The Myth of Asia’s Miracle
Foreign Affairs Vol. 73 Is. 6
Paul Krugman
THESIS:
Like the Soviet expansions of the 1950’s, the Asian Miracle is nothing more than a gilded
reality of input-driven growth, subjected to the law of diminishing marginal returns.
EVIDENCE:
- Singapore “Perspiration not Inspiration”
- Employment swelled from 27% to 51%
o Nearly a doubling of the employment rate
- More educated labor force
o In 1966 less than half the population had a formal education, but by 1990
that rate diminished to just one third
- Heavy investment in physical capital
o As a share of output, investment increased from 11% to over 40%
Krugman argues that this rate of growth is exponential in nature. The numbers do not
lie on this front. His point is that the rate of growth shown by Singapore is not
sustainable. You can not expect the share of the employed population to once again
double, and in a generation you cannot expect a large majority of workers to have a
masters or doctoral degree.
- Four Tigers All four of these economies saw explosive growth in such a rapid fashion never seen
before that it was believed they were doing something we needed to pay attention to.
The reality of the numbers was that there simply was never any achievement by way of
advanced efficiency in output. Their growth was a factor of mass input growth, which is
not a sustainable source of growth.
- Japan Shrouded in the success of the tigers, Japan has been grouped in similar fashion and has
been seen as the prodigal child considering its current standing as the second-largest
industrial power. After a more in depth look, however, data reviles a growth in both
capital and efficiency. Economists seem keen to ignore Japans slow down. They have
plateaued, in essences. As Japan grew, the projections that they would soon over take the
U.S. as a leading economic super power are reminiscent of the supposed Soviet take over
of the 1950’s. Original projects never came to fruition, having fallen short with no future
projects to once again overcome the U.S.
- China Though little attention is paid to the success of China, Krugman points out the statistical
nightmare of trying to measure accurate growth in China. The data coming from China
is often skewed, and determining what is reliable and what is not, is difficult. He also is
quick to point out the difficulties in pinpointing a starting point in China’s upward swing.
Nevertheless, after arguing for the lack of sustainable potential from the other HPEA
economies, it’s difficult to believe China will be able to maintain the rate at which their
economy is expanding.
The Sources of Asian Pacific Economic Growth
Canadian Journal of Economics Vol. 29 Is. 2
Jong-Il Kim & Lawrence J. Lau
SUMMARY:
The analysis examines fourteen economies priced in terms of 1980 values, examining
which factors drove the economic growth of the nations. They divide the subjects into
two separate categories: Asian Pacific Countries (APCs) which include China, Hong
Kong, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, and
Thailand, and Industrialized Western Countries (IWCs) which include France, West
Germany, the United Kingdom, and the United States. The study tests four different
methods for cross-country analysis, but ultimately maintain the null hypothesis that a
meta-production function analysis provides more accurate results, concluding this was a
p-value of both 1.000 and 0.998. In using this method, Kim and Lau cho0se three
parameters of interest; the elasticities of capital and labor production as well as local
returns to scale. Their results in percent of growth contributions are listed below:
Country
APCs
China
Hong Kong
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
IWCs
France
West Germany
United Kingdom
United States
Capital
Labor
Technical
Progress
92.2
55.8
115.7
62.9
70.9
99.5
60.0
86.3
88.9
71.9
9.2
16.0
11.5
4.7
18.7
22.6
20.9
12.7
8.6
12.7
-1.4
28.2
-27.2
32.4
10.5
-17.5
20.1
1.0
2.5
15.3
37.8
43.7
46.0
32.9
-1.3
-6.3
3.7
26.2
63.5
62.6
50.3
41.0
The research concludes that the APCs rely more on capital input followed by labor input
to grow their economies. For western nations, however, the growth seen in their
economies is more driven by technical progress (efficiency) followed by capital input.
Japan is the outlier in the data, aligning more with IWCs. Their findings imply that
“eventually increases in the capital input alone will not be sufficient for the APCs to
maintain their current rate of economic growth”.
PRESENTATION OUTLINE
- Introduction (< 1 minute)
- Perkins (8-9 minutes)
- Krugman (8-9 minutes)
o Thesis
 Soviet growth 19502
 The East Asian Miracle is simply a modern day parallel
phenomenon, gilded in what appears to be the secret to success,
but in reality is not a sustainable answer or even a model we
should entertain. East Asia grew in the same fashion as the Soviet
did, through “perspiration not inspiration”.
o Evidence
 Singapore
 Four Tigers (Paper Tigers)
 China
 Japan
o Kim & Lau
 Later study further confirms that growth in the 1980s was driven
primarily by capital and labor input as opposed to technical
progress, siting the regions inability to maintain sustained growth
using this fashion of productivity
- Conclusion (1 minute)
o Growth is apparent, but the success of the region is divided between those
who view East Asia as being a model for the development of poor nations
while still others view their growth as a one-time event not meant to
evolve into an end-all-be-all answer.
o Sources
 Kim, J., & Lau, L. J. (1996). The sources of Asian Pacific economic
growth. Canadian Journal of Economics, 29(2), S448.
 Krugman, P. (1994). The Myth of Asia’s Miracle. Foreign Affairs,
73(6), 62-78.
- Q/A (3-4 minutes)
JM:
We’ve been given a basic understanding of the extreme growth and development in
South East Asia. The better question to ask, however, is can we replicate that. The World
Bank asked such a question in 1993 and proposed that there were a few fundamental
similarities between nation to nation, evolving the East Asian Miracle into a paradigm.
Both of our articles beg to differ.
X:
[Transition to introduce your article]
[Talk about your article using the slides you prepared]
[Conclude your explanation]
JM:
To add yet another conflicting view on the circumstances surrounding the growth in East
Asia, Paul Krugman, in his article The Myth of Asia’s Miracle, goes one step further to
criticize the notion of a model. He states that there is not, in fact, a model at all, and if
you pay close attention to history you’d be able to see how closely the experiences in
Pacific parallel that of the Soviet Regime of the 1950s.
- SLIDE 4 The peak of the Soviet Era economy hit in the 1950’s and spurred panic in the U.S. Think
the race to space and many other Kennedy era policies driven towards boosting the
economy. Economists began to study further centrally panned economies and if that was
the secret that lead the Soviets to expand their economy is such a rapid fashion.
Eventually it was determined that it was the exponential jump all at once in input
production. Employment expanded dramatically, education increased dramatically, and
investment in capital expanded dramatically. All together and you have a recipe for a
rapidly growing economy. In the words of Krugman, its “perspiration, not inspiration”.
- SLIDE 5 Like the economic growth seen during the Soviet Era, economic growth seen in SEA was
also dominated by the concept of input-driven growth, where by sheer volume of
increased inputs, the economies of the Four Tigers grew exponentially.
An extreme example would be that of Singapore. From 1966 to 1990, Singapore doubled
the size of its labor force, educated most of them, and began investing at unheard of
rates. Krugman doesn’t dispute the economic success of East Asia, but rather points out
the unsustainable nature and fragile foundation it built. Singapore cannot once again
double the employment force or have nearly all its citizens achieve a higher education
degree nor can it invest at a ridiculous rate of 60 or 70%. Eventually nations growing in
this fashion will be subjected to diminishing returns because they are simply working
harder, not smarter.
- SLIDE 6 To further underline the point Krugman makes, a second article published later in 1996
by Jong-Il Kim and Lawrence J. Lau in the Canadian Journal of Economics sought to
outline exactly what was responsible for the growth. The analysis examines fourteen
economies priced in terms of 1980 values, ten of them termed Asian Pacific Countries
(APCs) and four Industrialized Western Countries (IWCs). The study tests four different
methods for cross-country analysis, but ultimately maintains the null hypothesis that a
meta-production function analysis provides more accurate results, concluding this with a
p-value of both 1.00 and 0.998. In using this method, Kim and Law choose three
parameters of interest; the elasticities of capital and labor production as well as local
returns to scale.
The research concludes that the APCs rely more on capital input followed by labor input
to grow their economies. For western nations, however, the growth seen in their
economies is primarily driven by technical progress (efficiency) followed by capital
input. Japan is the outlier in the data, aligning more with IWCs. Their findings imply
that “eventually increases in the capital input alone will not be sufficient for the APCs to
maintain their current rate of economic growth”
- SLIDE 7 I think it can be recognized the difficulties with assimilating both China and Japan in a
group with the other Asian nations. In Krugman’s criticism of the Asian Miracle, he pays
little attention to either China or Japan. He makes a point of bringing up the statistical
nightmare of understanding China’s economic development citing often skewed and
biased data. As for Japan, the evidence presented earlier by Kim and Lau shows how
Japan is in fact an outlier, relying less on labor input and more on technical progress.
Considered to be the second-largest industrial power, Japan can probably attribute this to
its focus on efficiency, aligning its growth model more on that of western nations.
Despite this, they have hit, essentially, an economic plateau.
- Conclusion X:
[A transition]
[Summation of your article in a sentence or two]
JM:
In the view of Krugman, the Asian Miracle, like the Soviet expansions of the 1950’s, is
nothing more than a gilded reality of input-driven growth.