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Nuanced neoclassical school of thought.

The growth of East Asia has been reviewed by both mainstream neoclassical school of
thought and revisionist on the context of the role of government intervention in achieving rapid
and equitable growth (Chu, 1997).
World Bank (1993), on its paper the East Asia miracle, a representation of neoclassical
view, argues that the success of East Asia economies was due to a stable macroeconomic
environment and a trustworthy legal framework to encourage both domestic and international
competition. The neoclassicals further argued that East Asia involvement in international trade
and absence of price controls and government intervention led to low inflation rates. They further
argued that the government’s role was to investment in education, people and health as human
capital was important in High performing Asia economies.
Amsden (1989) stated that the revisionist view, which argued that East Asia success was
due to government intervention. Contrarily to the neoclassical view that constant policies were
used, they argued that East Asia used various policy mixes which were diverse and flexible. They
further argued that market failures were consistent as opposed to the neoclassicals who stated
that occurrence of market failures was rare. According to the revisionist market failures guided
investment to industries that were likely to generate the highest growth in the economy.
Therefore, government in East Asia deliberately got the prices wrong to alter the incentives in the
economy so as to boost industries that would not have thrived.
World Bank (1991), stated that neither neoclassical nor revisionist views accounted fully
the growth of East Asia economies. World Bank therefore expanded the neoclassical view by
stating that rapid growth in developing countries was due to effective and limited government
intervention. Government role was therefore to; ensure ample investments in people, provide a
conducive environment for private investments, ensure international trade and to maintain a
stable macroeconomy. If governments went beyond this role they were likely to do more harm
than good if the intervention is not market friendly.
According to World Bank, East Asia economies; were stable macro-economically, had a
high level of GDP from international trade, had invested heavily in people and they also had high
competition between firms. In addition to macroeconomic stability the high performing Asia

This was done by use of various policies that were either market oriented or led by the state.1996). ensured efficient allocation of resources and technological catch up. The bank further went on and emphasized that government interventions aimed at allocating resources efficiently should address market failures. preferential loans and lend grants at the early stage of economic development when markets are uncompetitive competition may be created artificially. accumulated resources. Both the government and competing firms monitored the performance of various firms. However. argued that the if the government allocates various rents such as tax and subsides . The contests involved non market allocation rules such as provision of rationed credit for exporters and coordination of private investment with the government. East Asia experienced coordination externalities as a market failure in the early stages of development which they corrected by enhancing cooperative behavior between private firms and setting performance standards. the policies took place within the setting of good. However. Selective intervention on the other hand involved mild financial suppression. the policies addressed problems in the market. According to the Bank. East Asia used these contests to discourage unproductive rent seeking behavior as it was transparent. direct credit. vital policies and the government had the ability to establish and monitor suitable . government and the private sector. (World Bank. This process is known the use of contingent rents. Competitiveness and coordination disciplines were also encouraged in East Asia according to the Bank. investment in human capital. In addition some economies created contests that combined competitive spirit while encouraging cooperation among firms. Fundamental policies are policies that encourage macroeconomic stability. Murdock and Okuno-Fujiwara . markets would allocate resources efficiently. The government therefore rewarded firms based on their performance by giving them access to credit or foreign exchange. Else. 1993). they argued that selective intervention succeeded because. paper went further to recognize the role of government intervention in growth especially in Northern Asia. limited price fluctuations and advanced technology. franchise. industrial targeting and policies that push exports of non-traditional goods.economies. Lau (1996). Government intervention were therefore displaced by competition through markets or contest. World Bank (1993). (Aoki. these policies varied across different economies and over time. Policies were therefore divided into fundamental policies and selective policies. a financial system that is stable.

argued that East Asia growth had three different aspects. Young findings led to investigations on the sources of East Asia growth.economic performance criteria in relation to the policies. He explained by stating that Singapore grew because of mobilization of resources. Young (1994b) and Kim and Lau (1994) challenged the views of World Bank. high stands of the education system and increase in investment on physical capital. on the other hand. argued that East Asia growth was due to increase of inputs in growth and technical efficiency however. The first aspect was accumulation which was important than total factor production. However. He justified this by stating that the production process did not only include the relationship between inputs and outputs but it was an outcome of a series of economic decisions based on different non-price as well as . on his paper the myth of East Asia miracle argued that the growth of East Asia was driven by growth in inputs such as labour and capital rather than increase in efficiency. They argued that the growth was due to the growth of inputs. capital and labour based on Krugman’s perspiration variables. Krugman (1994). He further argued that increase in investments was due to policies used by high performing Asia economies in relation to human and physical capital. The report concluded by stating that. Crafts (1998). success or failure of a policy depends on the institution base in which the policies are implemented. According to them total factor production did not make a significant impact in the growth of East Asia. increase in population. After this publication. Han (2003) relaxed the postulates of full technical efficiency and considered the possibility that East Asia economies were inside the best practice production frontier. Felipe (1999). The third aspect was that economic development created a legacy of financial and various institutions which provided negative and positive implications for future growth opportunities. technological progress did not play a role in the increase in total factor productivity. He further argued that the changes in behavior such as doubling of population could not occur again hence the high growth rates experienced in Singapore are unlikely to occur in the future. The second aspect was that the rapid change in population in East Asia gave a boost to economic growth as East Asia economies had an advantage of increase in labour provision.

Comparative Institutional Analysis.): The Role of Government in East Asian Economic Development. Oxford: Clarendon Press 1997 .organizational factors which determined the allocation of inputs. Masahiko/Hyung-Ki Kim/Masahiro Okuno-Fujiwara (eds. supported Young’s conclusion on East Asia growth. economic institutions also determined the output in the economy. Therefore. Reference Aoki. According to him the contribution of total factor productivity to output was significant. Studies conducted by Singh and Trieu (1996). Hence the newly industrialized economies relied on accumulation of factors of production.