Transcript Summary of Endogenous Growth Theories applied to `East Asian

Summary of Endogenous Growth
Theories applied to ‘East Asian
Miracles’
1. About K
1) High Saving Rates
High saving rates lead to rapid capital
accumulation, which in turn lead to a rapid
expansion of production facilities. Still the
investment needs may exceed the domestic
savings. Then foreign investment is
important.
2) High Productivity of Capital: Low ICOR
2. About L
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Growing population
Younger population
Long hours of works
Disciplined workers
3. About Human Capital
Education and Quality of Labour
They increased the skilled labor force by
providing universal primary schooling and
better primary and secondary education.
4. High Social Capital : Harmony, Order,
and Stability
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HPAEs stabilized their economies with sound development policies that led to fast growth.
1) Equitable(Not Equal) Income Distribution:
In economics theory, it is true that the higher the income level, the smaller the average savings
ratio (savings divided by income). Thus some may think that the equitable income distribution
promote consumption, not savings.
However, it is the matter of the degree in income inequality. Most of developing countries have
extreme levels of income inequality.
The HPAE were committed to sharing the new prosperity by making income distribution more
equitable. This is important in two aspects: First, motivation al point- gross income inequality may
lead to lack of motivation on the part of labor or low income class, and to a lack of Social Capital.
The result could be a violent social unrest which hinders economic development. The example is
Philippine.
Second, their public policies promoted rapid capital accumulation by making banks more reliable
and encouraging high levels of domestic savings.
2) Harmonious Relationship between
Workers and Employers
3) Harmonious Relationship between Government and
Business
Cooperation between governments and private
enterprises was fostered.
5. About Government: Active and Effective
Economic Role of Government
1)Economic Planning
-Micro Level as well as Macro Level
- Indicative Planning as well as Fine Tuning
2) Export Oriented Economy
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• Import Substitution versus Export Promotion(Orientation)
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• Trade in manufactured exports was promoted by governmentestablished marketing institutions. Analysts disagree about the
effectiveness of such interventions, but agree that without the
foundation of macroeconomic stability and development of human
and physical capital, the expansion would not have been so
dramatic and sustainable. This report reviews the basic
development policies of HPAEs that created macroeconomic
stability. It explains why most countries should not use government
interventions in today's changing global economy.
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3) Industrial Policies
• Strategic Industry Plan
• Government traffic-controlling Resource
Allocation
• Fostering Infant Industry
4) Macroeconomic Economic Policies
• Legal and regulatory structures created a
positive business environment. Beyond the
fundamentals of accepted macroeconomic
management, HPAEs adopted policies at
variance with the notion of the "level playing
field" of open market free enterprise.
6. About a Broad Sense of Institution’
• Instead of a specific institution we may look at
the Foundation for Human Capital, Social
Captial, and Government
- “Neo-Confucianism”