Transcript Document

IS THE EAST ASIAN
ECONOMIC MODEL STILL
RELEVANT?
Manu Bhaskaran
Centennial Group Inc
July 2002
KEY POINTS
 East Asian Model
 Definition / Was there such a model?
 New arguments
 Shift to domestic-driven growth?
 The real story:
 Major re-thinking of growth models
THE EAST ASIAN MODEL
Common features
1.
2.
3.
4.
5.
High savings rate
Emphasis on education
Export-friendly policy regimes
Pragmatic, non-ideological
Egalitarian approach
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Agriculture in Korea,Taiwan
Public housing in HK/Singapore
THE EAST ASIAN MODEL (2)
Were these features unique to Asia?
 Good economic housekeeping rules
 Other success stories shared these
 Botswana: fastest growing economy
NOT UNIQUE TO EAST ASIA ALONE
EAST ASIANS PURSUED
DIFFERENT MODELS
1. Government role
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Hong Kong: laissez-faire
Taiwan: focused in some sectors
Korea: allocated capital,…
Singapore: hyper-active govt
 Each had different starting points
 Each evolved own responses
DIFFERENT MODELS
2. Foreign capital inflows
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Korea:
xenophobic
Taiwan: wary
Singapore: open
Hong Kong: ultra open
 Portfolio capital: earlier opening
 Direct investment: liberalised later
DIFFERENT MODELS (2)
3. Capital markets
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Korea: heavily distorted
Taiwan: some political influence
Singapore: Relatively free, ex-CPF
HK: Free, main allocator of capital
Banks under tight govt control ex-HK
DIFFERENT MODELS (3)
4. Size of companies
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Korea: chaebol-driven
Taiwan: Mainly small companies,
govt-backed ones in crucial sectors
Singapore: MNCs and GLCs
HK: Vibrant, early globalisers
DIFFERENT MODELS (4)
5. Other degrees of openness
 Labour market
 HK/Singapore: Highly open
 Korea: closed
 Protectionism
 Korea/Taiwan: High
 HK/Singapore: Very low
DIFFERENT MODELS (5)
6. Domestic competition policy
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HK: Some cartels, otherwise free
Taiwan: Generally free
Singapore: GLCs dominated
Korea: SMEs/consumers squeezed
RE-THINKING MODELS
SHIFT TO DOMESTIC DEMAND?
 Slowdown in global demand
 More competitive export markets
 Means better depend on domestic
DOMESTIC DEMAND AS
DRIVER?
Is this possible?
 Domestic linked to external demand
 Trade sector generates incomes
 Freer trade increases incomes
 Can policy discriminate?
 Favouring domestic demand distorts
NEW THINKING
1. Economic philosophy
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HK: Shift away from laissez-faire
S’pore: Allowing more laissez-faire
Korea: Substantial opening
Taiwan: Opening up as well
Malaysia: Reviewing NEP
Thailand: Moderating growth targets
NEW THINKING (2)
2.
Resource allocation
 Bond markets: less bank financing
 Banks liberalised
 Prices less distorted
 Interest rates freed
 Product prices closer to world prices
NEW THINKING (3)
3. Savings and consumption
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Freer banks: easy consumer credit
Trade liberalisation: prices fell
Consumption/GDP rose post-crisis
NEW THINKING (4)
4.
Corporate sector
 Restructuring: more efficient
 More policy emphasis on
 Local companies vs MNCs
 Consumer protection, competition
policy
CONCLUSION
 No single model
 Pragmatism prevailed
 Substantial re-thinking going on
BEWARE APPLYING SIMPLISTIC
MODELS TO ECONOMIES