Economics of East Asia:
Introduction
Yoonbai Kim
University of Kentucky
East Asia
• Northeast Asia: China, Japan, South Korea,
Taiwan, Hong Kong, Mongolia, North Korea
• Southeast Asia: Indonesia, Malaysia,
Philippines, Singapore, Thailand, Vietnam,
Cambodia, Laos, Myanmar, Brunei (ASEAN:
Association of Southeast Asian Nations)
• South Asia: India, Pakistan, Bangladesh, Sri
Lanka, Bhutan, Nepal
Asia in the World
Images of East Asia
• What comes to your mind first when you
think about “East Asia”?
• Consider one country at a time
– Japan
– China
– Korea
– (North Korea)
– Taiwan
– Hong Kong
– Singapore
Images of East Asia (2)
– Mongolia
– Malaysia
– Thailand
– Indonesia
– Philippines
– Vietnam
– Cambodia
– Laos
– Myanmar
– Brunei
East Asia is Diverse
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Population
Country size
Per capita income
Ethnicity
Religion
Political system
What’s special about East Asia?
• Dynamic growth.
– Is there an East Asian model?
• Asia features 4 of the world’s 12 largest
economies – China, Japan, India, Korea.
– Three of them are in East Asia.
• Financial crises of 1997
– Existing theories could not explain them.
• Regional economic integration
• Japan’s long stagnation: asset price bubbles
and collapse, long recession
• The reemerging China
G20
• USA, Japan, Germany, UK, France, Italy,
Canada (G7)
• Russia (G8)
• Argentina, Brazil, Mexico
• China, Indonesia, Korea, India
• Australia, Saudi Arabia, South Africa,
Turkey
• European Union
DYNAMIC GROWTH
The Rule of 72
• If per capita income of country A grows at
the rate of 3% a year, how long would it
take for it to double?
• Exact answer: (1.0+0.03)x = 2.0
ÞX = 23.45
• Approximate answer: 72/3 = 24
The East Asian Miracle
• World Bank (1993)
study
• High-Performing
Asian Economies
– Japan
– 4 Tigers: Hong Kong
SAR, Korea,
Singapore, Taiwan
– SEA late developers:
Indonesia, Malaysia,
Thailand
East Asian Miracle
• What are the sources of rapid growth in
East Asia?
• Important Issues
– State vs. Market
– The role of Industrial Policy
– Is there the East Asian Model?
THE PRODUCTIVITY DEBATE
Findings
• Alwyn Young (1995); Lau and Kim (1994)
– Productivity growth may have accounted for
only a small fraction of the growth of the East
Asian economies, with capital accumulation
being responsible for the bulk of it.
– Singapore, Hong Kong, Korea, Taiwan
Implications
• Paul Krugman (1994)
– draws parallels between East Asia and the
Soviet pattern of “extensive” growth.
– “Asian growth, like that of the Soviet Union in
its high-growth era, seems to be driven by
extraordinary growth in inputs like labor and
capital rather than gains in efficiency.”
• “..the miracle turns out to have been based on
perspiration rather than inspiration.”
• “In this sense, the growth of Lee Kuan Yew’s Singapore
is an economic twin of the growth of Stalin’s Soviet
Union.”
– Lee Kuan Yew: Prime Minister 1959-90, Senior Minister (- 2011)
– Joseph Stalin: the de facto leader of the Soviet Union from the
mid-1920s until his death in 1953.
– Paul Krugman won the Nobel Memorial Prize in Economics in
2008.
GDP per capita (PPP), 2012
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Singapore
Hong Kong
Taiwan
Korea
China
$60,900
$50,700
$38,500
$32,400
$9,100
– United States
– Japan
– Germany
$49,800
$36,200
$39,100
FINANCIAL CRISIS HITS
EAST ASIA, 1997-8
Financial crisis hits 5 Asian countries
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Thailand
Malaysia
Indonesia
Philippines
Korea
• Other EA economies
were also affected but
more mildly.
• What went wrong?
• What did they do to
recover?
• What are the
lessons?
East Asian Financial Crises, 1997-8
•
OTHER ISSUES
The China Factor
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1,325 million people (2008)
Currently No. 2 in GDP (PPP measure)
Expected to overtake the US in the near future*
China’s economic reforms and transition
Clashes with the US
– Large current account surpluses
– Huge international reserves
• The Renminbi issues
– Is the RMB undervalued?
– The RMB as an international reserve currency?
China’s Economic Growth
Japan’s Long Recession
Economic Integration in East Asia
• Strong interest in EU-type integration
• Also interested in a currency union similar to the
Eurozone
• Intensified after the 1997 financial crisis
• Proliferation in free trade areas (FTAs)
Summary: Topics to be covered
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East Asian Model
Industrial policy debate
Financial crises: causes and cures
Economic reforms in China
Japan’s long recession
Regional integration
Data Sources
• World Fact Book (CIA)
https://www.cia.gov/library/publications/the-worldfactbook/
• Wikipedia and other internet sources
• World Development Indicators (World Bank):
http://www.worldbank.org/
• Maps: http://geo.worldbank.org/
• GDP per capita:
http://en.wikipedia.org/wiki/List_of_countries_by
_GDP_(nominal)_per_capita
PPP measure
• For the international comparison of national
outputs of countries measured in their own
currencies (and in their own prices), a common
practice is to use the market exchange rate.
• Problems with this method
– Market exchange rates are volatile.
– Prices of similar goods are different across countries.
• The PPP measure tries to correct these
problems by evaluating produced goods and
services at common international prices (in US
dollars)
Video
• Commanding Heights, Episode Three: The New Rules of
the Game (video)
http://www.pbs.org/wgbh/commandingheights/lo/story/ch
_menu_03.html
– Ch 9. China and the Tigers
– Ch 10. The Japanese Paradox
– Ch 11. “Global Contagion Begins”
– Ch 12. “Contagion Engulfs Asia”