East Asia Performed Economic `Miracle' by Catching Up
Mcrae, Hamish, The Independent (London, England)
Why do some countries get rich when others don't? If you think about it, almost nothing else matters in economics. Alas, it is one of those elementary and fascinating questions to which economists usually mumble inadequate answers. If we knew, it would all be easy: put in the right conditions and everyone would be rich. Instead, economists have focused on more arcane econometric equations that create elaborate theories on things you really do not want to know.
But there is a small school of economists who try to answer the really difficult questions, even if their answers have to be hedged with qualifications. Two brands of inquiry are attracting much practical attention. One is whether there is something special about the rapid growth of East Asian countries; the other, to what extent does closer economic integration between apparently similar developed countries boost their collective growth.
Examination of the first has been spurred by the explosion of growth in South-east Asia. Singapore and Hong Kong (seen as a separate entity from China) have achieved the income per head typical of European and North American nations - both have a higher income per head than the UK. While developing countries lifted their economic performance in the past 15 years, Asia has massively outperformed the rest. Some indication of this out-performance is shown in the graph on the left, taken from the new annual report of the IMF. Not only is the region producing rather more even growth, but the range of 6-10 per cent is outstanding by any criterion. Gradually a body of work is being put together to explain this out-performance. The overall message is that this is not a miracle but can be explained mostly in terms of catch-up. East Asia has created a business-friendly environment which welcomes foreign investment. We live in an age where information can cross national boundaries in a few moments and this investment transfers not just money but brings know-how: know-how to manufacture in the first instance but subsequently how to market and develop new products. But the first phase of growth in East Asia has been driven by low wages, which has combined with technology transfer to enable the region to produce western quality goods at much lower prices. After a while, the very success pushes up wage rates so that labour costs in, say, Korea, are now higher than in the UK. Success in the middle market forces countries further upmarket, a transition they find difficult to achieve. Japan, the classic case of catch-up, has hit a glass ceiling: it has had the slowest growth rate over the last five years of any of the Group of Seven. This leads to the second question. Once countries are no longer catching up, how might they improve their performance? This is a practical question for Europe at the moment for it seems that the better performance of western Europe since the end of the war has been closely associated with closer economic integration. Take for example Germany. The second graph shows what might have happened to German …
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Publication information: Article title: East Asia Performed Economic `Miracle' by Catching Up. Contributors: Mcrae, Hamish - Author. Newspaper title: The Independent (London, England). Publication date: September 16, 1997. Page number: 27. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.
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