Ohio Wesleyan University Goran Skosples 12. East Asia

1. Ohio Wesleyan University Goran Skosples 12. East Asia

2. HPAEs Japan, Hong Kong, South Korea, Singapore, Taiwan, Indonesia, Malaysia, and Thailand

3. Key characteristics • primarily agricultural societies until the early 1960s • abundant labor + low marginal productivity in agriculture • state-led development model • initially very protected markets • export promotion

5. The miracle • steady and sustained growth for 25 years • accompanied by a decline in inequality • accumulation of human capital • high and persistent savings rate • stable financial system + postal savings banks • lag in demand • low inflation and positive real interest rates • concentrated banking sector • heavy regulation of banks

6. The miracle • high rates of investment • gov’t provision of infrastructure and skilled labor • the role of directed credit & development banks • banks’ focus on ____-term projects and emphasize real estate lending and commerce financing • banks tend to focus on large enterprises • limited role of ________________ markets • low cost of imported inputs (investment goods) • ______ and _______________ manipulations • ________ controls  limit the export of ______

7. The miracle • the market friendly approach of HPEAs • neither market oriented nor wholly interventionalist • gov’t intervention justified on ground of market failures: • __________ is lacking • __________ are common • market is ____________  coordination failure • gov’t could outperform the market in these cases • _______________  export performance as a yardstick (“managed competition”) • was it really the miracle or something else?

8. The miracle? • is it sustainable? • growth can come from: • increased inputs • increased productivity • HPEAs: research shows most of growth (___) came from increased inputs • increase in labor force - higher participation rate • redeployment of workers from low productivity areas (agriculture) to high productivity areas (manufacturing) • more capital per worker • sustained growth comes from increases in total factor productivity (TFP). In HPEAs, 25% of growth can be attributed to TFP (1% of growth)

9. The East Asian Crisis • high inflow of foreign capital in mid 1990s • in the form of ___________ investments • very few ____________ capital investments • ___ capital account  ___ current account • interest rates in the US _ + _____ exchange rate • problems in Korea and Thailand (_______ capitalism) caused foreign investors to lose confidence – capital flight + currency attacks • a run on banks  credit crunch

10. Policy response • the International Monetary Fund’s (IMF) role: • extended credit to recapitalize banks • required stringent fiscal and monetary policies

11. Lessons • macroeconomic stability • gov’t provision of infrastructure and human capital • industrial policy and directed credit • stability of the financial system • stock markets not as important • FDI • corruption in the bureaucracy • Future? Will the system hold? What will be the role of managed development? What happens when the comparative advantage of cheap labor is exhausted?