Economic Development of East Asia

The East Asia Miracle: Lessons for the developing countries

The East Asia region has been drawing global attention as fruits of its growth and development over the past thirty years continuously awe many. The most successful developing countries over the last half century apparently have come form this region.­ [1] It has a remarkable record of high and sustained economic growth as 23 economies in it grew faster that those in other parts of the world. [2] However, when the Asian Financial Crisis hit this region in 1997 some structural and institutional weaknesses have cast doubt on the “East Asian Miracle”. Hasty recovery and resiliency which the region revealed in fighting off and prevailing over most of the negative drawbacks brought by the crisis was enough to sustain the belief in the miracle. Although East Asian economies applied varying strategies in their economic development, a salient and strong factor common to all is the presence and the role of the government in their development. East Asian countries have assumed a role of a ‘developmental’ state in which the government played an important hands-on role in the process of industrialization and economic development. [3] 

Thus, understanding the economic development and experiences of East Asia may offer helpful lessons that other developing countries trapped in stagnation may want to consider.

According to Thorbecke and Wan (2004) there are two critical factors and corresponding phases of development that occurred in East Asia. First, countries need to reach first a take-off point which emphasizes on promotion of education, to build up on human capital and the promotion of the agricultural sector in order to eventually finance investments on physical infrastructure. The second phase, development calls for industrialization that brings structural and technological upgrading. [4] 

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First lesson implied in the first phase of development is that economic development cannot be hurried. There are certain processes that need to be readied before countries reach the take-off point. At the beginning of the development process a country is predominantly agrarian and the economy is relatively closed. [5] East Asian governments understood that the major mechanism for obtaining the resources needed to “escape the poverty trap and for industrialization was through and inter-sectoral transfer out of agriculture”. The major role of the agricultural sector was to generate the necessary capital to finance the outset of the industrialization process. [6] The main lesson to be drawn from the experience was summarized by Thorbecke and Morrison cited in the Revisiting East and (South East) Asia’s development model (2004):

“A lesson learned from those countries which were most successful in achieving both growth and equity throughout their development history (e.g. Taiwan and South Korea) is that a continuing gross flow of resources should be provided to agriculture in the form of such elements as irrigation, inputs, research and credit, combined with appropriate institutions and price policies to increase this sector’s productivity and potential capacity of contributing an even larger flow to the rest of the economy”

In addition, the East Asian countries invested heavily on universal education with a long-term goal in mind. They spread of education in the rural areas provided farmers and their children the skills they need to operate in non-farming activities after the take-off. [7] They sponsored education of technical skills in the college level. This strategy resulted in a very competitive labor force able to man their industries. [8] 

In the second phase, East Asian economies recognized that the international economy is highly interdependent and that a development process of interdependence is much more favorable than individual growth. [9] Interaction among countries lets in trade, investment and technology transfer. East Asian economies took advantage of the positive spill over effects the interactions brought with it. It should be noted however that Thorbecke and Wan perceived of openness as a necessary yet insufficient condition for successful development. Catching up though is impossible without openness. [10] 

In an increasingly interdependent world, competition is much potent. To ensure high economic growth rate major structural changes like industrialization should undertaken. Structural changes needed by less developed countries require acquisition of technology. This is a step familiar to East Asian economies. They took advantage of the technology and knowledge transfer by making their countries attractive to foreign direct investments; they became subcontractors of high-tech firms and studied how they can localize the ideas and eventually create their own. Case in point is Taiwan which invested in industrial parks and attracted many foreign firms. [11] They acquired technology and idea transfer from joint ventures and foreign direct investments.

Policies also played a great role in the development of East Asian economies. Although there are certain differences in the initial conditions for development and growth, economic development and growth pattern that East Asian economies that are common to them also is linked to growth factors and the policy system they adopted. [12] 

East Asian economies have growth led by investments, exports and enforcing of sound policies to support their industries. Moreover, the governments in East Asian countries are very much involved and unhesitatingly intervene in the market-oriented economies. [13] The role of the government is to maintain macroeconomic stability, overcome possible coordination failure and act as an intermediary in promoting growth initiations. [14] The economic system was based on wide ranging cooperative relationship between government and the local and transnational firms based in their country. [15] 

The industrial policies enforced seek to encourage the development of industries through various government measures such as tax incentives, Research and Development subsidies, credit allocation and protection against foreign imports. [16] In addition, the export-oriented industries did not develop without these particular measures of the government to accelerate investment in such industries; provision of infrastructure, universal education. [17] The role of the government was mainly to set up institutional policy foundations required for growth and overcoming coordination failures that can stop a the economy from flourishing. [18] 

The Asian Financial Crisis unearthed and exposed certain weaknesses of the East Asian economic model. Weak and inefficient financial systems, lack of corporate transparency and accountability, and widespread corruption became apparent after the crisis broke out. [19] This occurrence explicitly calls for constant improvement on institutions in the country which serves as the pillar of economic development. This is a lesson not only for developing countries but for the East Asian economies as well.

The East Asia economic development model is applicable to the Philippines to a certain extent. The former policies and steps undertaken needed to be modified to suit the condition of the Philippines. The Philippines can consider setting its neighbors and the East Asia Miracle as benchmark of development and a goal to be achieved. The Philippines always has to remember that East Asian economies started modestly and took advantage and cultivated the initial conditions and resource endowments to their advantage. A step back to reexamine where the Philippines went wrong, why it seems to be experiencing a prolonged period at the take-off stage, would be a humble at the same time brave gesture on the part of the countries leaders. Although it may be too late to shift the focus back on agriculture because of changing conditions, it is still important that the government invest in infrastructure (i.e. farm-to-market roads) and R& D as many in the country still rely on agriculture for a living._ If it is possible that the government nurture the current industries it has and the agricultural sector at the same may be beneficial for the country.

The Philippines have a lot of catching up to do, the East Asian miracle may also come true for the Philippines if it would only reconsider some of the policies being implemented and strengthen its institutions that would foster economic development.

Sources:

Chang, H. “The Economic Theory of the Developmental State.” 182-199.

East Asia Analytical Unit. The Philippines: Beyond the Crisis . Manila: Department of Foreign Affairs, 1998.

Page, John. “The East Asian Miracle: Four Lessons for Development Policy.” NBER Macroeconomics Annual, 1994: 219-269.

Park, Jong. “The East Asian Model of Economic development and developing countries.” Journal of Developing Societies, 2002: 330-335.

Sakurai, Makoto. “The Sustainable Development of East Asia and accompanying issues.” Economic and Social Research Institute, 2003.

Thorbecke, E, and H Wan. “Revisiting East and (South East) Asia’s development model.”

Cornell Conference on Seventy five years of Development. New York, 2004. 1-38.

Wade. “Lessons from East Asia’s Development Experience.” 2005.