W13 - Summary Flashcards
Summarise the Japanese growth experience?
Japan struggled to recover until the Korean War because of demand for Japanese products from the US military. Japan then accelerated their growth through the 50s and 60s until the 80s Plaza accord. US forced Japan to raise the value of Japanese currency making them uncompetitive. The Japanese government overreacted with excessive fiscal and monetary policy which created asset price bubbles. When this burst the economy fell into stagnation called the lost decade. Shinzo Abe’s premiership implemented the three arrow structural reforms to reinflate the Japanese economy as they were suffering with deflation. The outcomes of Abenomics are mixed, some positive some negatives. Structural issues in Japan can be put to the ageing population creating a huge burden on the economy as the younger population has to support this growing number of retirees. Huge debt constraint in Japan from high levels of debt. Japan is still very much a closed economy in terms of its demography because it has very low immigration
Summarise the South Korean growth story?
South Korea was a feudal society that tried to liberalise in the late 19th century and then the Japanese colonised it in the early 20th century. Officially called the annexation because it was sold by the King. Japanese colonial occupation lasted about 36 years, implemented basic infrastructure. This is the modernisation hypothesis of institutions introduced by the Japanese colonial government. When Japan lost WW2 and withdrew, the Korean republic began in 1948 under US military administration. After they pulled out in 1949 the Korean war broke out as the Northern communists invaded. Korea recovered through an overvalued exchange rate relying on foreign aid and import. Per capita income was very poor, economics growth took off under the military regime who took power in 1961. They normalised relationships with Japan and received significant compensation payments. Park Chung Hee invested in infrastructure and iron and steel companies to support heavy and chemical industries in Korea, this is how the miracle began in 1965. Forced Chaebol companies to invest in heavy industries for national development. In the 70s, Korea became a very export-orientated country the authoritarian government forced companies to invest but provided social insurance to encourage them to invest in key areas. Grew 11% a year until 1994-5, suffered from AFC badly because it rapidly opened it’s capital market. This was an issue because their regulatory bodies were not strong enough to do this. Many chaebols went bankrupt, focussed on tech and services and escaped the MIT. Korea has the lowest birthrate in the world, but is more open to immigration than Japan. The Korea discount makes Korean companies cheaper on international market because of the threat from the North. Labour productivity growth has slowed in the last 10 years, biggest export destination is China, China tries to weaponize its economics to challenge Korea
Summarise the Malaysian growth story?
Malaysia did well through the 80s and 90s until the AFC. Failed to nurture their domestic firms to invest in heavy and chemical industries. Malaysian companies did not establish international competitiveness partly due to too much protectionism. Malaysian government didn’t force companies to invest in risky enterprises. Government was not as competent as in SK bureaucrats. It is important to have competent bureaucrats to co-ordinate policy, identify areas to support and so on
Summarise the Vietnamese growth story?
Vietnam was closed until 1986 where is began to receive foreign capital. South Vietnam was relatively wealthy for EA economies before the Vietnam war, even today the living standards in terms of per capita income is higher in South Vietnam than the North. Very important to have market based institutions for your growth
Summarise the Chinese growth story?
China went through the dark period since the British colonisation of Hong Kong and Portuguese of Macao. Under Ching dynasty until republic of China under nationalist party government. Communist party won the civil war. China was in a dark period economically under 1970s because Mao’s experiments economically failed dramatically which led to social unrest. Deng Xiaoping got power in 1978 and reformed the economy to decentralise, market based reforms. China’s economy began to take off after this, China was able to export labour intensive exports to the US after 1980s with low tariffs thanks to GATT. MFN clause in the WTO. China’s exports then took off. Growth slowed down in China in 2000s. Xi Jinping began to focus on technologies to compete against the US. The US-China trade war began because the US sentiment was to limit China from growing further as a technological superpower. China’s problem was that it has a lot of local government debt (from local bonds to invest more). This led to overinvestment so efficiency from investment is quite low in China. These local governments are highly indebted but the central government does not want to bail them out. Too much decentralisation at local government level has led to overinvestment. The Chinese financial market is not up to Western standards making it difficult to raise capital because of government regulations. Because of protectionism, Chinese companies struggle more than they need to. China has a very high savings rate meaning their consumption is still not mature. China’s per capita income is still below 20,000 so is still an upper-middle income economy similar to Malaysia’s per capita income. To escape the middle income trap, your industry must be competitive enough to compete with developed countries such as in the US, Europe and Japan. From endogenous growth theory we know the government should invest more in business development and education. Not just about policies, need to create the institutions that are conducive to further productivity growth and innovation
Summarise the Singaporean growth story?
Singapore is a city state that aims to be an oasis in SE Asia. Kicked out of Malaysia, was a British economy. Natural harbour of Singapore under British rule was a busy port, lots of Southern Chinese people moved to Singapore and Malaysia. Singapore’s growth formula was different as well, relied on FDI. Small population meant they could not nurture their own domestic companies and took a pragmatic approach. As long as the company created growth, didn’t matter if they were domestic or not. Gave tax incentives to MNC. Singapore government directly entered this by creating utility, telephone and airlines. State owned were delegated to the most able entrepreneurial talent whether domestic or foreign. Singapore’s per capita income is more than $80,000. This is biased, median is a better measure because of the amount of billionaires living in Singapore
Summarise the Indonesian growth story?
Indonesia grew reasonably under Suharto, they were the biggest loser under the AFC of all Asian countries, currency collapsed, GDP toppled. Democracy began in Indonesia from 1999, the democracy didn’t provide good infrastructure. Look at pros and cons of dictatorship vs democracy (In the lecture slides since 1999). Crony capitalism in Indonesia under Suharto and his son created monopoly rights (rent seeking). Corruption is better to be centralised than decentralised because it creates more transaction cost if decentralised than centralised. Future of Indonesia is bright.
What is Import Substitution growth?
Replacing previously imported goods/ services with domestically produced goods or services
○ Good in theory but must choose the right things to export
How do you escape the middle income trap?
Recipe to move from a poor country to a middle income country is well known, just need a coherent government and pour in all the labour and capital inputs. When you reach MI, you now have to compete against advanced economies meaning you have to be at the technological frontier to compete, that’s why you need more efficient investment and technological investment. Demography and institutions are key in effecting TFP. Government policy is important because it provides the framework for the economy to grow
What are the weaknesses of import substitution?
Weaknesses: It might not be your comparative advantage. This is a problem because it is hard to export when you are not competitive
Why may China fall into the MIT?
Excessive, inefficient debt
Tight state control on digital economy
Strict financial regulations
Poor international relations
