Chapter 16
Export-Oriented Growth
in East Asia
◼ Outline
Introduction: The High-Growth Asian Economies
Population, Income, and Economic Growth
A Note on Hong Kong
General Characteristics of Growth
Shared Growth
Rapid Accumulation of Physical and Human Capital
Rapid Growth of Manufactured Exports
Stable Macroeconomic Environments
The Institutional Environment
Case Study: Worldwide Governance Indicators
Fiscal Discipline and Business-Government Relations
Case Study: Doing Business in the Export Oriented Asian Economies
Avoiding Rent Seeking
Case Study: Were East Asian Economies Open?
The Role of Industrial Policies
Targeting Specific Industries
Did Industrial Policies Work?
Case Study: HCI in Korea
The Role of Manufactured Exports
The Connections between Growth and Exports
Is Export Promotion a Good Model for Other Regions?
Case Study: Asian Trade Blocs
Is There an Asian Model of Economic Growth?
102 Gerber • International Economics, Seventh Edition
◼ Learning Objectives
After reading this chapter, students will be able to:
16.1 List four general characteristics of success in the export-oriented East Asian
economies.
16.2 Describe how the institutional environment supported economic growth.
◼ What Students Should Know after Reading Chapter 16
The high-growth economies of Asia covered in Chapter 16 stand in sharp contrast to the Latin American
economies studied in Chapter 15. Generally speaking, these economies have avoided populist policies,
have shared the benefits of growth, and had relatively open economies. The primary goal of this chapter is
to flesh out this contrast in greater detail, and in the process, provide background information about the
institutional and policy environments of the high-growth Asian economies.
The institutional environment of East Asia is an important contributor to its success. Nevertheless, the
1997 crisis eroded some of the confidence about this view. This chapter maintains that the crisis has
not undermined the validity of this view and that the rapid recovery underscores the fundamentally robust
character of most countries’ institutions. Many of the problems of East Asia were attributable to
speculative flows and to the tremendous success of these nations in attracting foreign capital. Other
Chapter 16 Export-Oriented Growth in East Asia 103
Chapter 16 ends on a note of skepticism about the idea that East Asian growth represents a new model of
economic growth. The rapid accumulation of physical capital is suggested by empirical work to be the
main contributor to economic growth in the these economies, so it appears that the keys to growth
continue to be savings and investment.
◼ Assignment Ideas
1. The high growth Asian economies are also part of regional trade agreements, particularly the
Association of Southeast Asian Nations (ASEAN). ASEAN’s website (asean.org) is in English
2. As China and the high growth Asian economies continue to grow, wage pressure has increased.
These countries, to greater and lesser extents, have specialized in labor intensive goods with
standardized production methods. As wages rise, some or all of these countries have lost some or
◼ Answers to End-of–Chapter Questions
1. Contrast the characteristics of economic growth in the high growth Asian economies with the
characteristics in Latin America.
Answer: Latin American economic growth was characterized as (1) inward oriented, (2) unequal,
and (3) macroeconomically unstable. East Asian growth appears to have been nearly the
opposite in every category, although the crisis of the late 1990s indicates that the region
104 Gerber • International Economics, Seventh Edition
2. How can passage through a demographic transition lead to higher savings and investment rates?
Answer: Passage through the demographic transition increases the ratio of those economically
3. What are the characteristics of East Asian institutional environments that contributed to rapid
economic growth?
Answer: Several characteristics were instrumental. Among the more important ones are (1) well
defined and secure property rights, (2) competent bureaucracies, (3) fiscal discipline,
(4) business government coordination through mechanisms such as deliberation councils,
4. Economists are divided over the effectiveness of East Asian industrial policies. Provide a balanced
assessment of the issues that are relevant to understanding the role of industrial policies in fostering
growth. Do you think one particular point of view is better than another? Why?
Answer: Industrial policies did not work. The targeted sectors did not grow any faster than the rest
of the economy, and the characteristics of overall growth simply reflected the changing
endowments of the high growth Asian economies. For example, as literacy and savings
Chapter 16 Export-Oriented Growth in East Asia 105
5. How might manufactured exports contribute to economic growth?
Answer: There are several likely connections between manufactured exports and growth.
Economists do not know for certain which is the most important. The connections
6. Is there a uniquely Asian model of economic growth? What are the issues, and how might we go
about answering that question?
Answer: Probably not. The best procedure to date for looking at this issue involves an examination
of total factor productivity. In the Asian case, the lion’s share of economic growth can be
attributed to capital accumulation (savings and investment) and not TFP. Looking at the