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The secret to success of east asian economies

Tweet Over the past half a century, a collection of eight nations across Eastern Asia have experienced consistent and incredible rates of economic growth.

Paul Krugman wrote a famous paper in the 1990s outlining the myths surrounding the Asian miracle of the 20th century. He proposed that it was a combination of stringent government policy and the further adoption of free trade that was key to sustaining economic growth in East Asia.

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The relationship between public policy and economic growth is now more important than ever, and in light of the continuing economic crisis in Europe, there are a number of lessons to be learnt from the success of the HPAEs.

The Asian Miracle of the second half of the twentieth century can be largely attributed to the authoritarian regimes implemented by domestic governments. To this day, they utilise a heavy hand in central planning even as markets become increasingly decentralised.

The HPAEs used a variety of policies to achieve the three functions of growth — accumulation, allocation, and productivity growth. These included the promotion of institutional and policy reform, strengthening of competition, promotion of the accumulation of physical and human capital and adoption of trade liberalisation.

The effective use of government policy during this era was pivotal in kick-starting strong and sustainable economic growth. The success of Asia was largely dependent on the types of institutional and structural reforms the government promoted, however it was no single policy that ensured success.

This idea stands in stark contrast to Western ideology, where there is a far greater emphasis on short-term consumer interests, free trade, democracy and civil liberties. The governments of the HPAEs focussed heavily on the accumulation of physical and human capital during the second half of the 20th century.

  • He found that accumulation of capital and an increase in the labor participation rate had a relatively minor effect, while technological progress accounted for most of the growth in output per person;
  • When an economy is booming, a government can afford generous subsidies for education;
  • Bradford, and Lawrence H;
  • It should come as no surprise that opinions vary considerably about the effect of public policy and selective government interventions on stimulating economic growth.

As a whole, it was recognised that without basic fundamental policies, long-term growth in the economy could and would not be sustained. A dynamic environment was created to encourage investment and constant innovation. By increasing returns on private investment and advancing technology, firms had a strong incentive to improve the skills and capabilities of the workforce, further attracting foreign investment to the region.

  1. Success has a thousand fathers; failure is an orphan. Another source of resilience in East Asia are local governments.
  2. The first emphasizes the primacy of free markets. Other countries should be careful in trying to imitate the East Asian policies.
  3. In this case, by the way, further education constitutes an advantage for the specific individual relative to other individuals but does not necessarily improve the macroeconomic prospects of the economy. Therefore, in order to achieve permanent growth, an economy must continuously improve its technology.
  4. The main reason for this sensitivity is the difficulty of estimating the rate of growth of capital stock in the East Asian countries during the period under study.
  5. Other countries should be careful in trying to imitate the East Asian policies. This advances the objective of helping local businesses, particularly innovative small and medium-size firms, to grow and thrive.

Accumulation was the follow-up from basic government policy, helping to cement the norms of good governance and yield long-term results. Success depended heavily on the implementation of sophisticated industrial policies and selective protectionism. As a result, both the initial growth and later development in East Asia emphasise the importance of getting the basics right.

  • Accumulation was the follow-up from basic government policy, helping to cement the norms of good governance and yield long-term results;
  • One suggestion is to look at the role of government;
  • Advocates of this view see the success of East Asia as the natural outcome of these cautious policies.

Fundamental policies help develop the principal drivers of long run growth. Sound development policy is important as it helps facilitate private domestic investment and strengthening of human capital. Governments went about successfully upgrading the education system in Asia, with an emphasis on the importance of improving the skills of the labour force.

  1. It has been prepared by David D.
  2. Fourth, determining the correct direction of causality is tricky.
  3. Lessons From the East Experience, ed.

It certainly is, though, an illustration of the importance of core policy initiatives and ongoing scrutiny, still evident today as the governments of the HPAEs face new economic challenges and take steps to ensure they continue down a path of perpetual economic growth.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors.

  • In this case, increased saving rates are caused by increased growth rates, and not vice versa;
  • The intention of this exercise is to demonstrate the general fragility of conclusions about the nature of the growth process in East Asia;
  • The results show strong evidence that in terms of initial conditions equality of land and income, school enrollment, high life expectancy and low fertility rates , the eight East Asian countries were significantly better off than countries with similar levels of income;
  • Concluding Remarks The recent literature on the East Asian growth experience has sparked an intense intellectual debate.

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