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Lecture 5

W5 Asian Crisis and the Dissatisfaction with Globalization Re.docx

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ECON 255
Ashok Kotwal

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Week 5 Reading 4 – Krugman and Obtsfeld: East Asia (Success and Crisis) The East Asian Economic Miracle − 1960: South Korea made a big change to its fiscal policy by: 1) reforming its economy, 2) shifting policy from inward-looking, import-substitution development strategy to one that emphasized exports  the first wave was joined by Hong Kong, Taiwan and Singapore − 1970s and 1980s: the 2 wave included Malaysia, Thailand, Indonesia and China − Common factors for the High-Growth Economies: 1) high rates of saving which leads to the improvement in education, 2) a more opened policy and more effort to integrate with the global market  South Korea: key aspect of growth was due to the government intervention  it promoted a more equal distribution of capital among industries  Taiwan and Singapore: reliance on MNCs  having local subsidiaries to operate there  South Korea and Hong Kong: reliance on domestic entrepreneurs  Despite the many factors, at least they can point to some factors that actually help to spur economic growth Asian Weaknesses (3) 1. Productivity: rapid growth was mainly due to the increase in production inputs i.e capital and labor but not so in productivity, meaning that East Asian didn’t really invest in their technological input  Remember Solow’s Model?  East Asian had high saving  But: “continuing high rates of capital accumulation would eventually produce diminishing returns”  so, the productivity doesn’t increase and over time the rate of growth stagnates before diminishing 2. Banking Regulation: Regulation was weak whereby the nature of business in East Asia usually doesn’t distinct between business and personal affairs i.e. family business or close friends’ businesses despi
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