Chapter 16
ExportOriented
Growth in
East Asia
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Chapter Objectives
• Understand the causes of strong and
sustained economic growth in East Asia
• Analyze the factors underlying East Asia´s
1997 economic and financial crisis
• Discuss the recovery of the East Asian
economies
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Introduction: The High
Performance Asian Economies
• The High Performance Asian Economies
(HPAE) as designated by the World Bank:
Hong Kong, Indonesia, Japan, Malaysia, Singapore,
South Korea, Taiwan, Thailand
• The Four Tigers: the two city-states of Hong Kong
and Singapore, Korea, and Taiwan
• The Four Tigers are also referred to as the Four
Dragons or the Little Dragons
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Newly Industrializing Economies
(NIE)
• Newly industrializing economies are a
broader group of countries, not confined to
East Asia
• Along with economies of East Asia (Indonesia,
Malaysia, and Thailand)
• This also includes a number of Latin American
countries (Argentina, Brazil, Chile, and Mexico)
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HPAE Characteristics
• Maintain stable macroeconomies
• Strong commitment to shared economic
growth through health care, education, and
housing
• Promote exports, remaining open to imports
• Exports provide foreign exchange earnings
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Population, Income, and
Economic Growth
• In contrast to Latin America, East Asia has
long enjoyed the following:
– Macroeconomic stability
– Income equality
– Skilled workforce
– Export orientation
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TABLE 16.1
Population and GDP for the HPAE, 2007
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TABLE 16.1 (continued)
Population and GDP for the HPAE, 2007
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TABLE 16.2
Average Annual Growth in Real GDP per Capita,
1980–2007
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TABLE 16.2 (continued)
Average Annual Growth in Real GDP per Capita,
1980–2007
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General Characteristics of
Growth in the HPAE
• Shared growth-rising economic equality
• Rapid accumulation of physical and human
capital
• Rapid growth of manufactured exports
• Stable macroeconomic environments
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TABLE 16.3
Measures of Income Distribution, East Asia
and Latin America
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TABLE 16.3 (continued)
Measures of Income Distribution, East Asia
and Latin America
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Rapid Growth of Manufactured
Exports
• HPAEs have high rates of investment thanks to high
savings rates, which stem from:
– Stable macroeconomic environment of low inflation
– Rapid rate of income growth
– Demographic transition: shift to low death and
birth rates
– Rapid rate of income growth
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TABLE 16.4
The Share of HPAE in World Exports,
1965–2000
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Stable Macroeconomic
Environments
• HPAEs kept budget deficits and foreign debt
within the limits of the ability of the government to
finance without having to print money or borrow
excessively
– Low inflation rates helped keep interest rates stable,
enabled firms to take a long-term view on their
investments
• The crisis of 1997 proves the rule: significant
reduction in export earnings and growth of current
account deficits in some HPAE countries
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The Institutional Environment
• In the HPAEs, large flows of savings were
channelled into the financial system, which
lent them to businesses that used them
efficiently
• Moreover, governmental rules fostered
efficient economic outcomes
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Features of HPAEs’ Institutional
Environment
• Reliable property rights
– Bureaucracies are competent
– Contracts are enforced
– Access to information is wide-spread
– Regulations are clear and well-publicized
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Features of HPAEs’
Institutional Environment (cont.)
• Fiscal Discipline
• Business-Government Relations
-Deliberation councils: Quasi-legislative
bodies set up by six HPEA governments that bring
together representatives from the private and the
public sectors to coordinate the information flow
between businesses and policymakers
• Avoiding rent seeking
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The Institutional Environment: Fiscal
Discipline and Business-Government
Relations
• Government interventions are common in
three areas in HPEAs:
– Targeting of specific industries
– Direct credit
– Export promotion
• Let’s analyze industrial policies in greater
detail…
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The Role of Industrial Policies:
Targeting of Specific Industries
• Targeted industrial policies: Efforts to
alter a country’s industrial structure and thus
change its comparative advantages through
channelling resources to certain industries
– Also seen as the government’s picking winners
and losers
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Targeting of Specific Industries
(cont.)
• Six key tools of targeting:
– Restrictions on imports: licensing, quotas, tariffs, export
subsidies
– Direct credit: funds to an industry
– Subsidies
– Market information (especially foreign markets)
– Infrastructure construction
– Research and development funds
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Targeting of Specific Industries
(cont.)
• Targeted industrial policies are distinct from
other efforts to promote specific industries
– Resources provided only as long as the companies
receiving them met specific export targets
– Governments placed macroeconomic stability
above industrial policies
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Results of Targeting
• Disagreement about:
– World Bank: Export promotion and directed credit
did boost economic growth, but industrial policies
in general did not
– Critics: It is impossible to know what growth rates
would have been without industrial policies
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Results of Targeting (cont.)
• Agreement that successful industrial
policies have:
– Clear performance criteria such as export
targets
– Institutional means to monitor and enforce
compliance
– Low costs in order for nontargeted sectors not
to suffer
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Table 16.5 Imports and Exports as a Share
of GDP
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Table 16.5 (continued) Imports and Exports
as a Share of GDP
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The Role of Manufactured Exports:
The Connections between Growth and Exports
• The promotion of manufactured exports played a
significant role in the industrial strategies
• Production of exports has several advantages:
– Makes possible the purchase of imported inputs
that can make firms more competitive
– In the case of HPEAs, the need to meet export
targets helped encourage FDI and the
acquisition of new technologies
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The Connections between Growth and Exports
(cont.)
• However, promotion of exports results in
greater GDP growth only if:
– There is something in the promoted production
process or its links to the rest of economy that
is absent from domestic-oriented production
– Exports speed up the adoption of international
best practices
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The Role of Manufactured Exports:
Is Export Promotion a Good Model for Other
Regions?
• Yes: Even if all developing countries
stressed export promotion, they would be
unlikely to saturate the industrialized
country markets
• No: Under the Uruguay Round rules of
1994, developing countries must eliminate
any subsidies contingent on export
performance
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Table 16.6 Free-Trade Areas in Asia and
Oceania
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Is There an Asian Model of
Economic Growth?
• East Asia is remarkable for its growth in per capita
income and in labor productivity
– Labor productivity depends on additional amount of
capital, education, and total factor productivity
(TPF)—issues related to new technologies, innovation,
and organizational improvements
• Research conclusion: The bulk of East Asian
growth is attributable to increases in capital and
education, rather than TFP
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Table 16.7 Sources of Growth, 1960–1994
(Percent)
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