GLOBAL ECONOMY

GLOBAL ECONOMY

Introduction

The world bank report in regards to the East Asian miracle stipulated public policies adopted by the high performing Asian economies (HPAEs) between 1965 and 1990. The success of the HPAEs during that period was characterized by the development of policies which guaranteed fast economic growth through equitable distribution of resources. Thus, the success stirs questions on whether developing countries would adopt the policies adopted by the HPAEs to achieve rapid economic growth in the long-term. The East Asian miracle comprises countries such as Hong Kong, the Republic of Korea, Malaysia, Indonesia, Thailand, China, Singapore, and Japan. The governments in the respective nations undertook the responsibility to spur economic development in their countries. Hence, the question on which polices led to the massive economic growth still lingers in economists’ minds. Therefore, the world bank report on the east Asian miracle contributes to the understanding of the success of HPAEs.

Growth and equity in East Asia

East Asia recorded a remarkable and sustainable economic growth between 1965 and 1990 relative to a miraculous growth in 8 economies such as the “four tigers” and Hong Kong. Rapid growth and equity characterized the East Asian economies due to the rapid growth in per capita income (Weiss, 2005). In recent years, Southern China utilized polices resembling the HPAEs to achieve remarkably high growth rates. During that period, the HPAEs achieved a higher growth rate compared to economies in the Economic Cooperation and Development (OECD), which is highly attributable to the success of HPAEs countries. The growth rate in East Asia was significantly higher than the average of OECD hence unique compared to other nations globally. The figure below shows growth rates of 118 economies between 1960 and 1985, with only 11 economies depicting growth (Weiss, 2005). Surprisingly, the success stories show that 5 East Asian countries achieved growth, thus exemplifying on our understanding of nations success story.

Moreover, the HPAEs improved equity in its economic practices as compared in other regions, thus resulting in success (Stiglitz, 1996). The world bank report shows that the low inequality levels were exceptional compared to contemporary evidence found in other regions. The positive affiliation between economic growth and equity contributed to the success of East Asian economies. The economies had high economic growth rates with low inequality levels, with only Malaysia having an index of less than 15 (Quibria, 2002). The shared virtues among the nations helped improve human welfare which proved to be a key strategy to the fast-economic growth. As such, poverty declined hence improving social classes of the individuals living in East Asia.

Geography and culture

The geographical location of East Asia countries was fundamental for rapid economic growth. The region was strategically located thus easy access to the sea lanes relative to their geographical proximity which led to the economic success of the Asian economies (Quibria, 2002). As such, the East Asian nations formed economic relationships which were vital in achieving fiscal growth within a very short time (Stiglitz, 1996). Therefore, the region enjoyed cheap ocean transport due to historical experiences which were shared among the HPAEs nations. As a result, nations such as Korea borrowed techniques to build large companies as a strategic approach to fostering interregional investments. Besides, Malaysia focused on growing heavy industries, while Singapore developed approaches to penetrate foreign markets (Page, 1994). Such developments played a key role in HPAEs rapid economic growth, thus exemplifying our understanding of their success.

Moreover, the world bank report shows that geographical proximity necessitated capital flow to the Northeast Asian developers, thus moving their companies to take advantage of low wages labor. Investment waves were carried out in Singapore and Taiwan to create opportunities needed to enter into foreign markets (World Bank, 1993). Thus, HPAEs utilized their proximity to the sea to transport their products to foreign markets, mostly in developing countries. For instance, television and automobile manufacturers in China and Korea took the advantage to develop lucrative market positions in developing nations, thus achieving a fast-economic growth rate. The capital flow led to foreign investments being treated as liberal, thus enabling HPAEs to move their capital freely, mostly in developing nations (Chang, 2006). Therefore, capital flow enabled HPAEs to venture where investments had been restricted since they had information networks vital in moving their capital freely.

Policy developments

The East Asia countries developed improved policies to govern their macro-economic environment, thus creating a reliable legal framework. As such, the polices on the macro-economic environment promoted international and domestic competition which further helped achieve success compared to other regions (World Bank, 1993). Also, HPAEs nations spearheaded the removal of price controls and distortionary policies which halted economic growth in the past. Thus, a neoclassical framework was developed to promote policies which advocated the importance of human capital which was crucial in their success (Quibria, 2002). The neoclassical framework was used to confirm the industrial policies needed to successfully govern the financial market to achieve stipulated success. In most instances, the policies adopted by HPAEs were flexible and diverse, thus helped articulate market failures using the best strategic approach. As such, the policies help comprehend the success of HPAEs based on the contributions provided by the world bank report.

East Asia’s success is attributable to the region’s stable macroeconomic stable nature due to the value of their high shares in the international markets. Thus, East Asia utilized a market-friendly approach which ensured that the nations GDP was invested in the people to develop high competition levels in the region (Stiglitz, 1998). As a result, governments in China, Japan and Korea were compelled to allocate resources to the private sector, which proved to be a viable source to drive economic growth. Therefore, the fast economic growth in East Asia is attributable to increased government activism through the enactment of policies promoting free trade in the region (Chang, 2006). Market-friendly views developed in East Asia required the respective governments to enact policies which promoted growth besides creating a competitive environment for the private sector.

Moreover, strategic trade policies were developed to align imperfections in the capital market due to increased returns. The strategic approach was crucial in achieving a high success rate, which resulted from increased returns. As a result, the policies improve our understanding of the success of HPAEs based on the stipulations provided by the world bank report regarding the East Asian miracle (Stiglitz, 1996). However, the policies did not favor small firms since they could not expand to take advantage of increasing returns required to access capital from governmental agencies. As a result, there was a need to protect small firms from achieving profits required to attain sustainability in foreign markets (Stiglitz & Yusuf, 2001). Besides, HPAEs were able to articulate coordination failures to govern developing markets such that production exceeded private returns. Thus, the government assumed the role by developing favourable policies which favored upstream industries.

The functional approach used to comprehend the economic growth

In this case, a functional framework is developed to comprehend the diverse policies adopted by HPAEs to achieve rapid economic development in East Asia. As such, based on world bank report, the HPAEs developed and maintained macroeconomic stability need to achieve accumulation, growth, and efficiency in resource allocation (Stiglitz, 1998). The countries achieved economic growth by utilizing combined policies which were utilized across the economy to achieve positive changes. The figure below shows a schematic interpretation of functional approach used by HPAEs to achieve success in East Asia. The policies have been classified into selective and fundamental policies used by HPAEs member countries. For instance, the fundamental policies included human capital investment and stability in the macroeconomic sector. Both categories of the policies were vital in achieving rapid economic growth in East Asia compared to other regions globally (Stiglitz, 1998).

The figure above shows that to achieve success, East Asian nations were required to address more than one market failures. For example, the respective governments were required to collect critical information on risk factors that would result in market failure. As such, most of the successful inventions in East Asia resulted from the government’s increased response to coordinate problems in economy (Stiglitz & Yusuf, 2001). Hence, a competitive discipline was developed to increase efficiency in investment since most economies aimed at improving efficiency in investments. Also, competitive discipline was critical in achieving success, as outlined in the second column. Most HPAEs went a step ahead and combined the positive attributes of competition with cooperation between the private sector and the government. So, the collaboration developed healthy competition in the region, thus leading to rapid economic growth.

To achieve the stipulated macroeconomic stability and export growth, HPAEs ensured that the region had a 9% inflation rate as compared to 18% in middle and low-income states. The low inflation rate ensured that the region achieved high performances of the selected HPAEs in the form of real exchange rates and the GDP percentage (Stiglitz & Yusuf, 2001). Also, trade shocks were adjusted in terms of macroeconomic policies since they enjoyed robust growth in private investments. Based on the report by the world bank, it is evident that fiscal prudence served as the vital necessity in achieving macroeconomic stability in East Asia. For instance, between 1980 and 1985, Korea had a higher GDP ratio relative to the other indebted nations due to its macroeconomic stability (Stiglitz, 1998).

Conclusion

The report shows that between 1965 and 1990, East Asia achieved rapid economic growth compared to any other region globally. The success is much attributed to the miraculous growth among eight economies, as mentioned in the report. The recent scholarly research connects the rapid economic growth to the development of public policies in countries such as China, Taiwan, and Singapore as the main cause of economic growth. However, the growth resulted from the accumulation of superior human capital, which was vital in developing the eight economies. Besides, economic models proved vital in understanding how the world bank report postulated as the possible causes of development in East Asia for the outlined period of time. Nevertheless, public policies proved to be the best reasoning for the rapid economic growth in the region.

References

Weiss, J. (2005). Export growth and industrial policy: Lessons from the East Asian miracle experience (No. 26). ADB Institute Discussion Papers. Link: https://www.econstor.eu/bitstream/10419/53543/1/507594452.pdf

Stiglitz, J. E. (1996). Some lessons from the East Asian miracle. The world bank research observer, 11(2), 151-177. Link: https://academic.oup.com/wbro/article-abstract/11/2/151/1684138

Quibria, M. G. (2002). Growth and poverty: lessons from the East Asian miracle revisited (No. 33). ADBI Research Paper Series. Link: https://www.econstor.eu/handle/10419/111125

World Bank. (1993). The East Asian miracle: Economic growth and public policy: Summary. Washington, DC: World Bank. Link: https://www.nber.org/papers/w4417

Stiglitz, J. E., & Yusuf, S. (Eds.). (2001). Rethinking the East Asian Miracle. The World Bank. Link: https://elibrary.worldbank.org/doi/abs/10.1596/0-1952-1600-8

Stiglitz, J. E. (1998). Sound finance and sustainable development in Asia. Washington, DC: World Bank. Link: http://kaahlsfiles.com/thesis/thesis%20papers/1%20High/SS10475lecture8.pdf

Chang, H. J. (2006). The East Asian development experience: the miracle, the crisis and the future. Zed Books. Link: https://books.google.com/books?hl=en&lr=&id=nSqXpDiQ4ggC&oi=fnd&pg=PR7&dq=E+EAS+T+ASIA+N+MIRACL+E&ots=JsO5lza_vE&sig=PgdqyBHyXCrNzp8lxM6gOBnDK5Q

Page, J. (1994). The East Asian miracle: four lessons for development policy. NBER macroeconomics annual, 9, 219-269. Link: https://www.journals.uchicago.edu/doi/abs/10.1086/654251