Academic journal article Journal of Southeast Asian Economies

The Sustainability of East Asian Growth

Academic journal article Journal of Southeast Asian Economies

The Sustainability of East Asian Growth

Article excerpt

This article aims to assess the factors responsible for high economic growth in Pacific Asia and the sustainability of that growth. Despite differences in data and methodology, recent empirical work by and large does convincingly demonstrate that productivity growth has not been the primary force behind East Asian growth. Sustaining the economic dynamisn brought about by outward-looking, "market-friendly" policies will require continued and enhanced cultivation of human resources, social and economic infrastructure investment, and transition to productivity-based growth.

Introduction

The twenty-first century is only a few years away. Those who think about the configuration of economic power in the coming decades have spoken repeatedly and often eloquently of the dawning of the "Pacific Century". Many analysts assume that the unprecedented economic growth of the Asian Newly Industrialized Economies (NIEs: Hong Kong, Korea, Singapore, and Taiwan) will continue, given the deserved reputation of these and upcoming NIEs - such as Malaysia, Thailand, Indonesia, and even China - for high savings rates, a disciplined labour force, and marketoriented policies. But are such high growth rates sustainable?

This article aims to assess the causes and factors responsible for high economic growth in Asia and the sustainability of that growth. Paul Krugman's 1994 article entitled "The Myth of Asia's Miracle" is used as a basis for discussion, since the article served as a lightning rod for reactions to recent empirical and qualitative research into the root causes of Asian growth and its sustainability. The importance of this debate stems from the perceived wide policy relevance of the development experience of the High Performance Asian Economies (HPAEs): Japan, Hong Kong, Korea, Singapore, Taiwan, Malaysia, Indonesia, and Thailand. There is keen interest in the "lessons of the East Asian Miracle" among policy elites in economies all over the world Western and Eastern, developed and developing, market and transitional.

It should be noted at the outset that the controversy is not about the actual growth rates of the East Asian countries; there is universal agreement and data beyond dispute to show that per capita growth in the Asian NIEs far outstripped that of most other developing countries. Indeed, Alwyn Young, whose data Krugman relies upon in "The Myth of Asia's Miracle", describes the growth of output per capita in the Asian NIEs as "truly remarkable" and the designation as miracles "most appropriate" (Young 1994, p. 965). The alleged "myth" is not that these economies grew quickly but that such growth is termed "miraculous," and whether that growth can continue.

This article is organized as follows. The first section addresses theories of neoclassical and endogenous economic growth, the methodology of growth accounting and cross-country regressions, and the record of East Asian growth revealed by recent empirical studies. The fundamental sources of East Asian growth are the topic of section II. The following section analyses the economic, political and security factors that will shape the sustainability of Pacific Asian growth. Section IV concludes.

I. Growth Theory and the Empirical Record of East Asian Growth

Sound analysis of future East Asian economic growth rests upon sound analysis of past East Asian growth, its root causes and implications for continuation. This first section, therefore, focuses on the theory, empirical methodology, and contrasting interpretations of East Asia's recent growth performance.

The Sustainability of Economic Growth: Alternative Theories

For an economist, the question of the sustainability of economic growth for any particular economy or set of economies - like East Asia is integrally shaped by his or her (explicit or implicit) model of the growth process. "Neoclassicists" and "new growth" proponents differ in both analysis of past growth fundamentals and views of future growth possibilities. …

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