What can we learn from the success of the East Asian economies?

INTRODUCTION

The purpose of this essay is not to describe a deep comparative analysis of micro or macroeconomic policies, but rather to present in an integrated way some of the strategies implemented that were crucial for understanding the economic success of East Asia.

In Southeast Asia, reflections on development policy began early, emphasizing the issues of modernization and limited links with the West. After World War II, a period in which Asian countries begin to progressively become independent, development models with central planning, established in yearly projections, begin to be developed.

It can be said that the strategies used by East Asia in the context of the globalization had a lot to do with its development and success, especially those strategies oriented to the development and use of human resources, as well as the alliance between the public and private sectors with the objective of optimizing the available resources were crucial for the growth of the region.

In the following enumerated sections, we will understand and learn which were the strategies used in particular areas by the region to better understand how their economies succeed.

I. INTERNATIONAL ALIGNMENT

Asian countries have always understood and maintained that development can only flourish within the realistic recognition of existing structures in the international system. The countries of the region recognize their link with the Western-capitalist economic order and the system is accepted as the best alternative to ensure the growth and modernization.^[1]

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In this regard, the countries of Southeast Asia have set an excellent standard in terms of attracting foreign investments, essential for economic success. In some country's privatization and external investments always require a percentage of capital and local management, in this way not only the identity of the region is maintained but also the formation and training of the human resources of the region are promoted, thus ensuring development.

II. ASIAN DEVELOPMENT MODELS

The state had an important role in the economic success since the process started as governments established the mobilization of investments and industrial development efficiently. A concrete example is Japan, whose government-oriented the exchange rate and domestic credit towards large corporations to accelerate investments and protect the domestic market so that their companies could achieve static and dynamic economies of scale. ^[2] As a result, the level of imports of manufactures decreased and the economy of the country strengthened. Korea, Malaysia, and Indonesia are other examples of this procedure.

These models resulted in record values in terms of sustained growth from the sixties to the year two thousand. During this period, growth was especially concentrated in eight economies, in what we could define as three waves of growth. The first wave of growth was Japan, followed by the called Four Tigers (Hong Kong, Korea, Singapore, and Taiwan), and finally by Indonesia, Malaysia, and Thailand.^[3]

The first and second wave of growth in Asia applied a considerable amount of state intervention during the industrialization process, in contrast, the third wave placed much more emphasis on private sector liberalization. ^[4] Although there is no single Asian model, there is no doubt that there are common characteristics of their leaders such as the ability to learn from the experiences of others, their agility, and dynamism.

III. LOW INFLATION AND COMPETITIVE EXCHANGE RATES

Macroeconomic stability and low levels of inflation were a basic prerequisite for the economic success of these economies, where one of the key elements was the administration of the fiscal deficit. Through regulations and legislation, the region ensured that the debt acquired is used in activities that favored development, in this way preventing financed investments from being channeled towards consumption.

On the other hand, success in export promotion required a competitive real exchange rate. For this, reasonable fiscal and monetary policies were combined with a flexible exchange rate administration, to keep the exchange rate aligned with the changing protectionist structures and inflationary levels of its trading partners.^[5] For example, countries like Indonesia, Korea, and Thailand faced periods of real appreciation of their currencies, avoided maintaining a fixed exchange rate given the possibility of reaching higher inflation rates than those of their trading partners.

IV. EXPORT PROMOTION

The success of the economies of the Asia Pacific region has been associated with the rapid growth of its exports, in fact, since 1970, the growth of exports in the region has been usually superior to that of the rest of the developing world.

Authors such as Weiss^[6], Redding and Venables^[7], among others, argue that openness to international trade, supported by a system of neutral incentives, was a critical factor in

Asia's rapid growth. Asian countries practiced intervention in different sectors of the economy, including commercial aspects, but they did not fail to recognize the importance of trade as a development factor.

Interventions in industrial policy, which often made use of trade policy instruments, were implemented under the belief that changing the industrial structure to new and more modern sectors increased opportunities to capture dynamic economies of scale; this strategy remains currently applied and is one of the reasons for the balanced growth of the region in terms of technology, production processes, and products, as well as necessary to maintain an acceptable competitive level.

The World Bank itself recognizes that, of all the interventionist processes applied in East Asia, the one associated with the export impulse is the most promising for other developing countries.^[8]

V. FINANCIAL SYSTEM

In the financial sector, policies were established to promote savings and to channel resources towards activities with high social return. Although different institutions and policies were used, in general, there were positive real interest rates for deposits and stable financial systems.^[9]

Besides, regulations were promoting responsible behavior, for example, avoiding loans for speculative purposes. Furthermore, although these countries did not implement deposit guarantee systems, they transmitted confidence to the system, essential for an economy prosper, through rescue programs if were necessary.

Domestic savings and the level of investments in East Asia is significantly higher compared to other economies. The difference between domestic savings and investments is the outflow of foreign capital.^[10] East Asian economies as a group have been one of the only economies in which savings exceeded investments, making them net exporters of capital, which will help them expanding the market of the region, increasing economies of scale and having more capacities to specialize in research and technology.

CONCLUSION

The rapid growth of East Asian economies is unquestionably an example in terms of implementing development strategies. However, despite the international recognition of this fact, some developing countries have not followed the East Asian model.

It can be said that it is important to be aligned with the main international economic system to thrive economically, doing this the region was able to attract foreign investment achieving growth and expanding its market. Besides, this alignment was an incentive for boosting exports, finally reaching the leadership in terms of world industry exports.

It can be learn from this countries that an economic success can be achieved through some common characteristics that they applied in their economies, such as, macroeconomic stability, low levels of inflation, rapid economic growth, broad participation in the benefits of growth, growth based on technological progress, rapid export growth, rapid demographic transition, high investment rates and significant savings in human capital investments.

Another point that can be can learn from East Asian countries is that if a country becomes a net exporter of capital it would develop its expansion thought the world market, increasing its economies of scale and having more capacities to specialize in research and technology, essential for success in the economy.

Undoubtedly, the economies of the region have suffered due to the crisis of 2008, but nevertheless, the achievements of the model that allowed many East Asian countries to perform important economic achievements in less than a generation must be recognized.

BIBLIOGRAPHY

Bank, The World. The East Asian Miracle. New York: Oxford University Press, 1993.

Ha-Joon, Chang. The East Asian Development Experience. Zed Books Ltd., 2006.

Ito, Takatoshi, and O. Krueger Anne. The Role of Foreign Direct Investment in East Asian Economic Development. The University of Chicago Press, 2000.

Ming, Wan. The Political Economy of East Asia. CQ Press, 2008.

Redding, Stephen, and Anthony J. Venables. "South-East Asian export performance: external market access and internal supply capacity." The Japanese and International Economies, 2003.

Rodan, Garry, Kevin Hewison, and Richard Robinson. "The Political Economy of South-East Asia." 2006.

Weiss, Jhon. Export Growth and Industrial Policy: Lessons from the East Asian Miracle experience. 2005.

Yamazawa, Ippei. Japan and East Asian Economies. APEC Study Center, 2004.

[1] Bank, The World. The East Asian Miracle. New York: Oxford University Press, 1993.

[2] Yamazawa, Ippei. Japan and East Asian Economies. APEC Study Center, 2004

[3] Rodan, Garry, Kevin Hewison, and Richard Robinson. "The Political Economy of South-East Asia." 2006.

[4] Ming, Wan. The Political Economy of East Asia. CQ Press, 2008.

[5] Ha-Joon, Chang. The East Asian Development Experience. Zed Books Ltd., 2006.

[6] Weiss, Jhon. Export Growth and Industrial Policy: Lessons from the East Asian Miracle experience. 2005.

[7] Redding, Stephen, and Anthony J. Venables. "South-East Asian export performance: external market access and internal supply capacity." The Japanese and International Economies, 2003.

[8] Bank, The World. The East Asian Miracle. New York: Oxford University Press, 1993.

[9] Ming, Wan. The Political Economy of East Asia. CQ Press, 2008.

[10] Ito, Takatoshi, and O. Krueger Anne. The Role of Foreign Direct Investment in East Asian Economic Development. The University of Chicago Press, 2000.