Seeking the Model of the East Asian Economic Growth

1
Seeking the Model of the East Asian Economic
Growth

• J.D. Han

2
1. Asian Miracles by World Bank

• The first official report started in 1993.
• The full report can be found at
  http//www-wds.worldbank.org/external/default/main
  ?pagePK64193027piPK64187937theSitePK523679me
  nuPK64187510searchMenuPK64187283theSitePK5236
  79entityID000009265_3970716142516searchMenuPK6
  4187283theSitePK523679

3
2. Original WTO Report Asian Miracles

• The High Performing Asian Economies (HPAEs)
  Japan, Hong Kong, the Republic of Korea,
  Singapore, Taiwan, Indonesia, Malaysia, and
  Thailand (Note that China was not in).
• It finds that the diversity of experience, the
  variety of institutions, and the variations in
  policies among the HPAEs does not allow a model
  to be developed. (World Bank said at the time
  we may know better)
• However, some lessons for other developing
  countries can be learned from the East Asian
  experience.
• First, growth is not Automatic HAPEs use a
  variety of government intervention or policies to
  achieve three functions of growth - accumulation,
  allocation, and productivity growth (there are
  some controversies for example Krugmans Growth
  Accounting).
• Second, it is essential to get the fundamentals
  right. 1) High levels of domestic saving, 2) good
  macroeconomic management, and 3) broad based
  human capital.
• Third, the government intervention should have
  specific orientations, such as limited
  price(market economy) distortions, and
  export-promotion.

4
3. Facts and Statistics

• East Asian countries have recorded
• unique experiences of Economic Growth
• -gt Fast
• -gt Sustained over a fairly Long-run

5
(No Transcript)
6
(No Transcript)
7
(No Transcript)
8
Note well that

• There is a marked difference
• before and after the 1997 Asian Financial Crisis
• HPAEs did not include China before AFC
• HPAEss growth rates have fallen significantly
  after AFC
• -Even after the recovery from AFC, there is no
  recovery or big increase in investment in HAPEs
  or China Savings go to U.S., and to China.

9
(No Transcript)
10
4. Analysis Tool

• What caused such a high growth?
• In its explanation, the World Bank report
• In the Conventional/ Neo-Classical Theory
• K, L, and Technology

11

• Some argue that there is no big
• contribution by T
• to the economic growth
• in the EA countries (Paul Krugman
• Alwyn. Young).
• In fact there is not much of indigenous
• technical innovations of the EA.

12
What if the above cannot explain the EA growth
fully?

• Endogenous Growth Theories
• Human Capital
• Social Capital and
• Government Policies

13
4. Factors of East Asian Miracles

• Word Bank attributed the Asian Miracles to
• Accumulation of Physical Capital (Savings)
• Hard work (Labor Supply) and
• ___________________________________________
• 3) Fostering Human Capital (Education)
• 4) Social Capital (Harmony-not confrontation, Law
  and Order, Lack of Corruption)
• 5) Sound Government Policies (Industrial Policy,
  Export Promotion, etc.)
• Slightly ambivalent about Technology(?).

14

• The composition of Capitals is important
• -World Bank report classifies K into at least 4
  (Physical Natural Human Social)
• West Africa Natural Capital is relatively large,
  but Human Capital is relatively small
• East Asia Human Capital is relatively large and
  Natural Capital is relatively small
• - Carolos Leite argues that natural capital
  without the balancing forces of other capitals
  hurts, not help economic growth.

15
5. Human Capital in East Asia

• Human Capital Creativity Knowledge
• Soundness of Mind and Body
• Human Capital is fostered through
• Education of all levels

16
1) Measuring Human Capital

• Human Capital is conventionally
• Measured/proxied by
• Schooling (Years) and/or
• National Expenses on Education
• (They are incomplete measures!)

17
Public Expenditure on Education is misleading
It is not High in Asia
18
(No Transcript)
19
2)Other Measurements

• However, in East Asia other training expenses
  should be included for the proxy of Human
  Capital
• Home Education
• Private Education Costs
• Overseas Studies
• Military Training/Services
• Company-Run Night Schools

20
3) Reflect on Education in East Asian context

• Why is education so much valued in EA?
• In East Asia, Education has been
• the most important means of
• Social Mobility or
• the Upward Movement in Social Class.

21
Incentive for Education

• Education is Investment
• Investment responds to Returns
• Upward Mobility
• through Income and Recognition Scales
• of the Society Social Mobility

22
6. Social Capital

• Order
• Social Cohesion
• Lack of Social Conflicts
• Harmony
• Lack of Civil Wars

23
7. Government Policies

• Industrial Policies
• Facilitating most efficient
• Resource Allocation
• Export Promotion Policies
• Promotion of Strategic Industries

24
Export-Orientation is conducive for Economic
Growth

• Specialization based on Ricardos
• comparative advantage theory of trade
• Trade provides Expanded Market, which enables
  (Large) Scale of Production
• Openness provides changes for
• Technology Transfer

25
Example of a Wrong Government Economic
PolicyPerils of Import Substitution Policy

• The focus is on minimizing Imports
• by producing all kinds of Goods
• No Specialization
• Producing Outputs which have
• no Comparative Advantage
• -gt Inefficient Allocation of Resources
• No Benefits of Scale of Production

26

• Scholars started linking
• the Five Attributes for
• East Asian Miracles to
• more Fundamentals, such as
• Institutions or Value/Belief of
• Neo Confucianism, readily found in
• Japan, Taiwan, Korea..

27
Confucian Idea of Meritocracy

• Person with Merits -gt
• Select the person with merit
• for leadership
• At the top is the Philosopher King or
• Wise Dictator
• http//en.wikipedia.org/wiki/Philosopher_king
  
• He has Noblesse Oblisse
• Noblesse oblige  is a French phrase
  literally meaning "obligation of Nobility
• person with status has to fulfill social
  responsibilities, particularly in leadership
  roles.

28
Confucianism, Education System, and Social
Mobility in Historical Conext

• Ching dynasty
• Social mobility increased during the early
  Ch'ing, supported by a pervasive belief that it
  was possible for a peasant boy to become the
  first scholar in the land. An ethic that stressed
  education and hard work motivated many households
  to invest their surplus in the arduous
  preparation of sons for the civil service
  examinations. Although the most prestigious
  career in Ch'ing society remained...
• Ming dynasty
• ...the Ming civil service, that influential
  families did not monopolize or dominate the
  service, and that men regularly rose from
  obscurity to posts of great esteem and power on
  the basis of merit. Social mobility, as reflected
  in the Ming civil service, was very possibly
  greater than in Sung times and was clearly
  greater than in the succeeding Ch'ing era.
• Tang dynasty
• ...examination system had facilitated the
  recruitment into the higher ranks of the
  bureaucracy of persons from lesser aristocratic
  families, most officials continued to come from
  the established elite. Social mobility increased
  after the An Lu-shan rebellion provincial
  governments emerged, their staffs in many cases
  recruited from soldiers of very lowly social
  origins, and specialized finance...

29

• This is still the case in Japan, Korea,
• Taiwan, Singapore, and China to some
• extent.

30
Limitation of the Contemporary China

• Click here for an
• interesting paper on the social mobility of the
  contemporary China
• -gt What would you predict for the Hukou system as
  the communist party is faced with a shortage of
  Human Capital in the
• party?

31
In Sum

• The East Asian Economic Growth Model
• is a kind of Endogenous Economic
• Growth Model based on Human Capital,
• Social Capital, and Government
• The last two can be included in
• Institutions and Value/Belief, which is Neo
  Confucianism in East Asia.

32
7. Criticisms of the EA Economic Growth Model

• Paul Krugman
• Growth is due to increased factor intensity,
  or increases in K, and L input, and Not much due
  to Technical Innovation According to
  Neoclassical Theory, there will be convergence,
  and the East Asian growth is not sustainable.

33
Empirical Evidence

• Growth Accounting applied to East Asia does not
  show Technology as an Important Factor
• Refer to my note on Growth Accounting
• In the East Asian setting

34
2) Asian (Financial) Crisis

• Corruption at all levels of society
• Lack of Transparency - Opaqueness of Governance
• Vulnerable to Herding

35

• Korea recovered fastest from the Asian Financial
  Crisis of 1997.
• No discernable changes except for
• Openness to the U.S. capital and
• Investment

36
Reflection

• 1) Opaqueness also exists in Western Economies
• 2) Transparency may not be culturally possible
• Zen(?) From Heart to Heart(????)

37

• 3) Transparency may not be the only way to
  Information Efficiency
• Dominicans and Jews Need not Apply in Cents
  and Non-Senses by J. Carr
• 4) A moderate degree of Corruptions
• may be efficiency-enhancing
• in the imperfect economic system.