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Week 7 - East Asian Miracle, Explains the differences in how Japan, South…
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Explains the differences in how Japan, South Korea and Taiwan industrialised.
Argues that Japan started earlier than South Korea and Taiwan
Korea was the first to invest in infrastructure
While South Korea and Taiwan started to grow after 1960
differences
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- First phase of growth copying western values of free trade
- Investing heavily in infrastructure which was coordinated by the government
- During WW1 they monopolised trade markets
- Zaibutsu, owned large conglomerates like Mitsubishi
- In 1930s as exports markets had lots of protectionism, tariffs were put on
- Japan had to control colonial markets like Manchuria, Korea and Taiwan
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(MITI) was set up to encourage government policies
- Long term loans at favorable interest rates
- Shortened patents
- Supported Toyota
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-They both got out of colonisation around 1945
- South Korea had a weaker industrial base as most of the industy was in North Korea
- Tawian had a stronger industrial base
- Both South Korea and Taiwan had very strong literacy and human capital base
- South Korea had a strong agriculture base
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Results:
- Export growth happened but followed, not caused the growth
- Invesment rose 10% to 30% in 1980 so it was more investment led
- Most growth was from capital accumulation not from TFP
- Regressions showed that 80,90% of the growth can be explained by the human capital and low inequality
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Different causality:
Due to the investment, they grew, they had to invest more so then they had to import so then they had to get more foreign reserves and did this by exporting
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- Uses growth accounting method with production to calculate TFP
- TFP figure is only around 1.5%-2.5% which is not miraculous for a country
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World Bank (1993)
Similar to Young (1995) finds that TFP was not meaningful in explaning growth
Looks at HPAES economies
But also adds that rather than just factor accumulation it may have been the policies that allowed the inputs to translate into growth.
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Focus: Revisit the question posed by Young (1995)
Also look at World Bank (1993) if it was policy Research design:
Use a much larger dataset of countries 80+ and use growth accounting framework
- Again, confirm Young (1995) and World Bank (1993) that TFP was not the driver of growth
- but policy did not matter as much as expected
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Asked how South Korea went from a poor economy to such a successful exporter
Results:
Exports rose from 4% of GNP in 1960 to 40% of GNP in 1980
Korea’s industrial policy succeeded because it was targeted, temporary, export-focused, and backed by performance pressure — showing that state-led development can work when disciplined by results.
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Ask is it 
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Aw et al (2003) - Entry and Exit between South Korea and Taiwan
Uses firm level panel data to look at entry and exit rates
Taiwan had 13% exit rates
South Korea had 7% exit rates
Taiwan’s manufacturing sector shows stronger productivity-enhancing reallocation through market-driven firm exit and export selection.
Korea’s model, with lower turnover and dominance of large firms, exhibits weaker sorting by productivity, suggesting less micro-level efficiency despite strong macro growth.
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