Can Information Technology Revive Economic Development in East Asia? the Role of Human and Technical Resource Policy

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ABSTRACT

Development of IT/e-business is a centerpiece of renewed economic growth in most countries of East Asia. This paper considers the challenges for policy focusing on the acquisition of knowledge and its utilization. While many countries in East Asia are well along the way toward upgraded production of IT related products, the softer aspects of IT and e-business are a greater challenge. They will call for policies that provide the needed infrastructure, and, particularly, they will pose a challenge in developing human capital.

JEL: 00, 01, 02, 03, 05

Keywords: East Asian development; Development policy; Knowledge; Human capital; Information technology (IT); E-business

I. INTRODUCTION

In the past 30 years, the developing countries of East Asia have shown remarkable economic growth. This is a record based largely on the performance of manufacturing; much of it for export markets, though high rates of domestic investment and modernization have also made important contributions. The 1997 financial crisis called into question the ability of these countries to compete effectively and to revive the growth process, though some, like China and South Korea, have continued to grow rapidly.

Today, the challenge facing East Asia is how to maintain or revitalize the growth "miracle". Most countries envision the information technology revolution as a way to advance growth into the 21St century. Some of the developing countries in East Asia, like South Korea, Singapore, and Taiwan, have been successful in important branches of the IT industries, but others still lag far behind. This paper is concerned with how East Asia can cross the digital divide? Can the East Asian countries overcome technological barriers, acquiring the needed physical infrastructure and, most importantly, building the appropriate human capital? How should they reorient their policies?

II. THE PROCESS OF EAST ASIAN DEVELOPMENT

Extending Vernon's classic product cycle (Vernon, 1966), East Asian growth has been described as a growth ladder. (Chenery and Syrquin, 1989, and Adams, 1998). Beginning in the post-World War II years, as primary product producers, largely in primitive agriculture, these countries have been moving, one after another, up the technological scale, from simple labor-intensive assembly, to more advanced mechanical products and to sophisticated services. Behind these steps lie profound changes in competitiveness related to rising labor costs, growing availability of capital, and advanced technology.

The results of such a process in East Asia are summarized in Table 1. The table shows the changing situation of the East Asian countries from 1965 until the current fifteen-year period ending in 2010. The groupings are intended to describe the principal emphasis of each economy. No country's activities fall exclusively into one category. A country may have some industries at higher stages and, perhaps, also some at lower ones. In the earliest period, 1950-1965, only Japan and Hong Kong were principally manufacturing economies. These countries were pioneers in what has been termed export-led growth. Other countries of East Asia were still primarily agricultural. In the next 15 years, Taiwan, Singapore, and South Korea developed important labor-intensive manufacturing industries. In the 1980s, Japan, Taiwan, Singapore, Hong Kong, and South Korea became producers of high tech products. A still more advanced stage of development involves high tech services. These include financial services, technical services, communications, and, importantly, regional headquarters and management of foreign direct investments. But note that in Asia only small largely urban entities have moved on to become primarily regional financial and communications centers.

Where does the IT/e-business economy belong on this scale? Principally in Stages 3 and 4 of this diagram, though assembly of consumer electronics is already an important Stage 2 activity. …