPAEs have avoi ded t he
i nf l at i on-i ndu c i ng
bu r s t s of
money
c r e-
at i on t hat af f l i c t ot her
devel opi ng
ec onomi es .
F i gu r e
7 s hows
money
c r eat i on as a r at i o t o GDP i n
Kor ea,
M al ay s i a,
and Thai l and and i n t hr ee
u ns t abl e
c ompar at or s , Ar gent i na,
M exi c o,
and Zai r e. The c ont r as t i s
s t r i ki ng:
Whi l e
money
c r eat i on has been
r el at i vel y
c ons t ant
among
t he
HPAEs ,
eac h of t he
c ompar at or s exper i enc ed
t wo
epi s odes
of
r api d
money
c r eat i on when f i s c al bal anc es det er i or at ed or ext er nal
f i nanc i ng
dr i ed
u p.
M oder at e i nf l at i on was a
c or ol l ar y
of f i s c al
pr u denc e
(Tabl e 4)
.22 Eas t
As i an
gover nment s
never had t o
r el y heavi l y
on t he i nf l at i on t ax
22. Rec ent r es ear c h
s u gges t s
t hat i nf l at i on bel ow
20%,
a l evel not br eac hed
by any
of t he
HPAEs
du r i ng
t hei r
r api d gr owt h per i ods ,
c an be mai nt ai ned f or
l ong per i ods
wi t hou t
gener at i ng
mac r oec onomi c
i ns t abi l i t y
(Dombu s c h and
F i s c her , 1993).
238 PAGE
bec au s e t hei r def i c i t s wer e wi t hi n f i nanc abl e l i mi t s . In
gener al ,
HPAE
gover nment s
have been
s t r ong enou gh
t o al t er
pu bl i c s pendi ng
and
f or ei gn bor r owi ng
as
needed,
al t hou gh
i n Thai l and t hi s has been a
c ont i nu ou s
s t r u ggl e
(War r
and
Nadhi pr abha,
1993).
One r es u l t of l ow-t o-moder at e i nf l at i on r at es
par t i c u l ar l y
wel c ome t o
bu s i nes s i s s t abl e r eal i nt er es t r at es .
F i gu r e
8 s hows r eal i nt er es t r at es i n
Kor ea,
M al ay s i a,
Thai l and,
Ar gent i na,
Ghana,
and M exi c o. As wi t h
money
c r eat i on,
t he c ont r as t i s r emar kabl e. In t he Eas t As i an
c as es ,
l ow
i nf l at i on and f l exi bl e f i nanc i al
pol i c i es kept
r eal i nt er es t r at es wi t hi n a
nar r ow
r ange.
F i gu r e
7 REVENUES F ROM M ONEY CREATION AS A PERCENTAGE OF
GDP: EXAM PLES F ROM EAST ASIA AND OTHER SELECTED
ECONOM IES
(Per c ent )
14 .
12 --..... Rep, of Kor a_...
-Thai l and
10
t s i i
--- -
6
!
i
4
2
-2 i I
t
i i
0
i gII
\n---I
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988
14
1-^ I_pi
I-?--t -t
g _____ ___
--TA~i r e j__
/\ { I
2
o A
1970 1972 1974 1976 1978 1980 1982 1984 1986
Not e: Revenu es f r om
money
c r eat i on as a
per c ent age
of GDP i s def i ned as r at i o of nomi nal
c hange
i n
hi gh-power ed money
t o nomi nal GDP.
Sou r c e: Wor l d Bank dat a.
The Eas t As i an M i r ac l e ? 239
3.1.2
M anagi ng F or ei gn
Debt Of t he s even
devel opi ng
HPAEs ,
onl y
Indones i a, Kor ea,
M al ay s i a,
and Thai l and have
pu bl i c
or
pu bl i c l y gu ar -
ant eed
f or ei gn
debt . The
gover nment s
of t he
ot her s -Si ngapor e, Hong
Kong,
and Tai wan-have not bor r owed abr oad. None of t he f ou r wi t h
f or ei gn
debt has f ac ed a c r i s i s i n t he s ens e of
havi ng
t o r es c hedu l e
debt ,
bu t
s har p
i nc r eas es i n debt have l ed t o
r api d adju s t ment .
In Kor ea i n
1980-1985,
M al ay s i a
i n
1982-1988,
and Indones i a s i nc e
1987,
debt t o GNP r at i os have been
qu i t e hi gh c ompar ed
wi t h ot her
i ndebt ed ec onomi es
(Tabl e 5).
As wi t h f i s c al
def i c i t s , however ,
f avor abl e
f eedbac k f r om ot her
pol i c i es
enabl ed t he HPAE debt or s t o s u s t ai n
hi gher
r at i os of ext er nal debt t o GDP t han ot her ec onomi es . In
par t i c u -
l ar ,
hi gh
l evel s of
expor t s
have meant t hat
f or ei gn exc hange
was
r eadi l y
avai l abl e t o s er vi c e t he
f or ei gn
debt . F or
exampl e,
when M exi c o f ac ed
s ever e
pr obl ems
wi t h i t s c r edi t or s i n
1982,
i t had a mu c h l ower debt t o
GNP r at i o t han Kor ea i n 1984 bu t a mu c h
hi gher
debt t o
expor t
r at i o.
3.1.3
Exc hange
Rat e
M anagement
The evol u t i on of
exc hange
r at e
r egi mes
i n t he HPAEs has been
br oadl y
s i mi l ar . M os t moved f r om
l ong-t er m
f i xed r at e
r egi mes
t o
f i xed-bu t -adju s t abl e
r at e
r egi mes
wi t h oc c as i onal
s t eep
deval u at i ons t o
managed f l oat i ng
r at e
r egi mes .
Du e t o t he c ombi -
nat i on of moder at e i nf l at i on and ac t i ve
exc hange
r at e
management ,
t he
HPAEs avoi ded t he s ever e
exc hange
r at e
appr ec i at i on
t hat bes et Af r i c a
Tabl e 4 INF LATION RATES
Aver age
CPI,
Ec onomy / Regi on
1961-1991
HPAEs a 7.5
Hong Kongb
8.8
Indones i ac 12.4
Kor ea,
Rep.
of 12.2
M al ay s i a
3.4
Si ngapor e
3.6
Tai wan 6.2
Thai l and 5.6
Al l l ow- and mi ddl e-i nc ome ec onomi es 61.8
Sou t h As i a 8.0
Su b-Sahar an Af r i c a 20.0
Lat i n Amer i c a and Car i bbean 192.1
aAver ages
ar e
u nwei ght ed
b1972-91
onl y .
c 1969-91
onl y .
Sou r c es : Wor l d Bank
dat a;
Wor l d Bank
(1992);
Tai wan (1992).
240- PAGE
F i gu r e
8 REAL INTEREST RATES: EXAM PLES F ROM EAST ASIA AND OTHER
SELECTED ECONOM IES
Real Int er es t Rat e
(per c ent )
20
O
r Ci
-20 T I
r --..
70,
,,/
,
--- o or -30
-80
I
r
T
al y s i w'-.
-90
f
f d----------.--
-100 i
1970 1972 1974 1976 1978 1980 1982 1984 1986
Real Int er es t Rat e
(per c ent )
20/
i i V
-40
-50
-60 1 t
~~~~i -70
--Ar Pgeni ar
-80 ;hn
-90
M
i
c o
-100 I I
1970 1972 1974 1976 1978 1980 1982 1984 1986
Not e: Real i nt er es t r at es ar e def i ned as t he
depos i t
r at e def l at ed
by
t he c ons u mer
pr i c e
i ndex.
Sou r c e: Wor l d Bank dat a. Sou r c e: Wor l d Bank dat a.
The Eas t As i an M i r ac l e
*
241
and Lat i n Amer i c a
(Tabl e 6)
and ac hi eved u nu s u al
s t abi l i t y
of t he r eal
exc hange
r at e. The HPAEs ' s u c c es s at
mai nt ai ni ng
s t abl e r eal
exc hange
r at es i s
appar ent
i n
F i gu r e
9,
whi c h c ont r as t s r eal
exc hange
r at es s i nc e
1970 i n
Kor ea,
M al ay s i a,
and Thai l and wi t h t hos e i n Sr i
Lanka,
Ar -
gent i na,
and Per u .
RESPONDING EF F ECTIVELY TO M ACROECONOM IC SHOCKS One
i mpor t ant
el ement of t he HPAEs '
c apac i t y
t o mai nt ai n mac r oec onomi c
s t abi l i t y
has been t hei r
pr ompt
and ef f ec t i ve
r es pons e
t o mac r oec onomi c s hoc ks .
The HPAEs made def i ni t e
pol i c y
dec i s i ons t o
keep
t he
mac r oec onomy
u nder
c ont r ol ,
r at her t han
s i mpl y benef i t i ng
f r om a f eedbac k f r om
r api d
gr owt h
t o mac r oec onomi c
s t abi l i t y .
Thes e dec i s i ons ar e i l l u s t r at ed
by
t he
exper i enc es
of Kor ea and Thai l and i n
adju s t i ng
t o r at her di f f er ent
mac r oec onomi c s hoc ks .
KOREA RETRENCHES In
1979,
Kor ea enc ou nt er ed a
var i et y
of
pr obl ems
t hat t hr eat ened t o u nder c u t t he 1970s
i mpr es s i ve gr owt h. Ri s i ng
oi l
pr i c es depr es s ed
t he t er ms of
t r ade,
t he wor l d r ec es s i on
dampened
expor t
demand,
and
hi gh
i nt er es t r at es i nc r eas ed debt s er vi c e c os t s .
Real
appr ec i at i on du r i ng
t he 1974-1979 f i xed
exc hange
r at e
r egi me
had
made
expor t s
l es s
c ompet i t i ve,
t he r i c e
c r op
had
f ai l ed,
and t he as s as s i -
nat i on of Pr es i dent Par k
Chu ng-Hee
had exac er bat ed
pol i t i c al
u nc er -
t ai nt y
(Col l i ns
and
Par k, 1989).
Kor ea
r es ponded
wi t h an
aggr es s i ve
1980 s t abi l i zat i on
pac kage
bac ked
by
IM F
s t andby
c r edi t s . The
gover n-
Tabl e 5 INTERNATIONAL INDEBTEDNESS
Rat i o
of
t ot al debt t o
Rat i o
of
t ot al debt
expor t ed goods
t o GNP and s er vi c es
Ec onomy / Regi on
Peak
y ear a
1991 Peak
y ear a
1991
HPAEs
Indones i a 69 66.4 263.5 225.6
Kor ea,
Rep.
of 52.5 15.0 142.4 45.2
M al ay s i a
86.5 47.6 138.4 54.2
Thai l and 47.8 39.0 171.7 94.8
Al l l ow- and mi ddl e-i nc ome 38.4 176.2
ec onomi es
Sou t h As i a
29.6 293.3
Su b-Sahar an Af r i c a 106.1 340.8
Lat i n Amer i c a and Car i bbean 37.4 268.0
a1987 f or
Indones i a,
and 1985 or 1986 f or t he ot her t hr ee c ou nt r i es .
Sou r c e: Wor l d Bank dat a.
242 PAGE
ment ended t he f i xed
exc hange
r at e
r egi me,
deval u ed t he won
by
17%,
and
t i ght ened monet ar y
and f i s c al
pol i c y .
In
1980,
ou t pu t
f el l 5%,
i nf l at i on exc eeded
25%,
and t he c u r r ent ac c ou nt def i c i t
appr oac hed
9%
of GDP.
By
1982 i nf l at i on
dr opped
t o 7% and i n 1983 t o 3.4%. The
c u r r ent ac c ou nt def i c i t f el l t o 2% of GDP i n 1983.
GRADUAL
ADJUSTM ENT
IN THAILAND Thai l and
onl y par t i al l y adju s t ed
t o
t he f i r s t oi l s hoc k and i n t he l at e 1970s
engaged
i n a mi l d
pr i vat e
and
pu bl i c s pendi ng
boom.
By
1980-1981,
t he c ons ol i dat ed
pu bl i c
s ec t or
def i c i t was 7% of
GDP,
near l y
hal f of whi c h was t he def i c i t of t he
nonf i nanc i al
pu bl i c ent er pr i s es ,
and t he c u r r ent ac c ou nt def i c i t was al s o
abou t
7%.
Bec au s e
pas t f or ei gn bor r owi ng
had been moder at e-t he
debt /GDP
r at i o was
onl y
35% i n 1982-Thai l and c ont i nu ed t o have
ac c es s t o i nt er nat i onal
c api t al
mar ket s . Even
s o,
t he new
gover nment
t hat t ook over i n 1980
per c ei ved
t hat mac r oec onomi c
adju s t ment
was
needed.
M onet ar y pol i c y opt i ons
wer e l i mi t ed
by
t he f i xed
exc hange
r at e and
t he
r el at i vel y open c api t al
mar ket .
Ther ef or e,
t he
gover nment
t ook t he
al t er nat i ve
pat h,
f i s c al
c ont r ac t i on,
movi ng gr adu al l y
bu t
c ons i s t ent l y
Tabl e 6 AVERAGE APPRECIATION
INDEX,
1976-1985
Index
(hi gher
val u e
Per c ent age
r ank (100
means mor e means mos t
Ec onomy appr ec i at ed)a appr ec i at ed,
0 l eas t )
HPAEs
Hong Kong
64 1
Indones i a
98 25
Kor ea,
Rep.
of 110 41
M al ay s i a
88 12
Si ngapor e
87
11
Tai wan
116
47
Thai l and
75 5
Ot her s el ec t ed ec onomi es
Ar gent i na
113 45
Bol i vi a
181
89
Cot e d'Ivoi r e
185
90
Ghana
248 99
Ni ger i a
277
100
Zai r e 201
95
aDol l ar 's i ndex i s bas ed on Su mmer s -Hes t on
pu r c has i ng power par i t y c ompar i s ons .
An i ndex
val u e of 100 s i gni f i es
t hat t he
ec onomy 's
devi at i on f r om PPP i s wher e i t s hou l d be
gi ven
i t s
per
c api t a
i nc ome.
Sou r c e: Dol l ar (1992).
The Eas t As i an M i r ac l e 243
F i gu r e
9 EXAM PLES OF REAL EXCHANGE RATE VARIABILITY IN EAST
ASIA AND OTHER SELECTED ECONOM IES
Real E-xc hangze Rat e
(per c ent )
350
300 ~ ~ ~ ~ ~ i -Rep
ot Kor ei
200
150
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988
Real
Exc hange
Rat e
(per c ent )
350
--Ar gent i na
300 L L
~~~~~-M exi dc o
-?er u
150
100
.......
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988
Not e: Index of r eal
exc hange r at e: 1980
100;
r eal
depr ec i at i on
i s down.
Sou r c e: Wor l d Bank dat a.
244. PAGE
over t he next s ever al
y ear s
t o c u t
expendi t u r es
and i nc r eas e r evenu es .
Pol i c y maker s s t eepl y
c u t def i c i t s of t he nonf i nanc i al
pu bl i c ent er pr i s es ,
t hen
gr adu al l y
r edu c ed t he c ent r al
gover nment
def i c i t . As a
r es u l t ,
t he
c ons ol i dat ed
gover nment
def i c i t dec l i ned f r om
8%
of GDP i n 1981-1982
t o
1.6%
i n
1986-1987,
when
adju s t ment
was
es s ent i al l y c ompl et e.
M eanwhi l e,
s t eeper
t ax r at es and
t ou gher
c ol l ec t i on ef f or t s boos t ed
c ent r al
gover nment
t ax r evenu e f r om 13% of GDP i n 1982 t o 16% i n
1988.
3.1.4 M ac r oec onomi c
M anagement
and
Rapi d
Gr owt h It c annot be a c oi nc i -
denc e t hat al l of t hes e s even ec onomi es have been
exc ept i onal hi gh-
gr owt h
ec onomi es
by
wor l d
s t andar ds ,
and al l have had u nu s u al
s u c c es s
managi ng
t hei r mac r o ec onomi es over t he
l ong
r u n. Cr os s -ec on-
omy ,
ec onomet r i c s t u di es
gener al l y
f i nd t hat
hi gher
i nf l at i on,
l ar ger
bu dget
def i c i t s ,
and di s t or t ed
f or ei gn exc hange
mar ket s r edu c e
gr owt h
(F i s c her , 1993; Rodr i c k, 1993).
Al l of t he HPAEs bu t Indones i a and
Kor ea have been
l ong-per i od,
l ow-i nf l at i on
ec onomi es ,
whi l e Indones i a
and Kor ea f al l i nt o t he
moder at el y
l ow-i nf l at i on
c at egor y .
The c hannel s
by
whi c h i nf l at i on and
bu dget
def i c i t s r edu c e
gr owt h
ar e al s o of s ome i nt er es t . F i s c her
(1993)
c onc l u des t hat
hi gh
i nf l at i on
and
hi gh-bu dget
def i c i t s r edu c e bot h t he r at e of
c api t al
ac c u mu l at i on
and t he r at e of
pr odu c t i vi t y c hange. Unc er t ai nt y , ar i s i ng pr i mar i l y
f r om
t he
var i abi l i t y
of i nf l at i on and t he
i nc ons i s t enc y
of r el at i ve
pr i c e s i gnal s ,
r edu c es bot h
pr i vat e
i nves t ment and t he
ef f i c i enc y
of r es ou r c e al l oc a-
t i on.
The HPAEs
pr ovi de
at l eas t
par t i al
c onf i r mat i on of t hi s
hy pot hes i s .
F i gu r e
10 s hows
pr i vat e
and
pu bl i c
i nves t ment as a s har e of GDP f or a
s ampl e
of 47 l ow- and mi ddl e-i nc ome c ou nt r i es
(i nc l u di ng
f i ve of t he
devel opi ng c ou nt r y
HPAEs )
f or whi c h c ons i s t ent dat a ar e avai l abl e.23
The HPAEs ar e r emar kabl e f or t hei r
hi gh
s har e of
pr i vat e
i nves t ment .
Pr i vat e i nves t ment i s abou t s even
per c ent age poi nt s hi gher
i n t he
HPAEs t han i n ot her mi ddl e-i nc ome ec onomi es . It r os e f r om abou t 15%
of GDP i n 1970 t o
near l y
22%
i n
1974,
t hen dec l i ned and hel d at abou t
18%
bet ween 1975 and 1984. Pr i vat e i nves t ment c ont r ac t ed
s har pl y
bet ween 1984 and
1986,
r ef l ec t i ng
t he
gl obal
r ec es s i on,
t hen r ec over ed
by
1988.24 In
c ont r as t ,
pr i vat e
i nves t ment i n ot her l ow- and mi ddl e-i n-
c ome c ou nt r i es has r emai ned
r el at i vel y
s t abl e at abou t
11%
of GDP.
23. The dat a ar e dr awn f r om Pf ef f er mann and
M adar as s y
(1992).
24. Thi s bas i c
pat t er n
i s obs er ved i n f ou r i ndi vi du al ec onomi es -Kor ea, Thai l and,
Si nga-
por e,
and
M al ay s i a.
The
pat t er n
f or Indones i a
di f f er s ;
r eal
pr i vat e
i nves t ment dec l i ned
c ont i nu ou s l y du r i ng
t he 1980s f r om a
peak
of 20% of GDP t o a l ow of 13% i n 1989.
The Eas t As i an M i r ac l e ? 245
One
i mpor t ant
el ement of t he HPAEs '
c apac i t y
t o mai nt ai n mac r oec o-
nomi c
s t abi l i t y
has been t hei r
pr ompt
and ef f ec t i ve
r es pons e
t o mac r o-
ec onomi c s hoc ks . Thi s has been
gr eat l y
f ac i l i t at ed
by
t wo c har ac t er i s t i c s .
F i r s t ,
by l i mi t i ng
t r ans f er s t o
pu bl i c ent er pr i s es
and
t i ght l y s u per vi s i ng
banks ,
gover nment s
r edu c ed t he
s pi l l over
f r om t he r eal s ec t or i nt o t he
f i nanc i al s ec t or t hat i n ot her ec onomi es exac er bat ed f i s c al woes .
Sec ond,
f l exi bl e l abor and
c api t al
mar ket s enabl ed t he r eal s ec t or t o r eac t
qu i c kl y
t o
gover nment
i ni t i at i ves ,
s et t i ng
of f new
gr owt h c y c l es
t hat eas ed t he
r ec es s i onar y i mpac t
of s t abi l i zat i on meas u r es .
Ef f ec t i ve
r es pons es
t o mac r oec onomi c s hoc ks
may
al s o have c on-
t r i bu t ed t o t he HPAEs '
l ong-r u n gr owt h. Rel at i vel y
c au t i ou s f i s c al and
f or ei gn bor r owi ng pol i c i es
meant t hat s er i ou s debt c r i s es wer e
avoi ded,
F i gu r e
10 PUBLIC AND PRIVATE INVESTM ENT
Pr i vat e Inves t ment
(as
s har e of
GDP)
0.25
0.2
0.15
0.1
i
t HPAS
(w/o Japan)
-_ ot her LM IEs
1974 1979 1984 1989
Pu bl i c Inves t ment
(as
s har e of
GDP)
0.2
0.15-
0.1-
0.05
*HPA3s
(w/o Japan)
-e-ot her
LM IEs
i
1974 1979 1984 1989
Not e: LM IEs
=
l ow- and mi ddl e-i nc ome ec onomi es .
Sou r c e: Wor l d Bank dat a.
0.05
11
t
1969
1969
1969
l l l ,,~~~~~~~~~~~~~~~~~~~~~~~~~~
A
246 PAGE
whi c h r edu c ed t he
s t op-go pat t er n
of c r i s i s and
r es pons e
t hat c har ac -
t er i zed
many devel opi ng
ec onomi es i n t he 1980s .
Avoi di ng
c r i s i s and
t he need f or
r es c hedu l i ng
meant t hat c r edi t -wor t hi nes s was mai n-
t ai ned,
and i t was eas i er t o bor r ow i n t he s hor t t er m and t o avoi d
ver y
deep
c u t s ,
es pec i al l y
i n i nves t ment .
In t he 1970s over al l l evel s of
pu bl i c
i nves t ment di d not di f f er
mar kedl y
bet ween t he HPAEs and ot her
devel opi ng
ec onomi es ;
over t he dec ade
pu bl i c
i nves t ment r at es i n al l ec onomi es r os e f r om abou t
7%
t o 10%
(F i gu r e
10).
Du r i ng
t he
1980s ,
pu bl i c
i nves t ment was
hi gher
i n t he
HPAEs t han i n ot her
devel opi ng
ec onomi es ,
bu t i t had dec l i ned t o
hi s t or i c al l evel s
by
t he end of t he dec ade. The HPAEs as a
gr ou p
r es ponded
t o t he ec onomi c c ont r ac t i on of t he 1980s
by i nc r eas i ng pu bl i c
i nves t ment above
hi s t or i c al l y
mai nt ai ned l evel s . Su dden r edu c t i ons i n
aggr egat e
demand and i n i nves t ment
c ompel l ed by
debt c r i s es wer e
major
c au s es of t he
s har p
dec l i nes i n
gr owt h
r at es i n
many
of t he
heavi l y
i ndebt ed ec onomi es of Lat i n Amer i c a and el s ewher e.
Bet t er
r es pons es
t o mac r oec onomi c s hoc ks
may
al s o have r es u l t ed i n
bet t er meas u r ed
pr odu c t i vi t y gr owt h.
A r ec ent exami nat i on of t he
s ou r c es of TF P
c hange
i n
devel opi ng
c ou nt r i es c onc l u des t hat i n Lat i n
Amer i c a and
Af r i c a,
pr odu c t i vi t y
l evel s i nc r eas ed r el at i ve t o i nt er na-
t i onal bes t
pr ac t i c e
u nt i l 1973 and dec l i ned f r om 1973
onwar d,
pr i mar i l y
du e t o t he
i nabi l i t y
of t hes e ec onomi es t o
adapt
t o ext er nal s hoc ks . The
dec l i ne was
l ar ge enou gh
i n Lat i n Amer i c a (and
near l y l ar ge enou gh
i n
Af r i c a)
t o of f s et
gai ns
du e t o t ec hni c al
pr ogr es s (F r i edber g,
Khami s ,
and
Page,
1993).
The
HPAEs ,
i n
c ont r as t ,
ar e t he
onl y r egi onal gr ou pi ng
of
devel opi ng
ec onomi es t hat s how
s t eady i mpr ovement
i n
pr odu c t i vi t y
l evel s r el a-
t i ve t o i nt er nat i onal bes t
pr ac t i c e.
Whi l e mac r oec onomi c c ont r ac t i ons
ar e
c l ear l y
vi s i bl e i n t he HPAEs '
pat t er n
of movement of
pr odu c t i vi t y
l evel s over
t i me,
t he di f f er enc e i s t he mor e
r api d
r et u r n t o
pr i or
pr odu c t i vi t y
l evel s
f ol l owi ng
t he
per i od
of
adju s t ment .
3.2 BROADLY BASED EDUCATIONAL STRATEGIES
In mos t of t he ec onomi es of Eas t
As i a,
pu bl i c
i nves t ment s i n edu c at i on
wer e not
onl y l ar ger
t han el s ewher e i n abs ol u t e
t er ms -t hey
wer e al s o
bet t er .
They r es ponded
mor e
appr opr i at el y
t o f ai l u r es i n t he mar ket f or
edu c at i on. Soc i al r at es of r et u r n t o edu c at i on ar e
pr obabl y hi ghes t
at
t he
pr i mar y
l evel ,
wher e t her e ar e
many pos i t i ve
ext er nal i t i es as s oc i -
at ed wi t h
l i t er ac y (Ps ac har opou l os ,
1993).
Capi t al
mar ket
i mper f ec t i ons
and i nf or mat i on
pr obl ems ,
mor eover ,
ar e al s o mos t s ever e at t he
pr i -
mar y
l evel ,
r edu c i ng
t he
s c ope
f or s el f -f i nanc ed
pr i vat e s y s t ems .
Re-
t u r ns f r om
t r ai ni ng
at t he
u ni ver s i t y
l evel ,
on t he ot her
hand,
ar e
The Eas t As i an M i r ac l e ? 247
al mos t
f u l l y c apt u r ed by
t he
hi gher
i nc ome of
u ni ver s i t y gr adu at es .
Al l
of t hi s
ar gu es
f or u ni ver s al
pr i mar y
and
br oadl y
bas ed
s ec ondar y
edu c at i on c ombi ned wi t h r es t r ai nt of
pu bl i c
s u bs i di es t o
hi gher
edu c a-
t i on.
3.2.1 Edu c at i onal
Per f or manc e
i n t he HPAEs Thi s was
pr ec i s el y
t he edu -
c at i onal
s t r at egy adopt ed by
t he HPAEs .
F i gu r es
11 and 12
pr es ent
a
s t y l i zed s u mmar y
of t he r es u l t s of
r egr es s i ng pr i mar y
and
s ec ondar y
enr ol l ment r at es on
per c api t a
nat i onal i nc ome f or mor e t han 90
devel opi ng
ec onomi es f or t he
y ear s
1965 and 1987.25 Enr ol l ment r at es
ar e
hi gher
at
hi gher
l evel s of
per c api t a
i nc ome. Bu t HPAE enr ol l ment
r at es have t ended t o be
hi gher
t han
pr edi c t ed
f or t hei r l evel of i nc ome.
At t he
pr i mar y
l evel ,
t hi s was mos t obvi ou s i n
1965,
when
Hong Kong,
Kor ea,
Si ngapor e,
and Tai wan had
al r eady
ac hi eved u ni ver s al
pr i mar y
edu c at i on,
wel l ahead of ot her
devel opi ng
ec onomi es ,
and even In-
dones i a wi t h i t s vas t
popu l at i on
had a
pr i mar y
enr ol l ment r at e above
70%.
By
1987,
Eas t As i a's
s u per i or
edu c at i on
s y s t ems
wer e evi dent at t he
s ec ondar y
l evel . Indones i a had a
s ec ondar y
enr ol l ment r at e of
46%,
wel l above ot her ec onomi es wi t h
r ou ghl y
t he s ame l evel of
i nc ome,
and
Kor ea had moved f r om
35%
t o
88%,
mai nt ai ni ng
i t s
l ar ge
l ead i n
r el at i ve
per f or manc e. Onl y
i n Thai l and was t he
28%
s ec ondar y
enr ol l -
ment r at e wel l bel ow t he
i nc ome-pr edi c t ed
36%
and t he 54% mean f or
mi ddl e-i nc ome ec onomi es .26 In r ec ent
y ear s
Thai l and's weak edu c a-
t i onal
per f or manc e
has been
f el t ,
as s er i ou s
s hor t ages
of edu c at ed
wor ker s have
begu n
t o t hr eat en c ont i nu ed
ver y r api d gr owt h.
In
par t
as a f u nc t i on of t hei r s u c c es s i n
i nc r eas i ng
enr ol l ment ,
t he Eas t As i an
ec onomi es have al s o been f as t er t o c l os e t he
gap
bet ween mal e and
f emal e enr ol l ment s .
A
c ommon,
t hou gh i mper f ec t
meas u r e of edu c at i onal
qu al i t y ,
i s
expendi t u r es per pu pi l .
Bet ween 1970 and
1989,
r eal
expendi t u r es per
pu pi l
at t he
pr i mar y
l evel r os e
by
355% i n Kor ea. In M exi c o and
Keny a,
expendi t u r es
r os e
by
64% and
38%,
r es pec t i vel y ,
over t he s ame t i me
per i od,
and i n Paki s t an
expendi t u r es
r os e
by onl y
13%
bet ween 1970
and 1985
(Bi r ds al l
and
Sabot , 1993).
Thes e dr amat i c di f f er enc es r ef l ec t
25. Behr man and Sc hnei der
(1992). The
r egr es s i ons
c ont r ol f or a
pol y nomi al
i n
aver age
per c api t a
i nc ome i n t he r el evant
y ear .
The au t hor s u s ed
per c api t a
GNP at of f i c i al
exc hange
r at es as t he meas u r e of i nc ome.
26.
Des pi t e i nc r eas i ng
i t s
s ec ondar y
enr ol l ment r at e f r om
29%
t o
74%,
Hong Kong
al s o
f el l wel l bel ow t he
pr edi c t ed
l evel i n 1987. Thi s i s
bec au s e,
at
$15,000,
t he
per c api t a
i nc ome of
Hong Kong
was s o
hi gh
t hat t he OECD c ou nt r i es wer e now i t s
c ompar a-
t or s .
F i gu r e
11 CROSS-ECONOM Y REGRESSION F OR PRIM ARY ENROLLM ENT
RATES,
1965 AND 1987
Br az (10)
i al
i Si ngapor e (105)
H K 103)
Rep.
ol Kor ea
(1i
i p 21.91
H15K
)
129.2)f 1i
M al ay s a (90)
(179)
1-14.9 1
Pa Thai an
d(7) .(40
e.0
1
H
--
'
'
i I I I I/ i II A
/
Bangl ades h (49)
1-14.91
_ *I Paki s t an (40)
1-24.5
1
',",'I,,' 'I,l ,'',t l l l l ^^A I,l I, ,, I,l . . .
vY
0 250 500 750
1,750 2,000
500
Per
c api t a
Inc ome
(i n
1988 U.S.
dol l ar s )
Not e:
F i gu r es
i n
par ent hes es
ar e enr ol l ment
r at es ;
br ac ket ed nu mber s s how r es i du al s .
Sou r c e: Behr man and Sc hnei der (1992).
l i ndones a
(118)
137.01
Br azi l
(103)
M daay s t a (10
-
-
-
Thaanad (95)
-
3S)
P( 01
*
.
_
-
* "
Rep.
ol Kor ea i
1.
1
-
Hong
Kon
(106)
Ir 78
1-7.51
/
/
ngIades h
(59)
Paki s t an
(52)
* 1-27.91
1987
1
i I I I I i i i I , i i I ! i I
I^AA
I i
1,000 1,500
Y
3,500
140
120
-
" 100
80
IC
E
60
40
20
01)
-
"I%# . . ?
I
I?
-
- l f t I I I,
F i gu r e
12 CROSS-ECONOM Y REGRESSION F OR SECONDARY ENROLLM ENT
RATES,
1965 AND 1987
J o s l a (46)
119.51
Thaand
(28)
f -t l ?}
/
Paks l an(19)
/el
Ia
i -9.
Bangl ades h
(18)
l -3.61
I .
l l l l I l l l
.
i
0 250 500 750
1,750 2,000
500
1,000
Per c api t a Inc ome
(i n
1988 U.S.
dol l ar s )
Not e:
F i gu r es
i n
par ent hes es
ar e enr ol l ment r at es ; br ac ket ed nu mber s s how r es i du al s .
Sou r c e: Behr man and Sc hnei der (1992).
E
'P
c
0
0
t )
. M al ay s i
am
Rep.
od Kor mt a )
19.41
4
1987
IAA i A , ,
1,500
t
I
I *
1
t * i . * F 4
. .
I I 4
.
I
* \
I I t
I
3,500
? V
250 PAGE
mos t l y
di f f er ent i al
c hanges
over t he
per i od
i n i nc ome
gr owt h
and i n
t he nu mber of c hi l dr en
ent er i ng
s c hool s ,
bot h of whi c h f avor ed t he Eas t
As i an ec onomi es . A s omewhat bet t er meas u r e of s c hool
qu al i t y
i s t he
per f or manc e
of c hi l dr en on t es t s of
c ogni t i ve
s ki l l s ,
s t andar di zed ac r os s
ec onomi es . In t he
r el at i vel y
f ew i nt er nat i onal
c ompar i s ons
avai l abl e
f r om s u c h
t es t s , Eas t As i an c hi l dr en t end t o
per f or m
bet t er t han c hi l -
dr en f r om ot her
devel opi ng r egi ons -and
even,
r ec ent l y ,
bet t er t han
c hi l dr en f r om
hi gh
i nc ome ec onomi es .27 Tabl e 7 of f er s s ome
c ompar a-
t i ve dat a on
expendi t u r es per pu pi l
i n t he HPAEs and ot her c ou nt r i es
bet ween 1965 and 1989.
3.2.2
F oc u s i ng
Edu c at i onal
Spendi ng Hi gher
s har es of nat i onal i nc ome
devot ed t o edu c at i on c annot
f u l l y expl ai n
t he
l ar ger
ac c u mu l at i on of
hu man
c api t al
i n t he HPAEs . In bot h 1960 and
1989,
pu bl i c expendi t u r e
on edu c at i on as a
per c ent age
of GNP was not mu c h
hi gher
i n Eas t As i a
t han el s ewher e
(Tabl e 8).
In 1960 t he s har e was 2.2% f or al l
devel opi ng
ec onomi es ,
2.4% f or s u b-Sahar an
Af r i c a,
and 2.5% f or Eas t As i a. Over
t he t hr ee dec ades t hat
f ol l owed,
gover nment s
of Eas t As i a
mar kedl y
i nc r eas ed t he s har e of nat i onal
ou t pu t t hey
i nves t ed i n f or mal edu c a-
t i on. Bu t s o di d
gover nment s
i n ot her
devel opi ng r egi ons .
In 1989 t he
s har e i n
Af r i c a, 4.1%,
was
hi gher
t han t he Eas t As i an
s har e, 3.7%,
whi c h
bar el y
exc eeded t he
aver age
s har e f or al l
devel opi ng
ec onomi es , 3.6%.28
The al l oc at i on of
pu bl i c expendi t u r e
bet ween bas i c and
hi gher
edu c a-
t i on i s t he
major pu bl i c pol i c y
f ac t or t hat ac c ou nt s f or Eas t As i a's
ext r aor di nar y per f or manc e
wi t h
r egar d
t o t he
qu ant i t y
of bas i c edu c a-
t i on
pr ovi ded.
The s har e of
pu bl i c expendi t u r e
on edu c at i on al l oc at ed
t o bas i c edu c at i on has been
c ons i s t ent l y hi gher
i n Eas t As i a t han
el s ewher e. The s har e of
pu bl i c
f u nds al l oc at ed t o
t er t i ar y
edu c at i on i n
Eas t As i a has t ended t o be
l ow,
aver agi ng r ou ghl y
15%
over t he
l as t t hr ee dec ades .29 In Lat i n Amer i c a t he s har e has been
r ou ghl y
27. Bi r ds al l and Sabot (1993) c i t e St evens on and
St i gl er
(1992),
among
ot her s ,
who
r epor t
r es u l t s of t es t s i n c i t i es of
Japan,
t he Uni t ed
St at es ,
and Tai wan.
28. Gover nment
expendi t u r e
on
edu c at i on,
expr es s ed
as a
per c ent age
of
GNP,
was u s ed
as an
expl anat or y
var i abl e i n a
c r os s -c ou nt r y r egr es s i on
i n whi c h
expec t ed y ear s
of
s c hool i ng
of t he
s c hool -age
c ohor t
(es s ent i al l y
an
aggr egat e
of enr ol l ment r at es )
i s t he
i ndependent
var i abl e. F or a
s ampl e
of 15 As i an and Lat i n Amer i c an
c ou nt r i es ,
t he
expendi t u r e
var i abl e was
i ns i gni f i c ant .
See Tan and
M i ngat
(1992).
29. In Kor ea and Tai wan t he s har e of
pu bl i c expendi t u r e
on edu c at i on al l oc at ed t o
hi gher
edu c at i on has i nc r eas ed over t he l as t dec ade or s o f or t wo r eas ons . On t he one
hand,
u ni ver s al and near u ni ver s al enr ol l ment r at es have been ac hi eved at t he
pr i mar y
and
s ec ondar y
l evel s ,
r es pec t i vel y .
On t he ot her
hand,
t he i nc r eas e has been c ons i s t ent
wi t h t he s hi f t i n t he s t r u c t u r e of
pr odu c t i on
and
expor t s
t o mor e
t ec hnol ogi c al l y
s ophi s t i c at ed
and s ki l l -i nt ens i ve
pr odu c t s ,
and t he
c ons equ ent
i nc r eas e i n t he demand
f or
engi neer s
and ot her s ki l l ed wor ker s .
Tabl e 7 PUBLIC EXPENDITURE PER STUDENT ON PRIM ARY AND SECONDARY EDUCATION
(U.S. DOLLARS)
1965 1975 1985 1989
Ec onomy Pr i mar y Sec ondar y Pr i mar y Sec ondar y Pr i mar y Sec ondar y Pr i mar y Sec ondar y
HPAEs
Hong Kong
192.3 180.5 558.1 810.2
Kor ea,
Rep.
of 9.9 14.7 51.2 32.9 389.8 352.5 609.6 449.9
M al ay s i a
351.2 572.5
Si ngapor e
193.3 314.7 834.0
Thai l and 17.6 67.7 49.0 74.8 133.0 188.1 229.5
Ot her s el ec t ed ec onomi es
Br azi l 76.9 179.1 155.4 225.2
Ghana 22.3 122.0 27.9 62.3 36.3 78.0
Indi a 5.3 71.3 17.5 30.9 38.1
Keny a
28.9 336.7 50.3 149.7 62.2 290.4
M exi c o 23.8 56.6 110.2 315.2 101.9 287.5 93.8 300.2
Paki s t an 5.9 7.1 15.9 33.4 21.1 122.6
Not e: Cel l s ar e
empt y
wher e dat a ar e u navai l abl e.
Sou r c e:
Compu t ed
f r om UNESCO and Wor l d Bank dat a.
252 PAGE
Tabl e 8 PUBLIC EXPENDITURE ON EDUCATION
AS A PERCENTAGE OF GNP
Ec onomy /Regi on
1960 1989
HPAEs
Hong Kong
2.8
Kor ea,
Rep.
of 2.0 3.6
Si ngapor e
2.8 3.4
M al ay s i a
2.9 5.6
Thai l and 2.3 3.2
Indones i aa 2.5 0.9
Aver ageb
2.5 3.7
Ot her
Br azi l 1.9 3.7
Paki s t an 1.1 2.6
Les s
devel oped
1.3 3.1
ec onomi es c
Su b-Sahar an Af r i c a 2.4 4.1
aAl t er nat i ve s ou r c es of dat a i ndi c at e t hat
expendi t u r e
on
pu bl i c
edu c at i on as a
per c ent age
of GDP was 3.0% i n Indones i a i n 1989.
Aver age
does not i nc l u de Indones i a.
CLower - and mi ddl e-i nc ome ec onomi es .
Sou r c e: Uni t ed Nat i ons
Devel opment Pr ogr am
(1991).
24%.30
In Sou t h As i a t he s har e i s c l os e t o t he Lat i n Amer i c an l evel . Thi s
had been t he c as e i n Af r i c a as
wel l ,
bu t i n r ec ent
y ear s
t he s har e has
dec l i ned t o Eas t As i an l evel s .
The br oad bas e of hu man
c api t al
was
c r i t i c al l y i mpor t ant
t o
r api d
gr owt h
i n t he HPAEs . Bec au s e t he HPAEs at t ai ned u ni ver s al
pr i mar y
edu c at i on
ear l y , l i t er ac y
was
hi gh
and
c ogni t i ve
s ki l l l evel s wer e s u b-
s t ant i al l y
above t hos e i n ot her
devel opi ng
ec onomi es . Bas i c edu c at i on
i n t he HPAEs i s
hi ghl y
or i ent ed t o t he
ac qu i s i t i on
of
gener al
ac ademi c
s ki l l s ,
whi l e
pos t s ec ondar y
edu c at i on t ends t o be or i ent ed t owar d
voc at i onal s ki l l s . Some HPAEs have al s o been
u nu s u al l y l ar ge-s c al e
i mpor t er s
of edu c at i onal
s er vi c es ,
par t i c u l ar l y
i n
voc at i onal l y
and t ec h-
nol ogi c al l y s ophi s t i c at ed di s c i pl i nes .
F i r ms , t her ef or e,
had an eas i er
t i me
u pgr adi ng
t he s ki l l s of t hei r wor ker s and
mas t er i ng
new t ec hnol -
ogy .
In
addi t i on,
r api d
hu man
c api t al
ac c u mu l at i on r edu c ed i nc ome
i nequ al i t y by i nc r eas i ng
t he r el at i ve abu ndanc e of edu c at ed
wor ker s ,
t her eby l ower i ng
t he
s c ar c i t y
r ent s as s oc i at ed wi t h
c ogni t i ve
s ki l l s .
30. Gi ven t he s mal l er s i ze of t he bas i c edu c at i on
age
c ohor t i n Eas t As i a t han i n Lat i n
Amer i c a,
t hi s di f f er enc e u nder es t i mat es t he
gap
bet ween t he t wo
r egi ons
i n t he
s t r engt h
of t he
pu bl i c
s ec t or 's c ommi t ment t o bas i c edu c at i on.
The Eas t As i an M i r ac l e ? 253
Thes e benef i t s wer e
par t i c u l ar l y
evi dent i n t he
c ou nt r y s i de
(Bi r ds al l
and
Sabot , 1993).
4. Unc onvent i onal Wi s dom-The
Expor t
Pu s h
and Indu s t r i al Pol i c i es
M os t Eas t As i an
gover nment s
have
pu r s u ed s ec t or -s pec i f i c
i ndu s t r i al
pol i c i es
t o s ome
degr ee.
The bes t known i ns t anc es i nc l u de
Japan's
heavy i ndu s t r y pr omot i on pol i c i es
of t he 1950s and t he
s u bs equ ent
i mi t at i on of t hes e
pol i c i es
i n Kor ea. Thes e
pol i c i es
i nc l u ded
i mpor t
pr ot ec t i on
as wel l as s u bs i di es f or
c api t al
and ot her
i mpor t ed i npu t s .
M al ay s i a, Si ngapor e,
Tai wan,
and even
Hong Kong
have al s o es t ab-
l i s hed
pr ogr ams -t y pi c al l y
wi t h mor e moder at e i nc ent i ves -t o ac -
c el er at e
devel opment
of advanc ed i ndu s t r i es . In t he
c api t al
mar ket ,
gover nment s
i nt er vened
s y s t emat i c al l y
bot h t o c ont r ol i nt er es t r at es
and t o di r ec t c r edi t .
Indu s t r i al
t ar get i ng
c ou l d have r es u l t ed i n ext ens i ve r ent
s eeki ng
and
gr eat i nef f i c i enc y .
Bec au s e i t
appar ent l y
di d
not ,
t he s u c c es s or f ai l u r e of
s el ec t i ve i nt er vent i ons ar e
among
t he mos t c ont r over s i al
as pec t s
of t he
Eas t As i an s u c c es s
s t or y .
Some of t he r eas ons
why
s el ec t i ve i nt er ven-
t i ons do not
appear
t o have had t he di s as t r ou s r es u l t s of t hos e
pu r s u ed
i n ot her
devel opi ng
ec onomi es ar e
s t r ai ght f or war d.
Labor mar ket
pol i -
c i es i n t he HPAEs t ended t o
emphas i ze f l exi bi l i t y
and
c ompet i t i ve
det er mi nat i on of
wages
(F i el ds , 1993).
Di r ec t ed c r edi t
pr ogr ams
wer e
u nder t aken wi t hi n a f r amewor k of
gener al l y
l ow s u bs i di es t o bor r ower s
and c ar ef u l
moni t or i ng
(Vi t t as
and
Cho, 1993).
As a
c ons equ enc e,
t he
r el at i ve
pr i c es
of l abor and
c api t al
i n t he HPAEs wer e c l os er t o t hei r
s c ar c i t y
val u es t han i n ot her
devel opi ng
ec onomi es
(Wor l d
Bank, 1993).
Never t hel es s ,
abu ndant evi denc e exi s t s
t hat ,
es pec i al l y
i n t he c as es of
Japan,
Kor ea,
and
Tai wan,
gover nment s
made
s y s t emat i c
ef f or t s t o al t er
i ndu s t r i al s t r u c t u r e f or t he
pu r pos e
of
ac c el er at i ng pr odu c t i vi t y c hange.
The
i mpac t
of t hes e
pol i c i es
on t he HPAEs
gr owt h
r emai ns a
t opi c
of
heat ed debat e.31 Thi s s ec t i on
pr opos es
t wo
pol i c y
l es s ons :
f i r s t ,
t hat
pr omot i on
of manu f ac t u r ed
expor t s
was a
s i gni f i c ant
s ou r c e of mea-
s u r ed TF P
c hange,
and
s ec ond,
t hat i ndu s t r i al
pol i c i es
mat t er ed r el a-
t i vel y
l i t t l e i n t he over al l r ec or d of Eas t As i a's
ext r aor di nar y gr owt h.
The
u ps hot
of t hes e
pr opos i t i ons
i s t hat
expor t -not i ndu s t r i al -pr o-
mot i on was at t he hear t of t he HPAEs '
pr odu c t i vi t y per f or manc e.
31.
See,
e.g.,
t he c ol l ec t i on of
es s ay s
i n Wor l d
Devel opment
(1994);
Rodr i k
(1993),
c r i t i c al l y
r evi ewi ng
Wor l d Bank
(1993).
254 PAGE
4.1 EXPORT GROWTH AND PRODUCTIVITY CHANGE
Al t hou gh
al l HPAEs
exc ept Hong Kong pas s ed t hr ou gh
an
i mpor t
s u bs t i t u t i on
phas e,
wi t h
hi gh
and var i abl e
pr ot ec t i on
of domes t i c i m-
por t
s u bs t i t u t es ,
t hes e
per i ods
ended ear l i er t han i n ot her ec onomi es .
Hong Kong, M al ay s i a,
and
Si ngapor e adopt ed
t r ade
r egi mes
t hat wer e
c l os e t o f r ee
t r ade;
Japan,
Kor ea,
and Tai wan
adopt ed
mi xed
r egi mes
t hat wer e
l ar gel y
f r ee f or
expor t
i ndu s t r i es . Indones i a and Thai l and
have i n t he 1980s
begu n
t o r edu c e
pr ot ec t i on. Exc hange
r at e
pol i c i es
wer e
l i ber al i zed,
and c u r r enc i es
f r equ ent l y
deval u ed,
t o
s u ppor t expor t
gr owt h.32
Expor t pu s h s t r at egi es
wer e
i mpl ement ed
i n t hr ee
ver y
di f f er ent
way s
i n t he HPAEs .
Hong Kong
and
Si ngapor e
es t abl i s hed f r ee-t r ade
r egi mes , l i nki ng
t hei r domes t i c
pr i c es
t o i nt er nat i onal
pr i c es ;
t he
expor t
pu s h
was an ou t c ome of t he
ver y
l i mi t ed s i ze of t he domes t i c mar ket
c ou pl ed
wi t h neu t r al i nc ent i ves bet ween
pr odu c i ng
f or t he domes t i c or
i nt er nat i onal mar ket . Bot h ec onomi es made
expor t
c r edi t
avai l abl e,
al t hou gh t hey
di d not s u bs i di ze
i t ,
and
Si ngapor e
f oc u s ed i t s ef f or t s on
at t r ac t i ng f or ei gn
i nves t ment i n
expor t i ng
f i r ms .
In
Japan,
Kor ea,
and
Tai wan,
i nc ent i ves wer e
es s ent i al l y
neu t r al on
aver age
bet ween
i mpor t
s u bs t i t u t es and
expor t s .
Bu t wi t hi n t he t r aded-
goods
s ec t or ,
expor t
i nc ent i ves c oexi s t ed wi t h s u bs t ant i al
r emai ni ng
pr ot ec t i on
of t he domes t i c mar ket .
Expor t
i nc ent i ves , mor eover ,
wer e
not neu t r al
among
i ndu s t r i es or f i r ms . Ther e was an ef f or t i n
Japan,
Kor ea,
Si ngapor e,
and Tai wan t o
pr omot e s pec i f i c expor t i ng
i ndu s t r i es .
Pr ot ec t i on was c ombi ned wi t h ei t her
c ompu l s i on
or
s t r ong
i nc ent i ves t o
expor t .
In
Kor ea,
f i r m
s pec i f i c expor t t ar get s
wer e
empl oy ed;
i n
Japan
and Tai wan ac c es s t o s u bs i di zed
expor t
c r edi t and u nder val u at i on of
t he
c u r r enc y
ac t ed as an of f s et t o t he
pr ot ec t i on
of t he l oc al mar ket .
What was
i mpor t ant
i n al l c as es was t hat
gover nment s
wer e
c r edi bl y
c ommi t t ed t o t he
pr omot i on
of manu f ac t u r ed
expor t s . They adopt ed
an
expor t pu s h s t r at egy .33
The HPAEs '
expor t per f or manc e
i s r ef l ec t ed i n t hei r
s t eadi l y r i s i ng
s har e of wor l d
expor t s
(Tabl e 9).
As a
gr ou p,
t he HPAEs i nc r eas ed t hei r
s har e i n wor l d
expor t s
f r om 7.9%
i n 1965 t o 13.1% i n 1980 and 18.2% i n
32. Cor den (1993)
r ef er s t o t hi s as
"exc hange
r at e
pr ot ec t i on."
33. Col i n Br adf or d was t he f i r s t t o i nt r odu c e t he
c onc ept
of
expor t pu s h
i nt o t he
anal y s i s
of Eas t As i a's
r api d gr owt h.
He has def i ned i t as ef f ec t i ve
exc hange
r at es f or
expor t abl es exc eedi ng
t hos e f or
i mpor t abl es
(Br adf or d, 1994).
We u s e t he t er m
s omewhat mor e
br oadl y
t o i ndi c at e a c r edi bl e c ommi t ment t o a
pol i c y r egi me
t hat wi l l
u l t i mat el y y i el d
ef f ec t i ve
exc hange
r at es f or
expor t abl es equ al
t o or
gr eat er
t han t he
EER f or
i mpor t abl es .
The Eas t As i an M i r ac l e ? 255
Tabl e 9 EXPORT
PENETRATION,
SELECTED EAST ASIAN
ECONOM IES,
1965-1990
Shar e i n
devel opi ng
Shar e i n wor l d
expor t s ec onomy expor t s
Ec onomy
1965 1980 1990 1965 1980 1990
Tot al
expor t s
Japan
5.0 7.0 9.0
- -
F ou r
t i ger s a
1.5 3.8 6.7 6.0 13.3 33.9
Sou t heas t As i an NIEs b 1.5 2.2 2.4 6.2 7.8 12.4
HPAE Su bt ot al 7.9 13.1 18.2 12.2 21.1 56.3
Al l
devel opi ng
ec onomi es 24.2 28.7 19.8 100.0 100.0 100.0
Wor l d 100 100 100
-
Expor t s of manu f ac t u r es
Japan
7.8 11.6 11.8
F ou r
t i ger s a
1.5 5.3 7.9 13.2 44.9 61.5
Sou t heas t As i an NIEs b 0.1 0.4 1.5 1.1 3.8 12.0
HPAE Su b-t ot al 9.4 17.3 21.3 14.2 48.6 73.5
Al l
devel opi ng
ec onomi es 11.1 11.8 12.9 100 100 100
Wor l d 100 100 100
- -
aRepu bl i c
of Kor ea,
Hong Kong, Si ngapor e,
and Tai wan.
bIndones i a,
M al ay s i a,
and Thai l and.
Sou r c e: UN Tr ade
Sy s t ems
dat a.
1990. M anu f ac t u r ed
expor t s
have
pr ovi ded
mos t of t hi s
gr owt h.
F r om
1965 t o
1990,
Japan emer ged
as t he wor l d's
bi gges t expor t er
of manu f ac -
t u r ed
goods , i nc r eas i ng
i t s s har e of t he wor l d mar ket f r om
near l y
8%
t o
al mos t
12%.
In t he 1970s and
1980s ,
t he l oc u s of
gr owt h
s hi f t ed t o t he
f ou r
t i ger s ,
whos e s har e of manu f ac t u r ed
expor t s gr ew near l y
f ou r
t i mes f as t er t han
Japan's
(Tabl e 9).
Begi nni ng
ar ou nd
1980,
t he t hr ee
s ou t heas t As i an HPAEs
(Indones i a,
M al ay s i a,
and
Thai l and),
hi s t or i c al l y
dependent
on
c ommodi t y expor t s ,
r ec or ded a s i mi l ar bu t s o f ar s mal l er
s u r ge
i n manu f ac t u r ed
expor t s .
Some
anal y s t s
have,
wi t h
hi nds i ght ,
at t r i bu t ed t hes e ac hi evement s t o
u ni qu e
c u l t u r al and
geogr aphi c al
c i r c u ms t anc es . Bu t t her e was l i t t l e
evi denc e at t he ou t s et t hat Eas t As i an ec onomi es wou l d ac hi eve s u c h
s pec t ac u l ar
r es u l t s . In t he 1950s even t r ade
opt i mi s t s
wer e
expor t
pes s i mi s t s
and di d not
ant i c i pat e
t hat Kor ea's
expor t s
wou l d
gr ow
f ou r
t i mes as f as t as wor l d t r ade over t he next 30
y ear s .34
One obvi ou s ef f ec t
of
r api d expor t gr owt h
has been a mar ked i nc r eas e i n t he
opennes s
of
34.
See,
e.g.,
Li t t l e
(1982).
256 PAGE
t hes e ec onomi es as meas u r ed
by
t he s har e of
expor t s pl u s i mpor t s
i n
GDP
(Tabl e 10).
M os t
expl anat i ons
of t he l i nk bet ween TF P
gr owt h
and
expor t s
emphas i ze
s u c h s t at i c f ac t or s as
i mpr oved
r es ou r c e al l oc at i on
among
s ec t or s
(pr es u mabl y ar i s i ng
f r om r edu c t i ons i n
ant i -expor t
bi as ),
ec onomi es of s c al e and
i mpr oved c apac i t y
u t i l i zat i on,
whi c h
may
ac -
c ou nt f or a
hi gh
l evel of
pr odu c t i vi t y bei ng
ac hi eved af t er a s hor t
per i od
of
expor t
or i ent at i on bu t not f or
c ont i nu i ng hi gh
TF P
gr owt h
r at es .
However ,
t he
r el at i ons hi p
bet ween
expor t s
and
pr odu c t i vi t y
gr owt h may
ar i s e f r om
expor t 's
r ol e i n
hel pi ng
ec onomi es
adopt
and
mas t er i nt er nat i onal bes t
pr ac t i c e.
Bec au s e f i r ms t hat
expor t
have
gr eat er
ac c es s t o bes t
pr ac t i c e t ec hnol ogy
i n
i mper f ec t
wor l d
t ec hnol ogy
mar -
ket s ,
t her e ar e bot h benef i t s t o t he
ent er pr i s e
and
s pi l l over s
t o t he r es t
of t he
ec onomy
t hat ar e not r ef l ec t ed i n mar ket t r ans ac t i ons
(Pac k
and
Page,
1993; Br adf or d, 1994).
Thes e i nf or mat i on-r el at ed ext er nal i t i es c an
be an
i mpor t ant
s ou r c e of
r api d
TF P
gr owt h.
Tr ade and edu c at i onal
s t r at egi es ,
mor eover ,
may
have wor ked t o-
get her . Hi gh
l evel s of l abor f or c e
c ogni t i ve
s ki l l s
per mi t
bet t er f i r m-l evel
adopt i on, adapt at i on,
and
mas t er y
of
t ec hnol ogy
(Bi r ds al l
and
Sabot ,
1993).
It i s dou bt f u l t hat t he HPAEs c ou l d have made as
pr odu c t i ve
u s e
of
f or ei gn knowl edge
and
i mpor t ed c api t al
and benef i t ed as mu c h f r om
embodi ment wi t hou t
hi ghl y
s ki l l ed domes t i c
engi neer s
and wor ker s .
Tabl e 10 RATIO OF TOTAL TRADE TO GDP
Ec onomy
/
r egi on
1970 1980 1985 1988
HPAEs
Hong Kong
1.50 1.52 1.78 2.82
Indones i a 0.25 0.46 0.38 0.42
Kor ea,
Rep.
of 0.32 0.63 0.66 0.66
Japan
0.19 0.25 0.23 0.21
M al ay s i a
0.89 1.00 0.85 1.09
Si ngapor e
2.12 3.70 2.77 3.47
Tai wan 0.53 0.95 0.82 0.90
Thai l and 0.28 0.49 0.44 0.35
Su b-Sahar an Af r i c a 0.24 0.30 0.27 0.45
Sou t h As i a 0.11 0.17 0.16 0.19
Lat i n Amer i c a and 0.20 0.25 0.22 0.23
Car i bbean
Not e: Tot al t r ade
=
val u e of
expor t s
and val u e of
i mpor t s /gr os s
domes t i c
pr odu c t .
Sou r c es : Wor l d Bank
dat a; Tai wan,
var i ou s i s s u es ;
Nat i onal Ac c ou nt s St at i s t i c s :
Anal y s i s
of M ai n
Aggr egat es ,
1988-1989 (Uni t ed Nat i ons ).
The Eas t As i an M i r ac l e ? 257
Thu s ,
expor t s
and hu man
c api t al
f or mat i on
may
have i nt er ac t ed t o
pr ovi de
a
par t i c u l ar l y r api d phas e
of
pr odu c t i vi t y -bas ed c at c h-u p.
To t es t t he
hy pot hes i s
t hat
expor t
or i ent at i on
pl ay ed
a
s i gni f i c ant
r ol e
i n t he HPAEs ' TF P
gr owt h,
we
at t empt
t o
expl ai n
var i at i ons ac r os s
ec onomi es i n TF P
gr owt h
r at es i n t er ms of r el at i ve
i nc ome,
edu c at i onal
at t ai nment (as meas u r ed
by
t he
aver age
s t oc k of edu c at i on
per per s on),
a meas u r e of t r ade
or i ent at i on,
and meas u r es of manu f ac t u r ed
expor t
per f or manc e
(Tabl e 11).
The r el at i ve l evel of GDP i n 1960 i s i nc l u ded i n t he
expl anat or y
r egr es s i on
t o t es t f or t he
pr es enc e
of
c ondi t i onal ,
pr odu c t i vi t y -bas ed
c at c h-u p.
The
i nt er pr et at i on
of t he var i abl e i s not
s t r ai ght f or war d,
however ,
s i nc e i t al s o
c apt u r es
t he r es ou r c e al l oc at i on
gai ns ar i s i ng
f r om s t r u c t u r al t r ans f or mat i on at l ow l evel s of i nc ome. Bec au s e t hes e
pot ent i al gai ns
dec l i ne wi t h i nc r eas es i n
per c api t a
i nc ome,
t he r el at i ve
i nc ome var i abl e al s o
c apt u r es
t he ef f ec t of s t r u c t u r al
c hange
on t he
one-s ec t or TF P es t i mat es
(Pac k, 1993).
Nu mer ou s ef f or t s have been made t o t es t t he
r el at i ons hi p
bet ween
"ou t war d or i ent at i on" and
pr odu c t i vi t y gr owt h.35
Dol l ar (1990) u s es
t he i nt er nat i onal
c ompar i s ons
of
pr i c e
l evel s
c ompi l ed
f or 121 mar ket
c ou nt r i es
by
Su mmer s and Hes t on
(1988)
t o
devel op
an i ndex of
"ou t war d or i ent at i on" f or 95
devel opi ng
c ou nt r i es . We
empl oy
Dol l ar 's
i ndex i n ou r bas i c
s pec i f i c at i on
and f i nd t hat t her e i s a
s i gni f i c ant
and
pos i t i ve r el at i ons hi p
bet ween "ou t war d or i ent at i on" and TF P
gr owt h.
The
i nt er pr et at i on
of t hi s var i abl e i s al s o not
s t r ai ght f or war d,
how-
ever . Rodr i k
(1993)
has di s c u s s ed t he
pr obl ems
i n t he c ons t r u c t i on of
t he i ndex and i t s
i nt er pr et at i on,
and
ar gu es
t hat i t i s bes t
r egar ded
as an
i ndex of
exc hange
r at e
mi s management .
To t he ext ent t hat t hi s i s
c or r ec t ,
ou r r es u l t s di f f er f r om t hos e of F i s c her
(1993)
i n
f i ndi ng
a
s i gni f i c ant negat i ve r el at i ons hi p
bet ween
i nappr opr i at e exc hange
r at e
pol i c y
and
pr odu c t i vi t y gr owt h.
M anu f ac t u r ed
expor t per f or manc e
i s
s t r ongl y
c or r el at ed
(at
t he
1%
l evel )
wi t h i nc r eas ed r at es of TF P
gr owt h.
We u s e t wo meas u r es of
expor t
or i ent at i on t hat have s omewhat di f f er ent
i nt er pr et at i ons .
The
f i r s t i s t he s har e of manu f ac t u r ed
expor t s
i n t ot al
expor t s .
Thi s i s a
c r u de meas u r e of t he
pr obabi l i t y
t hat t he
mar gi nal expor t
wi l l be a
manu f ac t u r ed
good.
The s ec ond i s t he mor e c onvent i onal s har e of
manu f ac t u r ed
expor t s
i n
GDP,
whi c h meas u r es manu f ac t u r ed
expor t
c onc ent r at i on f or t he
ec onomy .
Bot h t he s har e of manu f ac t u r ed
expor t s
i n t ot al
expor t s
and t he s har e of manu f ac t u r ed
expor t s
i n GDP ar e
35.
See,
e.g.,
Thomas and
Wang
(1993) and Ni s hi mi zu and
Page
(1991).
Tabl e 11 DETERM INANTS OF TOTAL F ACTOR PRODUCTIVITY
GROWTH,
1960-1989
(DEPENDENT
VARIABLE: RATE OF GROWTH OF TOTAL F ACTOR
PRODUCTIVITY, 1960-1989)
Nu mber
of
obs er vat i ons 56 62 47 47 64 49 49
Int er c ept
GDP r el at i ve t o
U.S.,
1960
Edu c at i onal
at t ai nment ,
1960
Dol l ar i ndex
Aver age
manu f ac t u r ed
expor t s /
t ot al
expor t s ,
1960-1985
Int er ac t i on t er m: Edu c at i on at t ai nment
1960 t i mes manu f ac t u r ed
expor t s
/t ot al expor t s ,
1960-1985
Aver age
manu f ac t u r ed
expor t s /GDP,
1965-1985
Int er ac t i on t er m: Edu c at i on at t ai nment
1960 t i mes manu f ac t u r ed
expor t s /
GDP,
1965-1985
Adju s t ed
R2
- 83.1863** - 0.3584 -64.9123** -71.1186** -0.1315 -72.0692** -70.8604**
(15.6575)
- 4.5638*
(2.1994)
0.3083**
(0.0951)
0.8328**
(0.1579)
(0.2614) (14.0585)
- 3.3864** - 4.8047*
(1.0189) (1.9771)
0.2158** 0.1471
(0.0808) (0.0874)
0.6493**
(0.1417)
0.0345** 0.0314**
(0.0058) (0.0066)
(14.8657)
-
5.5757**
(2.0637)
0.0680
(0.1082)
0.7154**
(0.1508)
0.0159
(0.0142)
0.0032
(0.0026)
0.0828** 0.0625*
(0.0279) (0.0269)
0.4854 0.4665 0.6333 0.6376 0.1950 0.4507 0.4628
*
St at i s t i c al l y s i gni f i c ant
at t he 0.05 l evel .
**St at i s t i c al l y s i gni f i c ant
at t he 0.01 l evel .
Not e: Coef f i c i ent i s
t op
nu mber . St andar d er r or i s bot t om nu mber i n
par ent hes es .
Sou r c e: Wor l d Bank s t af f es t i mat es .
(0.3244)
-
1.4501
(1.1912)
0.2269*
(0.0990)
(15.6104)
-
2.3509
(2.3225)
0.1574
(0.1064)
0.7225**
(0.1574)
(15.4608)
-2.1562
(2.3008)
0.0738
(0.1207)
0.7134**
(0.1558)
-0.0686
(0.0966)
0.0284
(0.0201)
The Eas t As i an M i r ac l e
*
259
s i gni f i c ant l y
and
pos i t i vel y
c or r el at ed wi t h TF P
gr owt h, c ont r ol l i ng
f or
r el at i ve i nc ome and edu c at i onal at t ai nment .36
When t he manu f ac t u r ed
expor t
var i abl es ar e i nt r odu c ed
t oget her
wi t h t he Dol l ar
i ndex,
bot h ar e
s i gni f i c ant , al t hou gh
t he c oef f i c i ent on
t he s har e of manu f ac t u r ed
expor t s
i n t ot al
ou t pu t
i s l es s
pr ec i s el y
es t i mat ed. Ou r
i nt er pr et at i on
of t hes e r es u l t s i s t hat
c ont r ol l i ng
f or
over al l "ou t war d or i ent at i on"
(or
appr opr i at e exc hange
r at e
pol i c y ),
hi gh
manu f ac t u r ed
expor t
or i ent at i on i nc r eas es TF P
gr owt h.
A
hi gh
c onc ent r at i on of manu f ac t u r ed
expor t s
r el at i ve t o t ot al
expor t s ,
r at her
t han t he r el at i ve s i ze of t he manu f ac t u r ed
expor t
s ec t or ,
i s mor e
c l os el y
as s oc i at ed wi t h
pr odu c t i vi t y gr owt h
i n a
c r os s -ec onomy
f r amewor k.
Thi s i s c ons i s t ent wi t h t he
hy pot hes i s
t hat
expor t -bas ed l ear ni ng
i s
mor e
c l os el y
r el at ed t o manu f ac t u r ed
expor t
or i ent at i on t han t o manu -
f ac t u r ed
expor t
vol u me.
The edu c at i on s t oc k var i abl e i s i nc l u ded as a c r u de t es t of edu c at i on-
al l y
bas ed ext er nal i t i es . We
f i nd,
c ons i s t ent wi t h t hi s
hy pot hes i s ,
t hat
t he edu c at i on s t oc k var i abl e i s
pos i t i vel y
and
s i gni f i c ant l y
as s oc i at ed
wi t h TF P
gr owt h
when ei t her t he Dol l ar i ndex of ou t war d or i ent at i on
or ei t her i ndex of manu f ac t u r ed
expor t
or i ent at i on i s u s ed
i ndepen-
dent l y
i n t he
r egr es s i ons .
When bot h i ndi c es of ou t war d or i ent at i on ar e
i nt r odu c ed
joi nt l y ,
however ,
t he
magni t u de
of t he c oef f i c i ent on edu c a-
t i onal at t ai nment
dec l i nes ,
as does i t s
s i gni f i c anc e
(t o
t he .10
l evel ).
Thi s
i s
s u gges t i ve
of an i nt er ac t i on bet ween t r ade or i ent at i on and edu c a-
t i onal at t ai nment .
We al s o f i nd s ome evi denc e of a
pos i t i ve
i nt er ac t i on bet ween t he
s har e of manu f ac t u r ed
expor t s
i n t ot al
expor t s
and i n nat i onal i nc ome
and t he s t oc k of edu c at i on. The c oef f i c i ent of t he i nt er ac t i on t er m
bet ween t hes e t wo var i abl es i s
pos i t i ve
bu t not
s i gni f i c ant
at c onven-
t i onal
l evel s ,
and t he
expor t
s har e var i abl e bec omes
i ns i gni f i c ant .
When
we c ons i der t he c ont r i bu t i on of t he var i abl es t aken
t oget her
t o
expl ai n-
i ng
t he var i at i on i n TF P
gr owt h
r at es , however ,
i t i s
s t at i s t i c al l y pos i -
t i ve. We c onc l u de t hat
expor t per f or manc e
and edu c at i on i nt er ac t
36. The evi denc e f r om ou r
c r os s -ec onomy
es t i mat es i s
s u ppor t ed by
a nu mber of r ec ent
mi c r oec onomi c s t u di es t hat
at t empt
t o t es t t he l i nk bet ween
expor t s
and
pr odu c t i vi t y
gr owt h.
Pac k and
Page
(1993)
pr es ent
evi denc e f r om Kor ea and Tai wan t hat at t he
s ec t or al
l evel ,
r api d expor t gr owt h
i s c or r el at ed wi t h t he
pat t er n
of
pr odu c t i vi t y
c hange; expor t i ng
s ec t or s have
hi gher
s ec t or al r at es of TF P
gr owt h.
Wei
(1993) u s es
c i t y
l evel dat a f r om Chi na and f i nds a
s t at i s t i c al l y s i gni f i c ant r el at i ons hi p
bet ween
expor t gr owt h
and
pr odu c t i vi t y gr owt h.
Aw and
Hwang
(1993),
u s i ng
f i r m-l evel
mi c r oec onomi c dat a f r om
Tai wan,
f i nd a
s t at i s t i c al l y s i gni f i c ant r el at i ons hi p
bet ween
pr odu c t i vi t y
l evel di f f er enc es
among manu f ac t u r i ng
f i r ms and
expor t
or i ent at i on.
260 PAGE
pos i t i vel y ; hi gher
l evel s of edu c at i on r ai s e t he c ont r i bu t i on of manu f ac -
t u r ed
expor t
c onc ent r at i on t o TF P
gr owt h.37
4.2 THE INSIGNIF ICANCE OF INDUSTRIAL POLICY
Pr oponent s
of
neu t r al i t y
and i nt er vent i on bot h c i t e t he
hi gh per f or m-
i ng
Eas t As i an ec onomi es as evi denc e
s u ppor t i ng
t hei r vi ews . Bal as s a
(1991),
Kr u eger
(1993),
Hu ghes
(1992),
and ot her s
ar gu e
t hat
opennes s
t o i nt er nat i onal
t r ade,
bas ed on
l ar gel y
neu t r al
i nc ent i ves ,
was t he
c r i t i c al f ac t or i n Eas t As i a's
r api d gr owt h.
On t he ot her
hand,
advoc at es
of
i nt er vent i ons ,
whi l e
ac knowl edgi ng
t he
i mpor t anc e
of
t r ade,
not e
t hat i nc ent i ves
der i vi ng
f r om
qu ant i t at i ve
r es t r i c t i ons on
i mpor t s ,
t ar i f f s ,
and s u bs i di es wer e not neu t r al
among
s ec t or s
(or f i r ms )
du r i ng
t he
HPAEs '
per i ods
of
r api d gr owt h. They ar gu e
t hat t he HPAE
gover n-
ment s
s u c c es s f u l l y
i nt er vened t o
c hange c ompar at i ve advant age
(Ams den, 1989; Wade, 1990;
Si ngh,
1992).
Indu s t r i al
pol i c y
i nt er vent i ons ,
whi c h of t en u s e t r ade
pol i c y
i ns t r u -
ment s ,
ar e mot i vat ed
by
t he bel i ef t hat
s hi f t i ng
i ndu s t r i al s t r u c t u r es
t owar d newer and mor e moder n s ec t or s i nc r eas es t he
oppor t u ni t i es
f or
c apt u r i ng
t he
dy nami c
s c al e ec onomi es t hat r es u l t f r om
l ear ni ng.
We
def i ne i ndu s t r i al
pol i c i es ,
as di s t i nc t f r om t r ade
pol i c i es ,
as
gover nment
ef f or t s t o al t er i ndu s t r i al s t r u c t u r e t o
pr omot e pr odu c t i vi t y -bas ed
gr owt h.
Thi s
pr odu c t i vi t y -bas ed gr owt h may
der i ve f r om
l ear ni ng,
t ec hnol ogi c al
i nnovat i on,
or
c at c h-u p
t o i nt er nat i onal bes t
pr ac t i c e.
Al l of t he
HPAEs ,
exc ept Hong Kong,
have
empl oy ed
i ndu s t r i al
pol i c i es
as def i ned ear l i er .
Japan
and Kor ea had t he mos t
s y s t emat i c
s et
of
pol i c i es
t o al t er i ndu s t r i al s t r u c t u r e. Tai wan's ef f or t s wer e l es s
s y s -
t emat i c bu t wer e nonet hel es s
wi des pr ead.
Indu s t r i al
pol i c y
i n
Si nga-
por e
was mor e
f u nc t i onal l y
di r ec t ed at t he
r api d u pgr adi ng
of t ec hnol -
ogy by
di r ec t
f or ei gn
i nves t or s ,
r egar dl es s
of
t y pe
of
ou t pu t . M al ay s i a,
Indones i a,
and Thai l and have al l u s ed i ndu s t r i al
pol i c i es
bu t mu c h l es s
s y s t emat i c al l y
t han t he nor t heas t er n HPAEs .
37. We r an t wo
joi nt
F t es t s on t he
r egr es s i ons i nc l u di ng
t he i nt er ac t i ve t er m. The F t es t s
wer e bot h c ons i s t ent wi t h a
hi gh degr ee
of
mu l t i c ol l i near i t y
bet ween t he i nt er ac t i on
t er m and t he
expor t
t er m. The F Tes t
r ejec t s
t he nu l l
hy pot hes i s
t hat ,
t aken
joi nt l y ,
t he c oef f i c i ent s on t he t hr ee var i abl es
(edu c at i on,
manu f ac t u r ed
expor t s /t ot al expor t s ,
and t he i nt er ac t i ve t er m)
ar e not
s i gni f i c ant l y
di f f er ent f r om zer o (t aken
t oget her ,
t he
t hr ee ar e
s i gni f i c ant l y
di f f er ent f r om zer o at t he .01 l evel ). Li kewi s e,
t he F t es t
r ejec t s
t he
hy pot hes i s
t hat ,
t aken
joi nt l y ,
t he i nt er ac t i ve t er m and t he
expor t
var i abl e ar e not
s i gni f i c ant l y
di f f er ent f r om zer o (t aken
t oget her ,
t he t wo ar e
s i gni f i c ant l y
di f f er ent
f r om zer o at t he .01 l evel ).
Wher e t her e i s a
hi gh degr ee
of
mu l t i c ol l i near i t y
bet ween
t he var i abl es ,
t he c oef f i c i ent s on t he i nt er ac t i on t er m and t he
expor t
var i abl e,
des pi t e
bei ng s epar at el y i ns i gni f i c ant ,
s hou l d s t i l l be t r eat ed as bes t
poi nt
es t i mat es .
The Eas t As i an M i r ac l e ? 261
Tabl e 12 EF F ECT OF SECTORAL COM POSITION ON M ANUF ACTURING
WIDE GROWTH OF TF P
TF P
gr owt h,
TF P
gr owt h,
Ec onomy
ac t u al val u e added
wei ght s adju s t ed wei ght s
Kor ea,
Rep.
of ,
1966-1985 6.7 6.1
Japan,
1960-1979 2.3 1.9
Not e:
Wei ght ed by
val u e added s har es t hat wou l d have
pr evai l ed
i f t he met al
pr odu c t s
and
mac hi ner y
s ec t or had c onf or med t o t hat
pr edi c t ed by
t he
equ at i ons
es t i mat ed
by Sy r qu i n
and
Chener y
(1989).
Sou r c es : Pac k (1993). Bas ed on
Ku r oda,
Kor gens on,
and Ni zhi mi zu (1985) f or TF P es t i mat es f or
Japan.
4.2.1 Indu s t r i al Gr owt h and
Pr odu c t i vi t y Change
HPAE i ndu s t r i al
gr owt h
pat t er ns
di f f er f r om t he
pat t er ns
i n mos t ot her l ow- and mi ddl e-i nc ome
ec onomi es i n t he r el at i ve s i ze and
gr owt h
r at es of t wo
i mpor t ant
i ndu s t r i al s u bs ec t or s -met al
pr odu c t s ,
el ec t r oni c s and
mac hi ner y ,
and
t ext i l es and
gar ment s .
Tabl e 12 s hows t he r at i o of t he s har e of t he val u e
added i n f i ve
key
Int er nat i onal St andar d Indu s t r i al Cl as s i f i c at i on
(ISIC)
s u bs ec t or s as a
per c ent age
of t he t ot al val u e added of
manu f ac t u r i ng
t o
c r os s -c ou nt r y
nor ms
(Chener y ,
1987).
Among
t he
HPAEs ,
met al
pr od-
u c t s , el ec t r oni c s ,
and
mac hi ner y
(ISIC
s u bs ec t or
38,
or
M PM )
have
gr own u nu s u al l y
f as t . The s ec t or 's s har e of
manu f ac t u r i ng
val u e added
dou bl ed i n
Si ngapor e
and
Japan, near l y t r i pl ed
i n
Kor ea,
and Indone-
s i a,
and
qu adr u pl ed
i n
M al ay s i a.
M or e
s u r pr i s i ng
t han t he
i mpor t anc e
of
gr owt h
i n
M PM ,
whi c h
pr ovi des
vi t al
i npu t s
t o nu mer ou s ot her
manu f ac t u r i ng
s u bs ec t or s , i s c ont i nu ed
i mpor t anc e
of t ext i l es and
gar -
ment s even as t he
r api dl y devel opi ng
As i an ec onomi es s hi f t ed f r om
l abor i nt ens i ve t o
c api t al
i nt ens i ve
pr odu c t i on.
Det ai l ed s ec t or al
gr owt h
r at es of TF P ar e avai l abl e f or
Japan,
Kor ea,
and Tai wan. Ther e i s bot h
good
news and bad news f or advoc at es of
i ndu s t r i al
pol i c y
i n t he
pr odu c t i vi t y per f or manc e
of Eas t As i an
i ndu s t r y .
The
good
news i s
t hat ,
on
aver age,
r at es of
pr odu c t i vi t y c hange
i n
i ndu s t r y
i n
Japan
(bef or e
1973), Kor ea,
and
Tai wan,
whi c h ar e t he
onl y
ec onomi es f or whi c h we have det ai l ed s ec t or al es t i mat es of TF P
gr owt h,
wer e
hi gh by
i nt er nat i onal s t andar ds
(Page,
1990).38 Ther e ar e now
s u f f i c i ent l y l ong
t i me s er i es dat a t o c onc l u de t hat i n t hes e
ec onomi es ,
TF P
gr owt h
has ac c ou nt ed f or a s u bs t ant i al f r ac t i on of t he
gr owt h
of
38.
You ng
(1993)
di s pu t es
even t hi s
as s er t i on,
al t hou gh
hi s
s ampl e
of LDC
c ompar at or s
i s
s mal l .
262 PAGE
c ons t ant
pr i c e
val u e added i n
manu f ac t u r i ng.
Gi ven t he
l engt h
of t i me
of t he
obs er vat i ons ,
i t s eems
u nl i kel y
t hat t he meas u r ed
gr owt h
r at es of
TF P c ou l d be at t r i bu t abl e t o
c y c l i c al phenomena
or
gr owi ng c apac i t y
u t i l i zat i on of i ni t i al
l ar ge
i nves t ment s .
The bad news i s
t hat ,
i n
gener al , pr odu c t i vi t y c hange
has not been
hi gher
i n
pr omot ed
s ec t or s .
Japan may
be an
exc ept i on.
Bet ween 1960
and
1979,
c hemi c al s and t he met al
wor ki ng mac hi ner y c ompl ex
had
u nu s u al l y good
TF P
per f or manc e (Jor gens on,
Ku r oda,
and
Ni s hi mi zu ,
1987).
Japan's
i ndu s t r i al s t r u c t u r e di f f er s f r om i nt er nat i onal nor ms i n
t hes e s ec t or s and exhi bi t s
qu i t e hi gh
val u es of t he s har e of val u e added
i n t ot al
manu f ac t u r i ng.
Thes e i ndu s t r i es ar e t hos e t hat obs er ver s
u s u al l y
poi nt
t o as
havi ng
r ec ei ved
s i gni f i c ant gover nment s u ppor t i nc l u di ng
ef f or t s t o s t i mu l at e
pr odu c t i vi t y gr owt h.
A nu mber of c al c u l at i ons of TF P have been c ar r i ed ou t f or Kor ea f or a
var i et y
of
per i ods
(Dol l ar
and
Sokol of f , 1990; Li m, 1991).
F r om t hes e
s t u di es a nu mber of
pat t er ns
c an be i dent i f i ed t hat ar e
br oadl y
c ons i s -
t ent wi t h one anot her . What i s mos t
s t r i ki ng
ar e t he
hi gh
val u es of TF P
c hange
i n mos t s ec t or s
by
i nt er nat i onal s t andar ds
(Ni s hi mi zu
and
Page,
1991).
Al t hou gh
t he Kor ean
gover nment s el ec t i vel y pr omot ed
c hemi c al s
and i r on and s t eel (i nc l u ded
i n bas i c
met al s ),
t he
l ar ge gr owt h
i n t he
s har e of i r on and s t eel was
ac c ompani ed by qu i t e
l ow TF P
per f or manc e
bet ween 1966 and
1985;
t ext i l es and
c l ot hi ng,
on t he ot her
hand,
had
ver y hi gh
r at es of TF P
gr owt h.
The
pr omot ed
c hemi c al
s ec t or ,
whos e
r el at i ve s i ze was
dec r eas i ng,
was c har ac t er i zed
by c ons i der abl y hi gher
t han
aver age
TF P
gr owt h du r i ng
t hi s s ame
per i od.
The
gover nment
i n Tai wan di d not
at t empt
t o i nf l u enc e s ec t or al
evol u t i on as
s t r ongl y
as t he
gover nment
of Kor ea.
Never t hel es s ,
t her e
was s u bs t ant i al ef f or t devot ed t o
enc ou r agi ng s pec i f i c
s ec t or s ,
par t i c u -
l ar l y
t hos e vi ewed as ei t her
c api t al -
or
t ec hnol ogy -i nt ens i ve.
However ,
t her e i s no
r el at i ons hi p
bet ween
c api t al i nt ens i t y
and
pr odu c t i vi t y
c hange
at t he s ec t or al l evel . In
f ac t ,
t he
hi ghes t
s ec t or al r at es of TF P
c hange
ar e r ec or ded i n t ext i l es and
appar el .
Over al l ,
t he evi denc e t hat i ndu s t r i al
pol i c y s y s t emat i c al l y pr omot ed
s ec t or s wi t h
hi gh pr odu c t i vi t y c hange
i s weak. In
Japan
t her e i s s ome
s u ppor t
f or t he as s er t i on t hat TF P
gr owt h
was
hi gher
i n s el ec t ed
s ec t or s ,
whi l e i n Kor ea and
Tai wan,
ac t i vi t i es t hat wer e not
pr omot ed
(e.g.,
t ext i l es )
had
equ al l y
as
i mpr es s i ve
TF P
per f or manc es
as t hos e t hat
wer e. The c r i t i c al
empi r i c al qu es t i on,
of
c ou r s e,
i s
whet her ,
gi ven any
pl au s i bl e as s u mpt i ons r egar di ng
t he r el at i ve s i ze of
pr omot ed
s ec t or s i n
t he abs enc e of i ndu s t r i al
pol i c y
and t hei r obs er ved r at es of
pr odu c t i vi t y
c hange,
i ndu s t r i al
pol i c i es
ac c el er at e t he over al l r at e of
pr odu c t i vi t y
c hange
i n
manu f ac t u r i ng.
The Eas t As i an M i r ac l e ? 263
4.2.2 The
Ef f ec t of
Indu s t r i al
Pol i c y
on
M anu f ac t u r i ng Pr odu c t i vi t y
Gr owt h
Aggr egat e
TF P i n
any per i od
c an be
dec ompos ed by wei ghi ng
eac h
s ec t or 's l evel of t ot al f ac t or
pr odu c t i vi t y , A,
t , by
t he s ec t or 's s har e i n
val u e
added,
vi ,t .
The
gr owt h
of TF P wi l l t hen
depend
on
c hanges
i n
A,
t
and
c hanges
i n
vi ,
.
Al gebr ai c al l y ,
t hi s r el at i on c an be wr i t t en as
A
Log
A =
(vi t l og
Ai ,
t
-
i ,
t -_ l og
Ai , t -1). (3)
Equ at i on
(3)
gi ves
t he
gr owt h
i n A du e t o t he
c hange
i n
pr odu c t i vi t y
of
s ec t or s
as s u mi ng
c ons t ant s ec t or al s har es
and/or
t he
gr owt h
i n t he
val u e added s har e of
s ec t or s ,
whos e
pr odu c t i vi t y
i s
hi gh.
Of t he c ou nt r i es c ons i der ed
her e,
Japan
and Kor ea ar e t he c ou nt r i es
i n whi c h ac t i vi s t i ndu s t r i al
pol i c i es
wer e
empl oy ed
mos t
c ons i s t ent l y
t o
ac hi eve
pr odu c t i vi t y -bas ed c at c h-u p.
On t he bas i s of i nt er nat i onal c om-
par i s ons ,
t wo s ec t or s wer e
gener al l y over r epr es ent ed
i n t he i ndu s t r i al
s ec t or s of t he
HPAEs ,
met al
pr odu c t s
and
mac hi ner y ,
and t ext i l es and
appar el . Br oadl y s peaki ng, onl y
t he f or mer s ec t or was
pr omot ed
i n
HPAEs t hat u s ed i ndu s t r i al
pol i c y .
One t es t of t he
s i gni f i c anc e
of
i ndu s t r i al
pol i c y ,
t hen,
i s
whet her ,
gi ven
t he obs er ved val u es of s ec t or al
TF P
gr owt h,
t he u nu s u al evol u t i on of t he s ec t or al
pat t er n
of
pr odu c t i on
i n s ome of t he c ou nt r i es had a
s i gni f i c ant qu ant i t at i ve i mpac t
on over al l
TF P
gr owt h.39
To ans wer t hi s we f i r s t c al c u l at e t he
manu f ac t u r i ng-wi de gr owt h
of
A*
u s i ng
t he obs er ved val u e-added s har es at t he end of t he
per i od
of
1966 t o
1985,
and t he A* val u es es t i mat ed f or Kor ea
by
Li m
(1991) and
f or
Japan by Jor gens on,
Ku r oda,
and Ni s hi mi zu
(1987).
We t hen r ec al c u -
l at e t he val u e added
wei ght s as s u mi ng
t hat t he s ec t or s i n ISIC 38 had
been at t hei r
pr edi c t ed
val u e,
on t he bas i s of i nt er nat i onal nor ms t aken
f r om
Chener y
(1986),
and we
r eas s i gn
t he r es i du al val u e added t o al l
ot her s ec t or s
equ al l y .
Thu s ,
i n
Kor ea,
i ns t ead of
ac c ou nt i ng
f or
38%
of
manu f ac t u r i ng
val u e
added,
s ec t or 38 ac c ou nt s f or
14%.40
The r es u l t f or Kor ea i s s hown i n r ow 1 i n Tabl e 12. The ac t u al s ec t or -
wi de
gr owt h
r at e,
A*,
was
6.7%,
t he r ec al c u l at ed one
6.1%,
du r i ng
a
39. It i s
pos s i bl e
t hat i ndu s t r i al
pol i c y s i gni f i c ant l y
i nc r eas ed t he val u es of A* i n s ec t or s
ot her t han t hos e
pr omot ed
du e t o one or mor e ext er nal i t i es . Whi l e t hi s
may
be t he
c as e,
i t i s
l i kel y
t hat mos t ext er nal i t i es oc c u r wi t hi n i ndi vi du al s ec t or s or i n
c l os el y
r el at ed ones . Gi ven t he
many
br anc hes
c ons t i t u t i ng
t he M et al Pr odu c t s and M ac hi n-
er y
s ec t or ,
t he ext er nal i t i es s hou l d have been r eveal ed i n i t s own TF P val u e.
40. Pu t
di f f er ent l y ,
i t has been s hown ear l i er t hat Kor ea's vP/vA r at i o f or M PP was 2.76.
If t hi s had been
one,
t he ac t u al s har e of val u e added wou l d have been
13% r at her
t han
36%, i .e.,
t he s har e wou l d have been c ons t ant at t he 1968 l evel . If f ac t or s had
been al l oc at ed t o al l of t he
r emai ni ng
s ec t or s
equ al l y ,
t he s ec t or -wi de
aver age
val u e
f or A* wou l d have been .061 r at her t han .067.
264 PAGE
per i od
i n whi c h t he
gr owt h
r at e of
manu f ac t u r i ng
val u e added was
17.5%
per
annu m. Even i f t he "exc es s "
gr owt h
of t he M PM s ec t or i s
at t r i bu t ed t o s el ec t i ve
i nt er vent i on,
i t s r at e of TF P
gr owt h
was not
s u f f i c i ent l y
above t hat of ot her s ec t or s t o make a
l ar ge
c ont r i bu t i on t o
over al l i ndu s t r i al TF P
gr owt h.
The
major
r eas on f or Kor ea's manu f ac -
t u r i ng
s u c c es s
l ay
i n
hi gh
i ndi vi du al TF P
gr owt h
r at es f or mos t s ec t or s
i n mos t
per i ods .
A
c al c u l at i on,
s i mi l ar t o t hat f or Kor ea c an be done f or
Japan.
Tabl e 12 s hows t he ac t u al
gr owt h
of A* f or 1960-1979 and t he
es t i mat ed
gr owt h,
had t he s ec t or s
c ons t i t u t i ng
38 been at t he i nt er na-
t i onal
nor m,
24% of
manu f ac t u r i ng
val u e added r at her t han
41%
i n
1979. The val u e of A* wou l d have dec l i ned f r om 2.3 t o
1.9,
a
r el at i vel y
s mal l dec r eas e
gi ven
t he
gr owt h
r at e of
manu f ac t u r i ng
val u e added of
8.7%
per
annu m.
5. Pol i c i es
f or Rapi d
Gr owt h i n a
Changi ng
Wor l d
Ec onomy
What c au s ed Eas t As i a's s u c c es s ? In
l ar ge
meas u r e t he HPAEs ac hi eved
hi gh gr owt h by get t i ng
t he bas i c s
r i ght .
Pr i vat e domes t i c
i nves t ment ,
c ombi ned wi t h
r api dl y gr owi ng
hu man
c api t al ,
wer e t he
pr i nc i pal
engi nes
of
gr owt h. Agr i c u l t u r e,
whi l e
dec l i ni ng
i n r el at i ve
i mpor t anc e,
exper i enc ed r api d gr owt h
and
pr odu c t i vi t y c hange. Popu l at i on gr owt h
r at es dec l i ned mor e
r api dl y
i n t he HPAEs t han i n ot her
par t s
of t he
devel opi ng
wor l d. And s ome of t hes e ec onomi es al s o benef i t ed f r om a
head s t ar t i n t er ms of t he edu c at i on of t he l abor f or c e and
c apabl e
and
ef f ec t i ve
s y s t ems
of
pu bl i c
admi ni s t r at i on. In t hi s s ens e t her e i s l i t t l e
t hat i s "mi r ac u l ou s " abou t t he HPAEs '
s u per i or
r ec or d of
gr owt h;
i t i s
l ar gel y
du e t o
s u per i or
ac c u mu l at i on.
To what ext ent ar e t hos e l es s ons f r om Eas t As i a
appl i c abl e
t o ot her
devel opi ng
ec onomi es ? In t he
HPAEs ,
a wi de
var i et y
of
pol i c i es ,
ac r os s
c ou nt r i es and over t i me wi t hi n
c ou nt r i es ,
wer e u s ed t o ac hi eve t he
c r i t i c al f u nc t i ons of
gr owt h:
ac c u mu l at i on, al l oc at i on,
and
pr odu c t i vi t y
gr owt h.
Whi l e t he s heer
var i et y
of
pol i c i es pr ec l u des dr awi ng any
s i mpl e
l es s ons or
maki ng any s i mpl e
r ec ommendat i ons ,
t wo f u ndamen-
t al i s t l es s ons c an be dr awn. M ac r oec onomi c
s t abi l i t y
and t he
c apac i t y
t o
r es pond ef f ec t i vel y
t o mac r oec onomi c s hoc ks
hel ped
t o ac c el er at e
gr owt h t hr ou gh
al l t hr ee
mec hani s ms ,
i nc r eas i ng
ac c u mu l at i on,
i m-
pr ovi ng
r es ou r c e
al l oc at i on,
and
i nc r eas i ng pr odu c t i vi t y gr owt h.
Edu c a-
t i on
pol i c i es
t hat s t r es s ed
br oadl y
bas ed
pr i mar y
and
s ec ondar y
edu c at i on c ont r i bu t ed
di r ec t l y
t o
ou t pu t gr owt h
and
appar ent l y
al s o
i ndi r ec t l y t hr ou gh
t he i nt er ac t i on of edu c at i onal s hoc ks and
expor t
or i ent at i on t o TF P
gr owt h.
The Eas t As i an M i r ac l e ? 265
Ou r
ju dgment
was t hat t he
pr omot i on
of
s pec i f i c
i ndi vi du al i ndu s -
t r i es made
r el at i vel y
l i t t l e di f f er enc e t o t he HPAEs ' s u c c es s .
Rat her ,
expor t pu s h s t r at egi es
have been t he mos t
gener al l y
s u c c es s f u l s el ec t i ve
appr oac h
u s ed
by
t he HPAEs and hol d t he
gr eat es t pr omi s e
f or ot her
devel opi ng
ec onomi es . It i s not
al t oget her s u r pr i s i ng
t hat we c onc l u de
t hat
expor t
or i ent at i on r at her t han i ndu s t r i al
pol i c y
was
mai nl y r es pon-
s i bl e f or
i mpr ovi ng pr odu c t i vi t y gr owt h
i n
Japan
and Kor ea. Thes e
ec onomi es ,
al t hou gh s el ec t i vel y pr omot i ng c api t al
and
knowl edge
i n-
t ens i ve
i ndu s t r i es ,
s t i l l ai med at
c r eat i ng pr of i t abl e, i nt er nat i onal l y
c om-
pet i t i ve
f i r ms . The
y ar ds t i c k
u s ed t o eval u at e i ndu s t r i al
pol i c i es
s u c c es s
-mai nl y expor t per f or manc e-pr ovi ded
a mar ket t es t of t he s u c c es s or
f ai l u r e of t he
pol i c y
i ns t r u ment s c hos en.
Pi c ki ng
wi nner s
may
have
s u c c eeded mor e bec au s e
Japan
and Kor ea s et
expor t t ar get s
f or
pr o-
mot ed i ndu s t r i es and u s ed
expor t per f or manc e
t o as s es s t he s u c c es s of
pol i c i es
t han bec au s e of s u c c es s i n
s el ec t i ng
i ndu s t r i al s u bs ec t or s .
Des pi t e
t hei r
pot ent i al
benef i t s ,
s el ec t i ve
i nt er vent i ons ,
es pec i al l y
when c ombi ned wi t h ac c es s t o s c ar c e r es ou r c es s u c h as
f or ei gn
ex-
c hange
and
c r edi t ,
have a
hi gh
r i s k of
c apt u r e by
t he
par t i c i pant s .
Capt u r e
was avoi ded-and r es ou r c e al l oc at i on
may
have been i m-
pr oved-i n Japan
and Kor ea
by
t he c ombi nat i on of
r epeat ed
r el at i on-
s hi ps
bet ween bu s i nes s and
gover nment
and t he u s e of
expor t s ,
not
domes t i c GDP
gr owt h,
as t he
y ar ds t i c k by
whi c h t he s u c c es s of t he
i ndu s t r i al
s t r at egy
was meas u r ed. In ot her
HPAEs , however ,
s u c h
el abor at e c ont es t s wer e not
u s ed-e.g.,
i n
Hong Kong, Si ngapor e,
or
Tai wan-or wer e
u ns u c c es s f u l ,
as i n t he c as es of t he HICOM dr i ve i n
M al ay s i a
or r ec ent ef f or t s at
t ec hnol ogi c al l eapf r oggi ng
i n Indones i a.
In t he HPAEs t hat i nt er vened
s el ec t i vel y
t o
pr omot e expor t s ,
a
c ont es t bas ed on
per f or manc e
i n
gl obal
mar ket s
pl ay ed
t he al l oc at i ve
r ol e t hat i s
nor mal l y
as c r i bed t o neu t r al
expos u r e
of bot h
i mpor t
s u bs t i t u t i ng
and
expor t i ng
i ndu s t r i es t o i nt er nat i onal
c ompet i t i on.
Bu t
t hes e c ont es t -bas ed i nc ent i ve s t r u c t u r es
r equ i r ed hi gh gover nment
i n-
s t i t u t i onal
c apabi l i t y .
One of t he
key s
t o s u c c es s of t he
expor t pu s h
i n
s ome of t he
HPAEs ,
es pec i al l y Japan
and
Kor ea,
was t he
gover nment 's
abi l i t y
t o c ombi ne
c ooper at i on
wi t h
c ompet i t i on. They
wer e abl e t o do
t hi s
f i r s t ,
bec au s e t hei r c i vi l s er vi c es and
pu bl i c
i ns t i t u t i ons wer e
l ar gel y
s t af f ed
by c ompet ent
and hones t c i vi l
s er vant s ,
and
s ec ond,
bec au s e
f i r ms and bu r eau c r at s knew t hat t her e was a
s i ngl e y ar ds t i c k
f or
per f or manc e, expor t s .
Expor t t ar get s pr ovi ded
a c ons i s t ent
y ar ds t i c k
t o meas u r e t he s u c c es s
of mar ket i nt er vent i ons . When
pr ot ec t ed
s ec t or s i nt er f er ed wi t h t he
expor t s
of ot her
s ec t or s ,
t he l at t er c ou l d s eek r edr es s and wer e s u c c es s -
f u l . Even wher e domes t i c c ont ent r u l es wer e
i mpos ed, e.g.,
on
f or ei gn
266 PAGE
di r ec t i nves t or s i n
Tai wan,
t hey
wer e
s u s pended
i f
t hey
i nt er f er ed wi t h
expor t s .
The
emphas i s
on
expor t c ompet i t i venes s gave
bu s i nes s es and
bu r eau c r at s a
t r ans par ent
and
objec t i ve s y s t em
t o
gau ge
t he
des i r abi l i t y
of
s pec i f i c
ac t i ons . Int er vent i ons c ou l d not be made
ar bi t r ar i l y ,
bec au s e
t hes e c ou l d be
appeal ed
at a
hi gher
l evel of
gover nment
i f
t hey
i nt er f er ed wi t h
expor t s .
The mor e r ec ent
expor t pu s h
ef f or t s of t he
Sou t heas t As i an NIEs have r el i ed l es s on
hi ghl y s pec i f i c
i nc ent i ves and
mor e on
gr adu al
r edu c t i ons i n
i mpor t pr ot ec t i on, c ou pl ed
wi t h i ns t i t u -
t i onal
s u ppor t
of
expor t er s
and a
du t y -f r ee r egi me
f or
i npu t s
i nt o
expor t s .
Thes e "GATT
f r i endl y "
expor t pr omot i on s t r at egi es
of f er s u b-
s t ant i al
s c ope
f or
adopt i on by
ot her
devel opi ng
ec onomi es .
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Cambridge,
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Comment
SUSAN M. COLLINS
Georgetown University,
The
Brookings
Institution,
and NBER
This
provocative paper
reexamines the
experiences
of the East Asian
miracle economies
(so-called because of their remarkable
growth perfor-
mances).
One
relatively
noncontroversial section of the
paper provides
further evidence in
support
of two conventional conclusions-that
sound macroeconomic
management
as well as broad-based educational
policies played important
roles in the
impressive performances.
The
provocative part
of the
paper
focuses on the role of
micro-management,
concluding
that while
export promotion
did contribute to
high growth,
the
targeted
industrial
policies many
of the countries
employed
did not.
Comment 269
Thomas, V.,
and Y.
Wang.
(1993). Government
policies
and
productivity growth:
Is East Asia an
exception? Background paper
for The East Asian Miracle.
Washington,
DC:
Policy
Research
Department,
The World Bank.
United Nations
Development Programme.
(1991). Human
development report.
New York: Oxford
University
Press.
Vittas, D.,
and Y.
Je
Cho. (1993). Credit
policies:
Lessons from East Asia.
Washington,
DC: The World Bank.
Wade,
R.
(1990).
Governing
the market: Economic
theory
and the role
of
the
govern-
ment in East Asian industrialization.
Princeton, NJ:
Princeton
University
Press.
Warr, P.,
and B.
Nadhiprabha.
(1993). Macroeconomic
policies,
crisis and
growth
in the
long-run:
Thailand.
Background paper prepared
for
Boom, Crisis,
Adjustment:
The Macroeconomic
Experience of Developing
Countries. New York:
Oxford
University
Press.
Wei, S.-Jin.
(1993).
Open
door
policy
and China's
rapid growth:
Evidence from
city-level
data.
Prepared
for the 4th Annual East Asian Seminar on Eco-
nomics,
the National Bureau of Economic
Research,
Cambridge,
MA.
World Bank.
(1992). World
development report.
New York: Oxford
University
Press.
(1993). The East Asian miracle.
Washington,
DC:
Policy
Research
Depart-
ment,
The World Bank.
World
Development
22: 627-670. (1994).
Young,
A.
(1992).
A tale of two cities: Factor accumulation and technical
change
in
Hong Kong
and
Singapore. Paper presented
at a World Bank seminar.
February.
(1993). Lessons from the East Asian NICS: A contrarian view.
Working
paper
series no. 4482.
Cambridge,
MA: National Bureau of Economic Re-
search,
Inc.
Comment
SUSAN M. COLLINS
Georgetown University,
The
Brookings
Institution,
and NBER
This
provocative paper
reexamines the
experiences
of the East Asian
miracle economies
(so-called because of their remarkable
growth perfor-
mances).
One
relatively
noncontroversial section of the
paper provides
further evidence in
support
of two conventional conclusions-that
sound macroeconomic
management
as well as broad-based educational
policies played important
roles in the
impressive performances.
The
provocative part
of the
paper
focuses on the role of
micro-management,
concluding
that while
export promotion
did contribute to
high growth,
the
targeted
industrial
policies many
of the countries
employed
did not.
270 ? COLLINS
Unfortunately,
I am not convinced that the
methodology
used here
supports
the author's conclusions. In
my
view,
the
jury
is still out as to
the lessons East Asian economies teach about the merits of micro
interventions.
Before
discussing
the
specifics
of the
paper,
let me make two
points.
First,
the
paper
addresses
very important
issues that it is
helpful
to
put
in context. There is a
long-standing
debate about the role that
govern-
ment intervention has
played
in
high-performing
Asian economies
(HPAEs).
This
study
comes out of a
major
World Bank
project
to assess
the
development strategy
in East Asia and draw lessons for other
countries with
poor growth
histories. In
particular,
was there a reason
to amend the traditional World Bank view that such intervention is
harmful?
Thus,
the
present paper
and the
larger
World Bank
study
seem to
represent
a
qualitative change
in World Bank
doctrine,
which
now allows a limited role for
micro-management
as
part
of a sensible
development strategy.
In
my
view,
this more balanced "conventional
wisdom" is warranted and
appropriate.
Second,
based on
my
own
knowledge
of the Korean
experience,
I am
quite sympathetic
to the view that the extensive interventions have
helped
to foster
growth
in East Asia-in
fact,
I believe that this view is
probably
correct.
My critique
of this
paper
should be taken as an
assessment of the
specific approach
and conclusions
presented
here,
and not as an
outgrowth
of
my priors
about the role of intervention.
Let me now return to the
specifics
of the
paper, roughly
in the order
of
presentation.
The first
part
of the
paper
is devoted to
documenting
the
experience
of
rapid growth among
HPAEs and to
examining
alter-
native
explanations
for it. The author divides the views into two
camps:
fundamentalists-who stress the role of factor accumulation and tend
to believe that markets worked well-versus
mystics-who
focus on
the role of
technology
and tend to believe that activist
government
policies helped
to
remedy
market failures. The author's
analysis
of the
data leads him to conclude that "the East Asian success
story
is, then,
primarily
a fundamentalist one."
The
analysis presented
does not
really
allow one to
distinguish
between the two views. It seems to me that the
approach
is
likely
to
underestimate the role of
technology, making
it difficult to draw firm
conclusions-if the
objective
is to debunk the
mystic
view,
surely
one
would like to know the maximum amount that
technology
could
reasonably
contribute to
growth.
The
paper
estimates total factor
pro-
ductivity
(TFP)
for HPAEs under the
assumption
that
they
all have the
same
production
function as industrial countries. It seems more reason-
Comment ? 271
able to assume that their
production
functions were
converging
toward
the function for industrial countries. In
fact,
the
paper
tells us that the
elasticity
of
output
with
respect
to
capital
is much
larger
for the
industrial
country sample
than for the full
sample including
the devel-
oping
countries. This
suggests
that the
methodology
overstates the
contribution of
capital
accumulation to
growth
in the
developing
coun-
try
HPAEs,
thus
understating
the contribution of TFP.
However,
it is
difficult to tell how
large
the underestimate
might
be.
It is also difficult to draw
strong
conclusions from the evidence about
factor accumulation here. To
study
the role of
accumulation,
the
paper
presents
scatter
plots
of
average
income
growth,
investment
rates,
and
education indicators
during
1960-1985 each relative to 1960
per capita
incomes for HPAEs and a
group
of
comparator
countries.
Although
the
HPAEs are outliers in terms of their
growth
rates,
it is much less
obvious that
they
are outliers in terms of investment and education.
One
problem
is that these
very aggregate
measures of factor accumula-
tion
may
mask
important
differences
among
countries.
Further,
the
method seems
quite
sensitive to time
period.
For
example,
Korea had
very
low investment rates
(12.1%
of
GDP)
during
1960-1965 versus
27.2%
during
1965-1985. If the
period
selected
began
in
1965,
Korea
might
be an "outlier" in terms of both
growth
and investment rates. I
also note that
Denison-style growth decompositions
do
point
to the
importance
of factor accumulation in Korea. Kim and Park
(1985)1
find
that increases in factor
inputs
contributed
substantially
to
growth
in
Korea
during
1963-1982
(4.9%
per
annum).
It seems to me that both accumulation and
technological progress
have been
important-as
a
group,
the HPAEs stand out because
they
have tended to do well in both.
(Of course,
there are differences across
countries.)
Perhaps
the
fundamentalist-mystic
debate creates a false
dichotomy.
Technical
progress
and accumulation
appear
to interact in
complex
but difficult to measure
ways,
and we
may
learn a considerable
amount
by studying
this interaction.
The next section of the
paper
reaffirms two conventional
lessons,
both of which I
agree
with
strongly.
I mention these lessons
only
briefly.
First,
sound macroeconomic
management produced
a stable
environment for economic
activity
to flourish. In
fact,
over the
past
decade,
there has been a
striking convergence
of views about the
1. See
Kim,
K.
S.,
and
J.
K. Park.
(1985). Sources
of economic
growth
in Korea: 1963-82.
Seoul,
Korea: Korea
Development
Institute,
pp.
67-69.
272 ? COLLINS
importance
of small
budget
deficits,
monetary
control,
and realistic
exchange
rates. The
experiences
of these
high-growth
economies have
played
a role in the
development
of this consensus. At the same
time,
the
paper
does not address the
political economy
of how and
why
these economies were able to
initiate,
implement,
and follow
through
on sound macroeconomic
policies.2
Second,
the
paper emphasizes
the role of broad-based education
systems.
Here,
I wonder if the
point
could have been made even more
strongly
if data on
private spending
on education had been included
along
with the
public expenditure figures.
In
many
Asian economies a
strikingly large
fraction of
disposable
household income is devoted to
tutors and other additional education
expenditures
for children. In
addition,
the
paper
notes that the share of national income devoted to
education
during
both 1960 and 1989 in HPAEs is similar to the share in
comparator
countries. This is a little
misleading,
because the HPAEs
have had a dramatic decline in
dependency
rates between 1960 and
1989-hence,
the rise in
per pupil expenditures.
The last
part
of the
paper
draws two "unconventional" conclusions:
that the
promotion
of manufactured
exports
was a
significant
source of
measured TFP
change,
while industrial
policies
mattered little. In the
remainder of
my
remarks,
I
explain why
the
jury
is still out on the
effects of these
types
of
policies.
To
study export promotion,
the
paper presents
a
cross-country
re-
gression
of
average
TFP
growth
on the ratio of manufactured to total
exports,
a measure of
"openness"
and other
right-hand-side
variables.
The
export
ratio and
openness
are found to be
significant.
However,
what does this tell us about the effects of active interventionism that
promoted
certain
types
of
exports through
direct credit allocations and
other forms of micro
management?
The
export
ratio is
partially
a
structural variable that
depends
on endowments as well as on
policy.
Further,
as the
paper
notes,
the measure of
openness
used is
typically
described as a measure of sensible
exchange
rate
management. Perhaps
this variable is
simply picking up
the
importance
of sound macroeco-
nomic
policy-a
"conventional" lesson.
To
study
industrial
policy,
the
paper compares
TFP
growth
across
two-digit
industries within countries. It finds that
although
the
average
2. For
example,
see
Haggard,
S. and R. Kaufman (eds.). (1992).
The
politics of
economic
adjustment.
Princeton, NJ:
Princeton
University
Press;
and
Williamson, J.
(ed.). (1994).
The
political economy of policy reform. Washington,
DC: Institute for International
Eco-
nomics.
Comment 273
TFP is
high among
HPAEs,
it does not
appear
to be
relatively higher
in
certain
promoted
sectors than in
nonpromoted
ones.
However,
it is not
clear that the
promoted/nonpromoted
distinction is made
appropri-
ately.
For
instance,
textiles and
garments
are taken to be a sector that
was not
promoted,
even
though
Korea
promoted
it
during part
of the
period
under consideration.
Further,
perhaps
a successful industrial
policy
works
by raising average
sectoral
productivity
and
reducing
the
variation in
productivity growth
across sectors. This
finding may
be
quite
consistent with an effective intervention
strategy.
There are three additional
problems
with this
analysis-as
well as the
concern
expressed
earlier about how TFP is measured.
First,
the at-
tempted
distinction between
export promotion
and industrial
policy
is
strange.
Industrial
policies
are defined as "distinct from trade
policies,
government
efforts to alter industrial structure to
promote productivity
based
growth."
How would the author
classify
selective credit alloca-
tions to firms
producing
color televisions that
helped
to increase their
productivity
and their
exports? Surely
such an intervention should
count as both industrial
policy
and
export promotion!
Second,
there is the
problem
of the
"appropriate
counterfactual." It is
not at all clear that other countries
(with
a
variety
of different character-
istics)
are the
appropriate
benchmark
against
which to measure the
implications
of a
given country's attempt
to
promote
a
particular group
of
exports.
Also,
as
already
discussed,
"good"
industrial
policy may
work to reduce differences in cross-sectoral
productivity
instead of
increasing
them. These issues warranted
considerably
more discussion
in the
paper.
A clearer
analytic
framework that
spelled
out the channels
through
which
export promotion
and industrial
policies
are
expected
to
work would have
helped
in this
regard.
Finally,
the
methodology
tries to look for broad
generalizations,
when
surely
the HPAE and other
experiences suggest
that some
types
of interventions work under some conditions.
Thus,
it would be instruc-
tive to focus our research on
trying
to understand better when
particu-
lar
types
of interventions are most
likely
to work
well,
and when
poorly.
For
example,
does sector matter-is it easier to succeed in
promoting
certain
types
of industries? When are direct credit alloca-
tions riskier than tax-based incentives?
Overall,
this
paper
has reinforced
my
view that sound macroeco-
nomic
policies
and educational
emphasis promote growth.
However,
it
has not altered
my
view that while the
upside potential
from an activist
intervention
strategy appears
to be
high,
the down-side risk
appears
to
be even more considerable.
274
*
ITO
Comment
TAKATOSHI ITO
Harvard
University
and NBER
This
paper presents
Dr.
Page's
view on how
rapid
economic
growth
occurred in the
eight
East Asian
countries-Japan, Hong Kong,
Korea,
Singapore,
Taiwan, Indonesia,
Malaysia,
and Thailand. His
knowledge
and
analyses
are
mainly
based on a
grand
research
study
conducted at
the World Bank
(1993).1
The
study
at the World Bank is considered to
be an overture to second
thoughts
on its
development
assistant strat-
egy.
The value and virtue of
government
intervention,
such as
policy
loans
(subsidized
loan to
targeted
industries),
is at the heart of the
controversy.
This
paper succinctly
summarizes
major
debate
points
in
the literature of East Asian
growth experience. My
comments follow the
presentation
of
Page's paper.
1.
Rapid
Growth and Its Source
No one
disagrees
that
growth experiences
in the
eight
East Asian
countries were miraculous. All of the
eight
countries have recorded
growth
in GDP
per capita exceeding
4%
a
year, especially
the "Four
Tigers" exceeding
6%
a
year
from 1965 to 1989. This
presents
"outliers"
in the so-called
convergence regression. Figure
1 of the
paper clearly
shows that these East Asian countries are outliers in the
regression
of
growth
on the initial level of income.
Theory predicts
that low-income
countries tend to
grow
faster so that
"convergence"
in the level of
income
among
countries in the world will occur. Of course
growth
depends
on accumulation of
labor,
capital,
and
technology.
Even
adjust-
ing
for those
factors, i.e.,
basically looking
at TFP
growth
such as in
Tables 1 and
2,
the TFP
growth experience
is
impressive
for
most,
not
all,
of the
eight
countries.
I have reservations on this
way
of
introducing
a "miracle" and set
up
the
following analysis,
as
many papers
do
by
now. As a student of "old
growth theory,"
I tend to
distinguish
a
growth process,
which is a
I am indebted to Anne
O.
Krueger
and David Weil for their
helpful
comments on the
preceding
version of this comments.
1. The World Bank
(1993),
The East Asian
Miracle,
has
already
been
widely
reviewed.
Rodrik (1993)
challenges
some of its
assertions,
especially
links between
hypotheses
and
regression
results. Amsden
(1993)
criticized the half-hearted
appreciation
of
gov-
ernment interventions and industrial
policy.
Comment 275
process
of
quantity changes,
from economic
development,
which is
more about
quality changes. My objection
to a
convergence regression
is that it
ignores
the nonlinear
process,
or
qualitative change,
of eco-
nomic
development.2
Simon Kuznets observed that when a
country
starts on a sustainable
growth path, qualitative changes
have to occur. Investment
grows
sharply,
industrial structures
change,
and
growth
results with social
changes.
Britain led the industrial revolution and modern economic
growth
in the mid-18th
century,
followed
by
France,
the United
States,
and
Germany
in the first half of the 19th
century. Many European
countries started
rapid
economic
growth
between 1860 and
1870,
ac-
cording
to Kuznets. Kuznets
(1959)
coined the
phrase
"modern eco-
nomic
growth," listing
some common features:
(1)
the
application
of
modern scientific
thought
and
technology
to
industry;
(2)
a sustained
and
rapid
increase in real
product per capita, usually
(but
not
always)
accompanied by
a
high
rate of
population growth;
(3)
a
rapid
transfor-
mation of the industrial structure
(changing
sectoral
output,
labor
force,
and
capital
stock
distribution);
and
(4)
an
expansion
of international
contacts.
Kuznets,
by
the
way,
dates the start of modern economic
growth
of
Japan
at around 1874 and 1879.
Was it also a "miracle" to have seen the
European
countries
experi-
ence
rapid
economic
growth
around the turn of
century?
If Kuznets
dates modern economic
growth
for Asia in the
year
2020,
the date for
the Four
Tigers
would be sometime around 1960 and the ASEAN four
around 1970. Wouldn't it be more heuristic to
compare
East Asian
experiences
not with the current
developing
nations but with the
European
industrial revolution? Of
course,
Korea in 1960 faced
quite
different economic conditions from Britain in 1780.
However,
the kind
of
change
in industrial
structures,
work
habits,
saving
behavior,
and
other social
changes may
be similar.
This is more than
just
a
philosophical point.
Consider the Solow
diagram
of
(Y/L)
on
(K/L).
Depending
on the
shape
of the
production
function,
there
may
be
many steady
states. Let us
suppose
that there
are two stable
equilibria,
the
low, k*,
and the
high,
k**,
with an
intermediate,
unstable
steady
state,
kc. If a
country
can make a
jump
(in
a matter of a
decade)
from k* to somewhere above
kc,
the critical
value,
then the
"convergence" logic
works. But an
interesting part
is not the
convergence process
between kC and
k**,
but an initial
jump
from k*
to above kc. Is the
jump
a miracle or a
big push?
2. The
following argument
is a
summary
of
my previous
comments on a
convergence
paper by Easterly
(1994);
see Ito
(1994).
276 ? ITO
I consider that it is more
interesting
to see what causes the
jump
from
a low
equilibrium
(vicious circle)
onto a
path
toward a
high equilibrium.
Once
high
investment kicks
in,
growth
results,
and
growth
fosters
confidence in the
country
and
high savings
result, which connects to
investment,
a virtuous circle.3
Many
countries made a
jump
or a takeoff to a
high-growth path
in
different times. We
may
be
witnessing
a
group
of countries
taking
off
from Asia. A benchmark to be
compared
should be the earlier
develop-
ment
experiences by European
countries,
the United
States, Canada,
Australia,
and
Japan
in different
times,
rather than
contemporary
devel-
oping
countries.
If this version of Kuznets's view of the world is
accepted,
then the
regular convergence regression
does not make sense. At
best,
it is
misspecified
in that it mixes
up
three
groups
of countries: one
large
group
of countries that are
yet
to take off-low level of incomes with
low rates of
growth;
a
group
of OECD countries-a
high
level of
income with a low rate of
growth;
and a small
group
of countries that
are in the
process
of
catching up-high-growth
rates with a low- to
middle-income
level, i.e.,
"converging."
What a
convergence regression
attempts
to
capture
is the third
group
of countries.
2. Common Denominators
of
Success
The
paper
lists common denominators
among
the
eight
countries.
First,
the
paper
observes that the
growth experience
was
accompanied by
relative income
equity.
Then,
four
keys
for success are
explained:
(1)
maintaining
macroeconomic
stability,
(2)
broad-based educational
strategies,
(3)
export growth,
and
(4)
insignificance
of industrial
policy.
The first two are called
"conventional,"
while the latter two are called
"unconventional."
Obviously,
few
disagree
with the conventional wis-
dom,
and I make
only passing
remarks. I will make more extensive
comments on the unconventional
ones, (3)
and
(4).
It is obvious that macroeconomic
stability
is
important
for
growth.
But macroeconomic
stability
is
easy
to achieve when
growth
is
high,
a
possibility
of reverse
causality.4
When income is
growing
faster than
3. This is a
simple argument
of low- and
high-income multiple equilibria
in the frame-
work of the Solow model. I
certainly
do not claim this
argument
to be
particularly
original.
Professor
James
Tobin
pointed
out to me
during
the conference that similar
points
were made
by
Richard R. Nelson
(1956, 1960).
4. In
1960,
Japanese political power
was
paralyzed
over the new
security treaty
with the
United States. A new
10-year plan
"to double income" was
proposed by
a new
prime
minister,
Hayato
Ikeda,
to heal the wounds between the
political right
and left. Growth
as a national
target
was used to achieve
political
and macroeconomic
stability.
See Ito
(1992,
pp.
61-67)
for macroeconomic
planning.
Comment
*
277
expected,
tax revenue will be
higher
to
help
fiscal
balance,
and inflation
is easier to control.
Education is
important. Usually, primary
and
secondary
enrollment
rates or
public expenditure
on
education,
as in Tables 7 and 8 of this
paper,
are used to show the evidence on
high
human
capital
accumula-
tion.5 These variables are
admittedly proxies.
What is learned in an
education
system,
from
knowledge
accumulation to
group
conducts, as
well as education at
home,
may
be more
important
in
growth.
But
they
are hard to measure.
3.
Sequencing
as Industrial
Policy
The
paper argues
that
export push
was a successful
strategy,
while
industrial
policy
was
"insignificant." Exports
have enhanced
growth,
while
trying
to
pick particular
industries has not been successful. The
former assertion was
supported by high
correlations between some
measures of
openness
and
exports, including
the
admittedly
controver-
sial Dollar
index,
and
growth.
The latter assertion was
supported
mainly by
evidence that TFP
growth
in
promoted
sectors in
Japan,
Korea,
and Taiwan were not
particularly high,
and
promotion
of
partic-
ular industries did not
change
overall
growth, compared
with what it
would have been without intervention.
In
discussing
industrial
policy,
I will
challenge
the
paper
from two
aspects:
What is
important
in industrial
policy
is
"sequencing,"
which is
not discussed in the
paper.
Sequencing
of the
leading
industries in the
economy
is considered to
be a
key
to
growth, according
to an oral tradition of East Asian
countries.6 For
example,
industrial
policy
in
Japan
has been centered
around
promoting industry
after
industry:
textiles and
toys,
steel,
chem-
icals,
shipbuildings,
to
high-tech
industries. Due to
required sophistica-
tion in
technology
and
large
fixed
costs,
the
government
was aware of
the
importance
of
sequencing
industries. The
developed "light
and
low-tech" industries make a
platform
for a
jump
to the next
stage,
"mid-tech" industries. A
jump
to
"high
tech" is
only appropriate
after a
5. Rodrik
(1993)
pointed
out that
growth
can be
explained by
the "initial" condition of
high
education levels and
equity
in income and land
distributions,
without
using
the
investment/GDP
ratio that Rodrik
correctly points
out as
"endogenous."
6. A broad
concept
of
sequencing
in economic
development
is often called a
"flying geese
pattern"
in the
Japanese
literature.
Originally,
the
flying geese pattern
was named after
the
pattern
of
import
substitution to
export
substitution,
in one
industry
after another.
Later,
it is directed to a
pattern
of
regional
countries'
development sequencing;
the
leader,
Japan,
is followed
by
Korea, Taiwan,
Hong Kong,
and
Singapore,
and
they
in
turn are followed
by
other ASEAN countries.
278 ? ITO
Japan
Korea Taiwan
Hong Kong Singapore
Textile 1900-1930 1960s
Early
1950s
Early
1960s
Again
1950 1970s
(dominant)
Again
1970s
Clothing,
apparel
1950s 1960s 1950s-1960s
1970s
Toys,
watches,
1950s 1960s 1960s-1970s
footwares 1970s
Refining (promo)
Early
1960s
Steel 1950s-1960s
(promo)
Latye
1960s-
Early
1970s
Chemicals 1960s-1970s Late 1960s 1970s
Early
1970s
Shipbuilding
1960s-1970s 1970s
Electronics 1970s Late 1970s 1980s 1970s
1980s
Automobile 1970s-1980s 1980s
Computers,
1980s Late 1980s
semiconductors
Banking
and Late 1970s 1980s
finance 1980s
Source:
Japan,
Korea,
Taiwan: author's
judgment; Hong Kong, Singapore, Young
(1992).
success at the mid tech" industries. Profits and
experiences-both
management
and labor-in a lower
stage
are
key
for a success in
developing
a
higher stage.
Too
high
a
jump
to
skip
a
stage,
just
like an
attempt
to take off an
airplane
with too
steep
an
angle,
would result in
a
crashing
failure. East Asian
countries,
having
observed a
history
of
European
and U.S. economic
history,
have
repeated
the same
process,
but faster.7
The table that
appears
in this Comment shows an
experience among
East Asian countries of such
sequencing.
If
sequencing
is
important,
then four
implications
follow.
First,
it is
not a "miracle" to observe takeoff in Asia. It is
just repeating
what
Europe
did a
century ago.
(This
is also
pointed
out in the first
part
of
these
comments.) Second,
when
repeating
a
history,
it is
easy
to
predict
which
industry
comes
next,
hence
"picking
a sunrise
industry"
is not as
7. See Ito
(1992,
Chapter
2) for elaboration on economic takeoff and
sequencing.
Ito
(1992,
Chapter
2,
footnote 18) invokes an
analogy
to a
biological
idea that
"ontogeny
recapitulates phylogeny."
Comment
*
279
risky
as it is often claimed.
Many Japanese
economists
argue
that
promoting particular
industries in the 1950s and 1960s was
theoretically
possible
and
successful,
but it became
impossible
and undesirable to
pick
winners in the
1980s,
as the
economy
became more "mature."
Third,
showing
low TFPs in
"promoted
sectors" cannot be used as
evidence for a failure of industrial
policy.
If industrial
policy
made it
possible
to run
up
the
stages
faster,
it is a success even without
realizing
high
TFPs in each
stage.8
Fourth,
showing
that the
composition
of industries in
Japan
and
Korea is not different from the theoretical
prediction
(Table
12 of
Page's
paper)
cannot be taken as evidence of the irrelevance of industrial
policy.
Even if the
composition
after intervention is the same as the
composition predicted
from
theory,
the success is
getting
there fast.
4.
Regional
Secret?
However,
the
puzzle
still remains. If an initial
push
can be done
anywhere
in the
world,
one should observe
high growth taking place
randomly
on the
globe.
This is not the case. The
19th-century growth
was concentrated in
Europe
and North America
(with
an
exception
of
Australia and
Japan),
while the late
20th-century growth
is
happening
in Asia.
Certainly geographical proximity plays
an
important
role.
Technological
transfers,
worker
mobility,
trade
links,
and
political peer
pressure may
be
important
factors in
regional development.
It
hap-
pened
in Asia in the 1980s.
Maybe
another "miracle" will occur some-
where else in the 2000s.
REFERENCES
Amsden,
A. H.
(1993).
Why
isn't the whole world
experimenting
with the East
Asian model to
develop?
Review of the World Bank's East Asian Miracle
Report,
to
appear
in
Symposium
on the World Bank's East Asian Miracle
Report,
in World
Development.
Easterly,
W.
(1994).
Explaining
miracles: Growth
regressions
meet the
gang
of
four. In
NBER,
East Asian seminar on economics
1993,
T. Ito and A.
O. Krueger
(eds.).
Ito,
T.
(1992). The
Japanese economy. Cambridge,
MA: The MIT Press.
(1994). Comments on William
Easterly, Explaining
miracles: Growth
regressions
meet the
gang
of four. In
NBER,
East Asian seminar on economics
1993,
T. Ito and A.
O.
Krueger
(eds.).
Kuznets,
S.
(1959). Six lectures on economic
growth.
Glencoe,
IL: Free Press.
8. The
point
made
by Young
(1992),
in that
Singapore
invested too fast to
enjoy learning
curve
effects,
is also not taken as a failure from the
sequencing point
of view.
280 ? DISCUSSION
Nelson,
R. R.
(1956).
A
theory
of the low-level
equilibrium trap
in underdevel-
oped
economies. American Economic Review 46:896-908.
(1960).
Growth models and the
escape
from the low-level
equilibrium
trap:
The case of
Japan.
Economic
Development
and Cultural
Change
8:378-388.
Rodrik,
D.
(1993).
King Kong
meets Godzilla: The World Bank and The East
Asian Miracle.
Mimeo,
December.
Young,
A.
(1992).
A tale of two cities: Factor accumulation and technical
change
in
Hong Kong
and
Singapore.
NBER macroeconomic annual 1992.
Cambridge,
MA: The MIT Press.
Discussion
Page responded
to several
points
raised
by
Collins and
by
Ito. He
agreed
with Collins that
creating
a
dichotomy
between the
productivity
growth
and accumulation views was
misleading.
The more
important
question, suggested Page,
is how these economies
performed
so well on
both fronts and how
they
were able to
generate
and sustain such
high
rates of accumulation of
physical
and human
capital
without the effi-
ciency
losses observed in the former Soviet Union and in Eastern
Europe. Page
also
agreed
with
Collins
that it is
important
to address the
political economy
issue of
policy implementation
and to understand the
particular
institutions that
might explain
the success of the macro-
economic
managers
and bureaucracies in these countries.
Page
clarified the distinction made in the
paper
between industrial
policy
and
export promotion. According
to the
export promotion
view,
the actual
process
of
exporting
is
special,
rather than the
goods
that are
produced.
Under the industrial
policy
view, however,
it is the
particular
goods
and industries that are
important. Page agreed
that it is often
difficult to
disentangle
the effects of the two
stories,
especially
since the
criteria for success of industrial
policies
often seems to be related to
export performance.
While
Page
felt that the results of the
paper
and
other more micro-oriented studies
support
the
export-promotion story,
he noted that more
case-study
evidence was needed before
reaching
stronger
conclusions.
Page
also
suggested
that one
way
to
interpret
industrial
policy
in
Japan
and Korea was as a
response
to coordination
failures or market
imperfections.
He noted that this would make it more
difficult to determine whether industrial
policy
was successful since
such a
policy
would
appear market-conforming,
ex
post.
Olivier Blanchard
questioned
the use of the
high-income country
elasticity
for the
computation
of TFP
growth.
The standard
approach
is
either to use
capital's
share of income as the
elasticity
or to estimate the
280 ? DISCUSSION
Nelson,
R. R.
(1956).
A
theory
of the low-level
equilibrium trap
in underdevel-
oped
economies. American Economic Review 46:896-908.
(1960).
Growth models and the
escape
from the low-level
equilibrium
trap:
The case of
Japan.
Economic
Development
and Cultural
Change
8:378-388.
Rodrik,
D.
(1993).
King Kong
meets Godzilla: The World Bank and The East
Asian Miracle.
Mimeo,
December.
Young,
A.
(1992).
A tale of two cities: Factor accumulation and technical
change
in
Hong Kong
and
Singapore.
NBER macroeconomic annual 1992.
Cambridge,
MA: The MIT Press.
Discussion
Page responded
to several
points
raised
by
Collins and
by
Ito. He
agreed
with Collins that
creating
a
dichotomy
between the
productivity
growth
and accumulation views was
misleading.
The more
important
question, suggested Page,
is how these economies
performed
so well on
both fronts and how
they
were able to
generate
and sustain such
high
rates of accumulation of
physical
and human
capital
without the effi-
ciency
losses observed in the former Soviet Union and in Eastern
Europe. Page
also
agreed
with
Collins
that it is
important
to address the
political economy
issue of
policy implementation
and to understand the
particular
institutions that
might explain
the success of the macro-
economic
managers
and bureaucracies in these countries.
Page
clarified the distinction made in the
paper
between industrial
policy
and
export promotion. According
to the
export promotion
view,
the actual
process
of
exporting
is
special,
rather than the
goods
that are
produced.
Under the industrial
policy
view, however,
it is the
particular
goods
and industries that are
important. Page agreed
that it is often
difficult to
disentangle
the effects of the two
stories,
especially
since the
criteria for success of industrial
policies
often seems to be related to
export performance.
While
Page
felt that the results of the
paper
and
other more micro-oriented studies
support
the
export-promotion story,
he noted that more
case-study
evidence was needed before
reaching
stronger
conclusions.
Page
also
suggested
that one
way
to
interpret
industrial
policy
in
Japan
and Korea was as a
response
to coordination
failures or market
imperfections.
He noted that this would make it more
difficult to determine whether industrial
policy
was successful since
such a
policy
would
appear market-conforming,
ex
post.
Olivier Blanchard
questioned
the use of the
high-income country
elasticity
for the
computation
of TFP
growth.
The standard
approach
is
either to use
capital's
share of income as the
elasticity
or to estimate the
Discussion ? 281
elasticity. Page responded
that data on
capital
income shares were not
available. In
estimating
the
elasticities,
the issue is how to
separate
the
effect of TFP
growth
from the effects of allocative inefficiencies. For a
subset of
developing
countries in the
sample, output growth
was
negative,
while factor accumulation was
positive, suggesting
severe
resource allocation
problems
that would introduce noise in the
produc-
tion function estimates.
Therefore,
the elasticities were
computed
from
the
high-income
countries since
they
were the least
likely
to suffer
these allocation inefficiencies.
Herschel Grossman commented that an
important prior question
is
whether initial conditions allowed
particular
countries to achieve
high-
growth
rates. If certain
growth
rates are
economically
infeasible
given
the available
resources,
then the
political economy
issue of how institu-
tions foster
growth
is a
secondary
issue.
Page responded
that the initial
conditions that are
imposed by
the data are
presumably
affected
by
prior public policy
actions,
which is
why understanding
the evolution
of institutions is
important.
He added that the historical record on
identifying necessary
conditions for
growth
and
predicting growth
rates was
poor.
For
example,
in the late 1950s the USAID identified
Burma and the
Philippines
as the
growth poles
for East Asia and wrote
that the most serious
impediment
to South Korea's economic
develop-
ment was its
bureaucracy.
Andrew Atkeson asked whether it was
exports
or trade more
gener-
ally
that was connected to
growth.
He noted that factor
proportions
theory
would
suggest
that
by opening up
to
trade,
the
economy
could
buy
more
capital
services or intermediate
inputs.
This
might
be related
to the
sequencing theory
advanced
by
Ito,
if factor
proportion
differ-
ences were viewed as the reason that the
economy
moved from indus-
try
to
industry. Page
answered that the
high
trade to GNP ratios for the
HPAEs were not achieved
by
incentive-neutral
policies,
but rather
by
highly
selective
promotion
of
exports
and admission of
imports.
He
added that there was evidence from the micro literature that firms
competing
with
imports
and firms that
compete
on the
export
market
but within the same
industry
have different
learning
effects.
John
Cochrane commented that
important
variables in the
regres-
sions such as
,
vings,
education,
and
growth,
were
endogenous,
and
questioned
whether
any
causal statements could be made. Cochrane
interpreted
the
experience
from the Soviet Union and Eastern
Europe
as evidence that an
exogenously high savings
rate doesn't cause
growth,
suggesting
that the observed
positive
correlation between
savings
and
growth
should be
interpreted
as the result of countries
saving
because
they
know that their
growth prospects
are
good.