1_29 lecture

Political Economy Development in East Asia

Overview of the Class

• Discussion focused on state-led development in East Asia.

• Importance of checking in and submitting assignments.

• Recognition of the "burger of the day" submissions related to class topics.

Course Announcements

• Quizzes:

  • Quiz 3 is closed; Quiz 4 will be released after class.

  • No late submissions for quizzes; two lowest grades can be dropped.

• Paper Due Dates:

  • Paper 1 assignment will be released after class, due on February 14th at 11:59 p.m.

Previous Class Recap

• Focused on differences in development and theories explaining why some countries develop while others do not.

• Reviewed existing theories:

  • Cultural Theory

  • Geographic Theory

  • Institutional Theory (from Asimoglu and Robinson)

• New theories introduced:

  • Modernization Theory (linear development and benefits like democratization)

  • Relative Backwardness Theory (unique development paths based on specific circumstances)

  • Dependency Theory (division between core and peripheral countries, hindering development in peripheral nations).

Asian Tigers and State-Led Development

Defining the Asian Tigers

• The term refers to high-performing economies in East Asia.

• Key examples include:

  • Japan

  • South Korea

  • Taiwan

  • Singapore

  • Hong Kong

• Notable economic growth especially in the 1980s and 1990s.

Historical Context of Development

• Pockets of development concentrated in Western Europe and North America.

• The Asian Tigers exhibit unusual development trajectories compared to historical expectations.

• Comparison of GDP growth rates shows Asian economies outperforming traditional developed regions like the OECD.

Characteristics of State-Led Development

• Interventionist State:

  • Strong government intervention in the economy.

  • Active roles in planning and incentivizing economic growth.

• Autonomy:

  • Civil servants focused on economic goals rather than political affiliations.

• Investment-Friendly:

  • Efforts to draw foreign and domestic investments.

Import Substituting Industrialization (ISI) in the Auto Industry

Introduction to ISI

• Strategy to develop local industries by restricting imports of finished goods.

• Aimed at building local capacity to produce domestic goods, especially automobiles.

Steps Involved in ISI

1. Restrict Imports:

   • Stop foreign cars to give domestic industries breathing space.

2. Technology Transfer:

   • Import capital goods and technology to build a domestic manufacturing base.

3. Investment in R&D:

   • Focus on research and technological advancement.

4. Protectionism:

   • Use of tariffs to protect emerging industries until they are competitive.

Implementation Example: South Korea's Auto Industry

• Restrictions on final car imports led to the emergence of local brands like Kia and Hyundai.

• Emphasis on internal production capabilities through technology and capital goods imports.

Tariffs Explained

• Tariffs serve as additional costs for importing goods, deterring foreign competition to nurture local industries.

Historical Development of South Korea

Rapid Economic Growth

• Comparison of GDP from the 1960s ($1,250) to present high levels of development.

• South Korea transformed from underdeveloped to advanced economy in approximately 70 years.

Key Factors for Growth

1. US Funding Post-Korean War:

   • Financial and technological assistance from the United States post-war.

2. Land Reform:

   • Redistribution of land to dismantle power of large landowners, enabling industrialization.

Authoritarianism and State Planning

• Government led by authoritarian figures to implement economic plans without resistance.

• Investment in education and skilled labor to support industrial growth.

Transitioning Economic Models

Shift from ISI to Export-Oriented Industrialization (EOI)

• As domestic industries became competitive, the focus shifted to exporting goods rather than just protecting local markets.

• Competition with foreign brands was essential for further growth.

Importance of Export Focus

• Need to transition from a domestically protected market to one that competes globally.

Conclusion

• Lessons from East Asia suggest that:

  • Development models need a combination of protectionism and export focus.

  • State intervention played a crucial role in creating competitive industries.

  • Authoritarian governance can sometimes facilitate rapid economic changes without public opposition.

Future Directions

• Next lectures will explore Latin America's development and contrast the outcomes seen in East Asia.