MMT17 EAC97

Questions:

Q1. What IS the East Asian Miracle? That is, how is the growth performance of East Asian Economies different from other world economies?

Answer: Eight countries in East Asia–Japan, South Korea, Taiwan, Hong Kong, Singapore, Thailand, Malaysia, and Indonesia–have become known as the “East Asian miracle” because of their economies’ dramatic growth. In 1965 to 1990, there were 23 economies of East Asia and they grew faster than all other regions in the world. There were eight that were especially important and Japan is one of them, then there are the four tigers of the Hong Kong, Republic of Korea, Singapore and Taiwan and then there are three called the NIEs that are Indonesia, Malaysia and Thailand. So these eight economies are referred to as High Performing Asian Economies. So in these eight countries real per capita GDP rose twice as fast as in any other regional grouping between 1965 and 1990. Even more inspiring is their simultaneous significant reduction in poverty and income inequality. During this period, income inequality has declined, sometimes dramatically. So these two outcomes-rapid growth and reduced inequality are also known as the East Asian economic miracle. The following characteristics make the East Asian economics different from other world economics. Due it more rapid output and productivity growth in agriculture, Higher rates of growth of manufactured exports, Earlier and steeper declines in fertility, Higher growth rates of physical capital supported by higher rates of domestic savings, Higher initial levels and growth rates of human capital and Higher rates of productivity growth. These characteristics are all related to their rapid, more equitable growth and these characteristics make East Asia economics different from other world economics.

Q2. What are the causes of the East Asian Miracle? Focus both on EXTERNAL causes, and also INTERNAL, SOFT cause, like spirit and motivation.

Following are the major causes of East Asian miracle.

Answer:

Stable macroeconomic environment: A stable macroeconomic performance distinguishes East Asian countries from many other developing countries. In major East Asian economies, the monetary policies were prudent and once they reached a high economic growth phase, they recorded fiscal surpluses.

High savings and investment rates: The ‘miracle’ countries are noted for their high savings rates. A high savings rate, accompanied by high investment, made it possible to achieve rapid economic growth.

High-quality human capital: The East Asian economies have better-educated populations than many other countries, which helped them to promote industrialization and supplied skilled manpower.

Merit-based bureaucracy: The bureaucratic systems in these countries are less susceptible to corruption than in many other regions.

Low-income inequality and decreasing poverty: The middle class in these economies grew in numbers, and absolute poverty declined rapidly.

Export promotion measures: The export promotion measures accompanied by development strategies to protect domestic markets and nurturing domestic firms resulted in producing world-class products.

Foreign direct investment and technological transfers: These countries tended to control the choice of which industries were to be promoted. They encouraged foreign firms not only to establish assembly plants but also to bring in parts production with them.

The World Bank (1993), describes the “East Asian miracle” that East Asia has been extremely successful in achieving economic growth and it became a unique region in the world which is saliently catching up with advanced countries. Many sources are available for explaining the East Asian’s growth Performance. Some of the well-known explanations on the success of East Asia’s growth are, first, the region was successful in macroeconomic management by providing environment for private investment. Second, emphasis on education, particularly primary and secondary education, which made rapid human capital accumulation possible. Third, export-promotion policies with incentives to export through subsidies and tax credits. Fourth, superior institutions in East Asia that enabled the isolation of economic decisions from other political complications. Finally, a high level of human capital and favorable income distribution.

On the other hand, the HPAEs achieved high growth by getting the basics right. Private domestic investment and rapidly growing human capital were the principal engines of growth. High levels of domestic financial savings sustained the HPAEs high investment levels. Agriculture, while declining in relative importance, experienced rapid growth and productivity improvement. Population growth rates declined more rapidly in the HPAEs than in other parts of the developing world. And some of these economies also got a head start because they had a better-educated labor force and a more effective system of public administration. In this sense there is little that is miraculous about the HPAEs' superior record of growth; it is largely due to superior accumulation of physical and human capital.

Q3. There are COMPETING NARRATIVES - some people argue that EAM demonstrates the success of the free market policies, and in particular export led growth paradigm. Others argue that the EAM shows failure of neoclassical free market paradigms, and the necessaty for government led growth. Make the best possible arguments for failure of neoclassical policies and in favor of the counter-argument, the necessity of planning and deliberate violation of free market principles.

Answer: The multilateral organizations mistakenly considered the rapid growth was the product of free markets and keep the deficit control. In reality the nations built their growth strategy, in the mix of industrialization, mercantilism and strong state imposed industrial policies. The fundamental formula of MMT is government injections plus foreign injection equals private surplus so the private saving increases and also increases the profit. This means that you are scarifying current standard of living for future. These shows the experience of WB and IMF, any country which follow IMF policies would not be successful. The crisis occur, when the capital resources shifted to china. China and India have cheaper labors they shifted from full state control to free market and the free market allocate that china had miraculous growth. They have shifted to free market but still 70% of the production is done by state and only 30% by free market .For free market government policies work well, that free market profit is the only goals that causes heavy damaged. Adherents of the neoclassical view stress the HPAEs' success in getting the basics right. They argue that the successful Asian economies have been better than others at providing a stable macroeconomic environment and a reliable legal framework to promote domestic and international competition. They also stress that the orientation of the HPAEs toward international trade and the absence of price controls and other distortionary policies have led to low relative price distortions. Investments in people, education, and health are legitimate roles for government in the neoclassical framework, and its adherents stress the importance of human capital in the HPAEs' success.

Adherents of the revisionist view have successfully shown that East Asia does not totally conform to the neoclassical model. Industrial policy and interventions in financial markets are not easily reconciled within the neoclassical framework. Some policies in economies are much more in accord with models of state-led development. Moreover, while the neoclassical model would explain growth with a standard set of relatively constant policies, the policy mixes used by East Asian economies were diverse and flexible. Revisionists argue that East Asian governments "led the market in critical ways. In contrast to the neoclassical view, which acknowledges relatively few cases of market and failure, revisionists contend that markers consistency fail to guide investment to industries that would generate the highest growth for the overall economy. In East Asia, the revisionists argue, governments remedied this by deliberately "getting the prices wrong"-altering the incentive structure-to boost industries that would not otherwise have thrived.