Gerber Ie7e PPT 16

International Economics
Seventh Edition
Chapter 16
Export Oriented Growth
in East Asia
Copyright © 2018, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Learning objectives (1 of 2)
16.1 List four general characteristics of success
in the export-oriented East Asian economies.
16.2 Describe how the institutional

environment supported economic growth.
16.3 Analyze the degree of openness in the

export-oriented East Asian economies.
Learning objectives (2 of 2)
16.4 Explain the pros and cons of the idea that
industrial policies mattered to East Asian success.
16.5 Evaluate the impact of export promotion

policies and the debate over their applicability to
other world regions.
16.6 Define total factor productivity and explain

why economists use it to understand whether
growth in East Asia is similar to growth elsewhere.
High-growth Asian economies
• After World War II, Japan was the first high-growth economy in
Asia.
• But it was quickly followed by two more waves of high growth:

– Hong Kong, Taiwan, Korea, and Singapore;
– Malaysia, Thailand, and later, Vietnam.
– (China and India are discussed in chapter 17.)
• Common characteristics of these countries’ growth success:

– Macroeconomic stability;
– Relatively less inequality and investment in people;
– Export promotion.
Population, income and growth
(1 of 2)
Population GDP (US$, Billions) GDP per Capita
(Millions) (US$, PPP)
Hong Kong 7.3 309.9 56,701
Japan 126.9 4,123.3 38,054
Korea 50.6 1,376.9 36,511
Malaysia 31.0 296.2 26,315
Singapore 5.5 292.7 85,253
Taiwan 23.5 523.6 46,783
Thailand 68.8 395.3 16,097
Vietnam 91.7 191.5 6,024
Population, income and growth
(2 of 2)
Growth rates of real per capita GDP, Income-level
annual, in percent 1980–2000 2000–2015
Hong Kong High 3.9 3.1
Japan High 2.4 0.7
Korea High 7.3 3.4
Malaysia Middle 3.8 2.9
Singapore High 4.7 3.0
Taiwan High 5.4 3.3
Thailand Middle 4.7 3.3
Vietnam Middle 4.8 5.3
General characteristics of growth
(1 of 5)
• Shared growth
– In several countries, growth was accompanied by
falling inequality.
– The reasons varied from country to country but
there were some commonalities:
▪ Land reforms;
▪ Free public education through high school;
▪ Free basic health care;
▪ Investments in rural infrastructure.
(2 of 5)
• Rapid accumulation of human and physical
capital.
– Very high savings rates;
▪ Facilitated by a rapid demographic transition.
▪ Also helped by a stable macroeconomic environment and
rapid income growth.
– High savings stimulates income growth, which
feedbacks and stimulates savings: A virtuous cycle.
• Public education dollars were invested mostly in
primary and secondary education.
(3 of 5)
• Rapid growth of manufactured exports.
– All 8 countries promoted exports.
▪ Export financing credits was widely available;
▪ Many countries used export targets as criteria for
favorable credit terms or tax breaks;
▪ Tariff free access to imports of capital goods was
common;
▪ Some countries relied more on attracting FDI into the
manufacturing sector.
– Was helped by the creation of a literate labor
force with high school education.
(4 of 5)
Share of the world’s
merchandise exports Share of the world’s GDP
Hong Kong 2.8 0.4
Japan 3.6 5.9
Korea 3 1.8
Malaysia 1.2 0.4
Singapore 2.2 0.4
Taiwan 1.6 0.7
Thailand 1.2 0.5
Vietnam 0.8 0.2
(5 of 5)
• Stable macroeconomic environments.
– Budget deficits and government debt were not
small but they were manageable;
– Commitments to low inflation.
– Avoiding real appreciation of the exchange rate;
• The exception to macroeconomic stability was

the Asian Crisis of 1997-1998.
The institutional environment (1 of 2)
• Countries generally have strong institutions in
support of economic growth.
– Secure property rights;
– Contracts are enforced;
– Regulations are clear and well-publicized;
– Bureaucracies are relatively competent and efficient.
• Strong institutions does not imply democratic
institutions.
– Countries vary in terms of individual freedoms, civil
liberties, and political rights.
The institutional environment (2 of 2)
• Strong fiscal discipline;
• Institutions for strengthening business-government
relations:
– Deliberation councils help coordinate investment
decisions.
• Discouragement of rent seeking by individual interests.
– Deliberation councils helped avoid rent seeking by
providing a forum for discussion;
– Widespread use of performance requirements in return for
government assistance;
– Commitment to shared growth indicated that everyone
would benefit.
Case study: Institutional quality
(1 of 4)
• The Worldwide Governance Indicators (WGI) measure the quality of
governance institutions in six dimensions:
– Rule of law: The confidence of individuals and businesses in the fairness and
impartiality of the law, police, and the courts.
– Control of corruption: The ability of governments to prevent the use of state
power for individual gain.
– Voice and accountability: The ability of citizens to participate in government
and to express themselves freely.
– Government effectiveness: A measure of the quality of public services and
the civil service.
– Political stability and the absence of violence/terrorism: A measure of the
absence of political instability, violence, and terrorism.
– Regulatory quality: A measure of government’s ability to implement effective
and necessary regulations.
• http://www.govindicators.org
(2 of 4)
Percentile Ranking Control of Rule of Regulatory Government
(215 countries, 2014) corruption law quality effectiveness
High income
Hong Kong 92 94 100 98
Japan 93 89 84 97
Korea 70 81 84 87
Singapore 97 95 100 100
Taiwan 77 86 89 88
Middle income
Malaysia 68 75 76 84
Thailand 42 51 62 66
Vietnam 38 45 30 52
(3 of 4)
• Another indicator of institutional quality is the
World Bank’s Ease of Doing Business index.
– Measures how easy or difficult it is to operate a
business.
– Ten dimensions, multiple indicators for each
dimension.
▪ Start a business, obtain permits, pay taxes, import
necessary items, hire workers, enforce contracts, other
essential steps.
– Nations are ranked, from 1 to 190.
• http://www.doingbusiness.org.
(4 of 4)
Ease of doing business rank
Singapore 1
Hong Kong 5
Korea 4
Taiwan 11
Malaysia 18
Japan 34
Thailand 49
Vietnam 90
The role of industrial policies (1 of 5)
• The World Bank concluded that governments in the
high growth Asian economies were active in three
areas:
– Targeting of specific industries for promotion;
– Directing credit to those industries;
– Export promotion.
• The efficacy of these policies is debated; different

analysts have different opinions:
– Highly effective in promoting growth.
– Wasted resources, growth occurred for other reasons;
– Ineffective: Perhaps some effect but not the main story.
• Each of the high growth economies targeted specific industries,
except Hong Kong.
– Japan targeted steel, autos, textiles, shipbuilding, aluminum,
electronics, semiconductors, others;
– Korean policies were intense in the 1970s in petrochemical industries,
steel, shipbuilding, others;
– Taiwan was less focused, but targeted science parks, research
institutes, infrastructure for import substitutes;
– Malaysian policies took off in early 1980s, followed Japan and Korean
strategies;
– Thailand promoted industries with the potential for “technological
learning”;
– Singapore promoted technology transfer through foreign direct
investment;
– Vietnam promotes FDI for technology and the development of large
conglomerates in targeted sectors.
• Countries used various tools:
– Trade policies in the form of selective protection;
– Directed credit provided capital but also a signal of
government intentions.
– Subsidies;
– Market information;
– Infrastructure development.
• Two essential elements of these policies:

– Performance requirements;
– Macroeconomic stability took precedence over industrial
supports.
• Did industrial policies work?
– Were they key to the high growth rates?
– Would growth have occurred anyway?
– Can these policies be copied elsewhere?
• Two schools of thought:

– Mostly no effect.
▪ Perhaps some industries benefitted, but targeted industries were
ones that market forces would have favored anyway.
– Were highly successful despite some failures.
▪ Growth rates would have been lower in targeted industries
without the support policies.
• The debate continues:
– It is difficult to measure what would have happened without the
policies;
– Everyone agrees that other factors (those discussed in this
chapter) were important as well, but the marginal effect of
industrial policies are uncertain.
• If countries adopt industrial targeting policies, a few lessons

stand out:
– Performance criteria are a must;
– Monitoring and enforcing of criteria are necessary;
– The overall costs should not be too high, should not penalize
other, non-targeted, industries.
Case study: Were East Asian
economies open to trade? (1 of 3)
• Tariff rates and quotas are not sufficient to answer this
question since non-tariff measures may have limited
imports.
• The question is whether the high growth Asian

economies followed mercantilist policies that severely
limited imports while promoting exports, or if they
were relatively market oriented in their trade.
• The data show that East Asian economies were

relatively open to imports, although they clearly
targeted some industries for protection.
Imports Imports Exports Exports
1980 2014 1980 2014
Hong Kong 89.4 219.6 88.9 219.6
Japan 14.5 20.8 13.6 17.7
Korea 40.0 45.3 32.1 50.6
Malaysia 54.3 64.6 56.7 73.8
Singapore 209.0 163.2 202.1 187.6
Taiwan 52.6 60.4 24.1 70.1
Thailand 30.4 62.6 51.4 69.2
Vietnam 83.1 86.4
• High growth Asian economies were relatively open to imports, although

some industries were protected.
Imports Imports Exports Exports
1980 2014 1980 2014
Argentina 6.5 14.5 5.1 14.8
Brazil 11.3 13.9 9.0 11.2
Colombia 15.6 21.4 16.2 16.0
Mexico 13.0 33.5 10.7 32.4
Peru 19.4 23.9 22.4 22.4
Venezuela 21.8 29.5 28.8 24.7
• High growth Asian economies were relatively open to imports, particularly

when compared to Latin America.
The role of manufactured exports
(1 of 3)
• All countries except Hong Kong experienced a
high growth rate in the export of manufactured
goods.
– Hong Kong’s strategy was to serve as a link between
the world economy and East Asia, and especially
China as it began to grow.
• Exports of manufactured goods seem to be

correlated with high growth rates.
– What are the links from production of manufactured
goods for export and overall economic growth?
(2 of 3)
• Potential growth effects of producing
manufactured goods for export:
– Economies of scale: Production is for a world
market rather than a domestic one;
– Competitive effects of selling in foreign markets;
– Export revenues enable the purchase of imported
capital equipment;
– Export targets encouraged inward FDI that bring
new technologies.
(3 of 3)
• Is export promotion a good strategy for other
regions and countries?
• There are several issues that may limit this

strategy:
– Can the world’s industrial economies absorb the
quantity of exports generated?
▪ Will there be political repercussions as manufacturing
sectors shrink in the high income countries?
– The Uruguay Round of the WTO limits some export
promotion policies.
Case study: Asian trade blocs
Year Under Concluded Proposed
negotiation
1975 0 1 0
1991 0 7 1
2000 6 45 3
2016 69 151 67
• The Association of South-East Nations (ASEAN) was the only

trade association in the 1970s.
– Initially it was a security and military cooperation agreement, but
added an FTA in 1992.
• Many new agreements began in the 1990s and gained
momentum in the 2000s after the Asian Crisis of 1997-1998.
Is there an Asian model of economic
growth? (1 of 3)
• Free-market economists:
– Growth was due to openness, private markets, and
strong macroeconomic fundamentals.
• Activist economists:
– All of the above were critical, but other factors helped
push growth above what it would have been:
▪ Export promotion, industrial policies, deliberation councils.
• Some East Asian politicians argue that limits on

civil and political liberties were beneficial.
growth? (2 of 3)
• Recall that labor productivity is defined as the ratio Q/L, where Q is
output and L is labor input.
• Growth accounting breaks this down into the share of the increase
in labor productivity that is due to:
– Increased labor skills;
– More capital at work;
– An unexplained factor that is not due to increases in labor skills or
capital inputs: Total factor productivity (TFP).
• Labor productivity growth in East Asia is predominantly due to

increases in capital.
– This implies that the causes of growth are the same as in other high
income regions of the world.
growth? (3 of 3)
• The achievement of East Asian economies is not
due to a different model of growth, but is
remarkable nonetheless.
• East Asian economies were able to create and

harness:
– High savings which were invested in productive
activities;
– A skilled and literate labor force;
– Strong institutions;
– Macroeconomic stability.
The End

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International Economics

16.2 Describe how the institutional

16.3 Analyze the degree of openness in the

16.5 Evaluate the impact of export promotion

16.6 Define total factor productivity and explain

• But it was quickly followed by two more waves of high growth:

• Common characteristics of these countries’ growth success:

• The exception to macroeconomic stability was

• The efficacy of these policies is debated; different

• Two essential elements of these policies:

• Two schools of thought:

• If countries adopt industrial targeting policies, a few lessons

• The question is whether the high growth Asian

• The data show that East Asian economies were

• High growth Asian economies were relatively open to imports, although

• High growth Asian economies were relatively open to imports, particularly

• Exports of manufactured goods seem to be

• There are several issues that may limit this

• The Association of South-East Nations (ASEAN) was the only

• Some East Asian politicians argue that limits on

• Labor productivity growth in East Asia is predominantly due to

• East Asian economies were able to create and

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